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1:56PM

Chart of the Day: China's capital stock compared

From the Economist, with arguments not exactly settled by the comparison.

Reality/fear is that too much of China's growth is via capital investment. Compared to other economies, that part seems undeniable.  But like with India, we're talking continental-sized economies where hundreds of millions of rural poor are still left behind, so investment is clearly in order for a very long time.

The per capita comparison, however, shows how China remains a poor country by modern standards.

Another interesting tidbit:

China's rising investment and falling consumption as a share of GDP are commonly portrayed as an economic anomaly. Yet this pattern is normal in a rapidly industrializing country. In a traditional agricultural economy farmers consume most of their income, but once industrialisation gets under way a rising share of national income goes to owners of capital, who invest it in factories and the like. Investment rises as a share of GDP, and consumption falls. During their peak periods of industrialisation, South Korea and Japan saw an even sharper rise in investment relative to GDP than China has seen over the past 20 years.

You can call this the glass-half-full argument on China's long-term growth, and it's just as true or no more false than the half-empty variant:  coastal China must shift from extensive to intensive growth, and there the labor crunch and demographic aging will force evolutions very similar to a developed economy.  But interior China is another whole economy ready to take off - again - like China Coastal has for 2-3 decades. Of course, not being coastal will make this a far harder task in terms of attracting FDI and the manufacturing it enables.

But that just speaks to a certain economic slowdown that is inevitable.  We have a strong West Germany economy (Coastal China) being forced to bring along/accommodate/prioritize somewhat an East Germany (interior China).  Coastal China/Beijing will do this for political stability reasons, but slow down the overall economy it will - even as it assured plenty of long-term growth and development (all that urbanization, for example).

Ah, the complexity of modern China.

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