China’s growth in total national production
in recent years has been an amazing accomplishment,
and millions of people are much richer
because of it. However, economic growth
of seven or eight percent per year is not
going to continue. For a poor country there
are many opportunities for infrastructure
investment that will significantly increase
economic production. China has been
successful in completing many of these
investments. Future investment
opportunities will be valuable but they
will not add as much to production. That
is a well-understood feature of economies,
that was written about by John Maynard Keynes
and others. Think of the “low-hanging
fruit” principle. By picking the easily-accessible
low-hanging fruit first you can rapidly fill
up a basket of fruit, but once those have
been picked it will take more effort to get
to the remaining fruit and the speed at
which the fruit can be picked will
be slower.
China also knows it needs to redirect
more of its production away from infrastructure
investment and more toward producing consumer
products. This will be necessary to
raise the standard of living of the people,
and it will also mean the measured rate
of GDP growth will be less. Countries
that have industrialized for a long time,
such as the United States and the European
countries, typically find that three percent
is a good annual growth rate for GDP.
How all of this will work out for China’s
economy remains to be seen. Many
people have come to depend on China’s
rapid economic growth and will have to
adjust to a different economy when this
slows down.
……………..
–Douglas Downing
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