Just as people in an earthquake zone wonder if every tremor is “the big one”, each time China’s economy wobbles, analysts debate whether it is the start of the historical downturn everyone seems to believe is inevitable after more than three decades of swift expansion.
Last week, data from the National Bureau of Statistics showed China’s economy had expanded at its slowest pace since the global financial crisis, up 7.3 per cent from a year ago in the third quarter, compared with 7.5 per cent in the second quarter and 7.4 per cent in the first quarter of this year.
So is this the start of the big downturn? The OECD reckons China will still notch up an average rate of 6.6 per cent between 2010 and 2030 but others are sceptical.
Former US treasury secretary Larry Summers and Harvard University professor Lant Pritchett wrote in a paper published before the GDP figures were announced that China's astonishing 36 years of super- rapid growth was coming to an end. An abrupt end, too.
Regression to the mean
“Our guess is that growth will slow, substantially . . . Why will growth slow? Mainly because that is what rapid growth does,” they wrote in a research paper published by the
National Bureau of Economic Research
Asiaphoria Meets Regression to the Mean
China is the first country in history to record growth rates of more than 6 per cent a year for more than 30 years. Singapore grew at 4.2 per cent for 30 years, while Indonesia notched up 4.7 per cent growth for 29 years.
They believe China's economy will grow an average of only 3.9 per cent a year for the next two decades and could face an even more pronounced slowdown if reforms reduce the power of the Communist Party.
If China is forced to dismantle the predictable crony system of the state-owned enterprises, the less predictable free market could cause major problems for the world’s second-biggest economy.
Rumours of the death of Chinese economic growth have failed to be anything more than that, and other commentators have been quick to point out that Summers has been wrong before – backing Enron, and espousing massive deregulation that created a framework for the financial crisis in 2008.
Premier Li Keqiang has often repeated that he believes that China needs stamina, rather than speed, if the economy is to grow in a sustainable way. He and other Chinese officials have sought to wean observers away from the growth targets on to more realistic rates of expansion that he believes will help foster economic growth.
These rates need to be still very high. Most countries tend to settle down to about 2 per cent growth a year, but Li says t China needs at least 7.2 per cent growth to create some 10 million jobs annually for its population. Which doesn’t give much wiggle room from current rates of expansion.