The following is an expanded summary of Akita University Professor Gregory Clark’s remarks at the recent ACCJ meeting called “Is There A ‘Lost Decade’ In China’s Future” that took place on February 8, 2010 in Tokyo, Japan.
Illustration by Phil Couzens
First, a few personal facts. My involvement with China goes back to the early ‘60s as a diplomat in Hong Kong where I was learning Mandarin.
For a while I served as the China desk officer in Canberra’s foreign affairs ministry. Then, during Cultural Revolution days, I finally got to travel to China by organizing an Australian ping-pong team (over Canberra’s opposition).
Since then I have visited China many times on both reporting and university business. And while my conclusion is not quite as colorful as the famous Newsweek description of Japan during the heady ‘80s—an economic juggernaut out of control—I have to admit to fairly strong optimism about China’s economic, and to some extent political, future.
Let’s begin with the obvious: The economic progress we are seeing in China today is almost a carbon copy of the dynamism we saw in Japan’s high-growth economy of the sixties and early seventies. And for the same reasons. Take a large, reasonably well-educated population keen to have the basic essentials of life—TVs, refrigerators, housing, transport equipment—combine that with a high savings rate, some foreign investment, access to technology plus competent entrepreneurs and bureaucrats, and rapid progress is inevitable.
Nor was it just in Japan. We saw the same growth pattern in South Korea and Taiwan, then in non-Sinitic Asia, Malaysia, Thailand and now even Indonesia.
With Japan there was also the further advantage of a large domestic market. Hence the 7 to 8 percent growth rates running right through to the 1973 oil shock. In terms of domestic market size China today is even better favored than Japan was, which is why we see those nine to 10 percent annual growth rates.
Some fret over claimed regional disparities, saying growth is concentrated in coastal areas. Clearly they have not visited Wuhan, Chungking or Chengdu lately. Others warn darkly of over-heating, but Japan, too, had its frequent mini-booms which, until the late ‘80s were, as in China, quickly cooled down by intelligent Keynesian policies.
A more valid criticism is the urban-rural gap. The trickle-down effect is gradually spreading from the main cities—to a radius of almost 200 kilometers by my count. But this still leaves a large area to be covered. And, given the lack of a safety net, when the Chinese are poor they are really poor.
But a poverty gap does not mean an end to economic progress. It simply means the glass is half full. Open a packet for say the “Made in China” gadgets on sale at your local home depot. Check out the details: A maze of metal nuts and bolts, complex pieces of plastic and other materials needed for assembly, the instructions in Japanese, even the wrapping paper and the sticky tape holding it all together. Most of this had to be supplied by someone outside the gadget factory. Then think of all the other things needed to get that packet to you—a financial system, sales agents, skilled labor, repair shops, communications, transport links, harbors with good facilities and so on.
All this adds up to what I call “the industrial base.” Without it, no economy can move (a major reason why all the money, training and technological aid poured into Africa produces little result).
On top of all this is what I call “the snowball effect.” In today’s world there are only two factors that decide relative profitability—cost of labor and cost of factors provided by the industrial base.
With each investment the industrial base improves. With each industrial base improvement more investments are attracted. Before long China will probably have an industrial base equal to any in the world. Combined with an undervalued currency—the other key factor deciding international competitiveness—China really could become a juggernaut out of control.
And, as with Japan in the ‘80s, the only problems that could slow things down are rapid upvaluation of the currency due to excessive export orientation and rising labor costs (Japan suffered a further blow—bad economic policies since the late ‘80s).
Pages: 1 2
