Doubts are growing about whether China can pass the US to become the world’s biggest economy this century amid warnings that the country’s 30-year miracle is nearing exhaustion.
The world’s tallest tower should have been built by now. Officials said last year that the great edifice with 220 floors would be erected in three months flat in China’s inland city of Changsha by March, snatching the crown from Dubai’s Burj Khalifa.
The deadline has come and gone, yet the wasteland sits untouched. It now looks as if the fin d’époque project – using prefab blocs – may never be approved. Even China knows its limits.
Prime minister Li Keqiang has asked the State Council to clamp down on the excesses of the regions. Not before time. A top regulator says local government finances are “out of control”.
Mr Li aims to cut China’s economic growth to a safe speed limit of 7pc next year and rein in rampant investment – still a world record 49pc of GDP – before it traps the country in a boom-bust dynamic of frightening scale.
Vested interests are conspiring to stop him, launching a counter-attack from their power-base in the $6 trillion state industries. Even so, uber-growth is surely over.
China’s catch-up spurt has a few more years to run in the Western hinterlands perhaps, but when the full story comes out we may find that nationwide growth has already fallen below 7pc.
Mr Li complained in a US diplomatic cable released on WikiLeaks that Chinese GDP statistics are “man-made”, confiding to a US diplomat that he tracked electricity use, rail cargo, and bank loans to gauge growth. For a while, analysts use electricity data as a proxy for GDP but the commissars kept a step ahead by ordering power utilities to fiddle the figures.
The National Bureau of Statistics has since revealed that data collected by the regions overstates GDP by 10pc, though they have not acted on the insight. It is well-known why this goes on. The reward system of the Communist hierarchy has been geared to talking up growth, and officials gain kudos by lowering the stated “energy intensity” of their zone.
China’s Development Research Council (DRC) expects growth to drop to 6pc by 2020. It could be much lower. The US Conference Board says it will average 3.7pc from 2019-2025 as the ageing crisis hits. Michael Pettis from Beijing University thinks it is likely to slow to 3pc to 4pc over the next decade, deeming this entirely desirable if it comes from taming the runaway state enterprises.
If so, China’s growth may not be much higher than the new consensus estimate of 3pc for a reborn America, powered by its energy boom and the revival of the chemical, steel, glass, and paper industries.
All those charts showing China’s economy surging past the US by 2030, or 2025, or even 2017, will look very credulous. China may not surpass the US this century.
As of last year US GDP was roughly $15.7 trillion, compared to $8 trillion for China on a nominal exchange rate basis, the measure that matters for gauging economic power.
China’s output is 75pc of US levels on a purchasing power parity (PPP) basis but even on this measure the Chinese `sorpasso’ is looking less certain. Clyde Prestowitz, an arch US `declinist’ who has just thrown in the towel, says China may “never” catch the US on any relevant measure. That is a stretch, but not impossible on a forecastable horizon.
“Keep in mind the next time you are in China and find yourself choking on the foul air that the things making the air foul are counted as positives for GDP. If you adjust Chinese GDP for environmental degradation and for over-investment in things that will never be used, it falls in size by 30-50 per cent. Much of this would show up as non-performing loans in most economies but since such loans are never recognised in China, it will show up as slower growth in future years,” he said.
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