Economists discuss lower bound for China’s long-term economic growth

The lower bounds for the growth of the Chinese economy under the current patterns of economic growth will equalize the dynamics of the GDP of China and the United States by 2043, and in the future, the limit of China’s per capita GDP in the long term will be about 44% of the US. These are the results of a study by American and Chinese economists suggesting that the “Chinese economic miracle” is extremely similar to the growth of the “Asian tigers” in 1990-2000 and has the same limitations.

A preprint of work by Jesus Fernandez Villaverde of the University of Pennsylvania, Li Oganian of UCLA, and Wen Yao of Tsinghua University in Beijing has been published in the NBER association series. Technically, this is a simulation of the long-term growth of a number of countries, including the PRC and the countries of Southeast Asia, by the “minimalistic” Remsey Kass-Koopmans models based on the analysis of productivity factors. Essentially, the question that the American-Chinese work answers is the determination of the lower limit of the possible growth of the PRC economy while maintaining current growth patterns and with the current dynamics of institutional changes. In other words, this is, to some extent, a pessimistic version of the forecast “without shocks and changes”: models of this kind suggest that over the forecast horizon in countries with a similar managerial, social and political culture, the contribution of new technologies in all areas to GDP does not fundamentally change ( like their competitors), growth patterns are the same for all economies “similar” in terms of these parameters, the trajectories of long-term growth, when such hypotheses are accepted, should be similar or at least obey common patterns.

The main conclusions of Villaverde, Ohanian and Wen in the work – although the “Chinese economic miracle” in a political sense is indeed unusual, in comparison with other growing and growing economies of the same type in Southeast Asia, this is a very typical “Asian tiger”, different from others ( Taiwan, South Korea, Hong Kong, Singapore) only by the size and speed of development of economic processes (it is somewhat less than that of their colleagues). Based on this, during 2020–2043 (the initial data of the models are up to 2019), the dynamics of China’s GDP “ceteris paribus” will decline, and in 2043 the development of the US economy, growing according to other models, presumably will make GDP growth in the United States States is consistently higher than China. Further dynamics will be unstable, however, there is reason to believe that GDP per capita in the PRC in the next half century will amount to a maximum of 44% of that in the United States – this is no longer a lower, but an upper level. The main contributor to this growth slowdown in the PRC will be the declining returns on new investment, increased global competition, and an additional contributor to the expected population decline in the PRC. Technological growth in the PRC, imports and other types of technology transfer are, of course, taken into account in the work, but based on the theory, their contribution to GDP dynamics decreases significantly with continued growth.

Calculations of this kind are often used in political struggle. But this work is of little use for these purposes: it rather speaks of the possibility and prospects for continuing the strategy of China’s “catch-up” development over the next 10-15 years and its (almost) guaranteed result. It should be noted that the main weakness of such works is the impossibility of taking into account the changing roles in the global division of labor, which, of course, practically do not change on the horizon of 10–15 years, while on the horizon of 30–40 years for a growing economy they almost inevitably change.

Dmitry Butrin