Tue, Aug 21, 2007 page9

• A Chinese century? Perhaps it's the next one

  Despite its impressive economic statistics and analysts' claims, China is unlikely to surpass the US in GDP anytime soon

  • By Lester Thurow / NY TIMES NEWS SERVICE
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  China claims that its economy is growing at 10 percent to 11 percent a year, and China's official analysts say that their nation will catch up with the US long before the 22nd century arrives.

  Don't believe it.

  First, let's deal with the implausibility of the official Chinese statistics. Mathematically, if the overall economy were to grow 10 percent annually, and the 70 percent of the economy that is based in rural areas was not growing (as stated by the Chinese government), the economy in China's cities would have to be growing by 33 percent a year.

  

  ?

  The urban economy is growing rapidly, but not at a 33 percent pace.

  Furthermore, Chinese statistics conflict with those of Hong Kong. In 2001, Hong Kong had a recession, which is to say that it reported that its GDP fell.

  Guangdong Province has a population of around 200 million. In 2001, it reported that its GDP grew by 10 percent. What are the chances that both of those numbers are correct? Very slim.

  Economic growth rates can be inferred from electricity consumption. In every country in the world, electricity use has generally grown faster than the GDP. Electricity is necessary for nearly all productive activities, and because of inefficiencies, consumption of electricity has generally outstripped economic growth.

  Rising energy costs have resulted in more efficient use of electricity, but especially in the developing world, economic growth has still generally lagged growth in electricity.

  But if China's official numbers are to be believed, there are provinces in China where the GDP has been growing faster than energy use.

  That is unlikely, since the central government's statistics also say that energy use per unit of GDP is going up -- not down, as claimed in provincial GDP statistics.

  Among the world's 12 most rapidly growing economies over the last 10 years, the GDP has grown only 45 percent as fast as electricity consumption. In the early 1970s, Japan was shutting down its electricity-guzzling aluminum industry.

  During this period, the GDP grew 60 percent as fast as electricity consumption, the highest recorded level among industrialized nations.

  Using those numbers as a guide, if we consider China's actual electrical use, which is relatively easy to measure, and do a little math, we come up with this estimate: The GDP in China has been growing somewhere between 4.5 percent (using the average for a rapidly growing country) to 6 percent a year (using the highest rate for Japan), not at the 10 percent rate claimed in official statistics.

  The official statistic for China's overall growth rate is best regarded as an approximate growth rate of the economy of its cities.

  China also officially claims that it will catch up with the US and become the world's largest economy well before the 22nd century arrives. There is an equally simple reason that neither of these predictions is likely to be realized.

  It simply takes more than 100 years for a large, less economically developed country to catch up with the world leader in per capita income.

  One need look only at the history of the US, which had a much higher growth rate than Britain in the 19th century, yet did not catch up until World War I.

  Or consider Japan and the US. Some 150 years after Japan started to modernize during the Meiji restoration, the country's per capita GDP is still only 80 percent of that of the US in terms of purchasing power parity -- although, in nominal terms, it has caught up.

  The US is not standing still. In fact, its per capita income grew faster than nearly all other big countries from 1990 to this year. Europe's per capita income fell from 85 percent of that of the US in 1990 to 66 percent this year, IMF statistics show.

  So let's say that the inflation-adjusted growth rate for China is 4 percent a year. This is optimistic, because China will certainly have some bad years in the next century. Every country does -- remember the Great Depression in the US. A 4 percent rate is faster than any big country has ever grown for 100 years. But assume that China can do it. Assume, too, that the US grows at the 3 percent rate it has averaged for the last 15 years.

  Now project the two growth rates forward: the inflation-adjusted per-capita GDP of China would be less than US$40,000 in 2100, versus almost US$650,000 in the US. That's because China starts at US$1,000 per capita and the US at US$43,000.

  If, in 2100, China has four times as many people as the US, as it does now, China would still not have a total GDP equal to that of the US.

  But it is unlikely to have four times as many people. It is always a mistake to project population growth rates for a century, but let's do it anyway: With a one-child policy and a sex ratio that favors boys (many men won't find wives) -- China should experience a decline in population in the 21st century.

  Yet let's assume for a moment that China's population remains constant, at 1.3 billion. If immigration to the US continued at the current rate, the US population would rise. If the population grew at 1 percent a year, as it has recently, it would more than double by 2100, reducing the enormous population gap between the two countries.

  Are these projections likely to be realized? Who knows?

  What is clear is that China is unlikely to surpass the US in GDP in absolute or relative terms anytime soon.

  There may be a Chinese century, but it will be the 22nd century -- not the 21st.

  Lester Thurow is a professor of management and economics at the Massachusetts Institute of Technology. He is also on the board of directors of Taiwan Semiconductor Manufacturing Corp.
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