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Why China's Growth Model Makes Sense

In How The City Moved To Mr Sun (2012) Michiel Hulshof and Daan Roggeveen give a fascinating account of the emergence of China’s super cities. Over the past ten years the share of city dwellers in China rose from 39 to 53% of the population. That is, 180 million Chinese abandoned the countryside to start a new life in the city. By 2035 almost 70% of China’s population will be urbanized, according to the United Nations, the largest migration in human history. Investors have not waited for the arrival of the masses, but have started building cities in advance. As a result, the world’s most populated nation is home to quite a few ghost towns: endless rows of vacant buildings in anticipation of new residents.

China’s export- and investment-based growth model has met a lot of criticism, and even outright derision, in the West. The comparison with India, a country with almost as many inhabitants, raises the question whether the criticism is justified. India has done exactly what western economists believe is needed for sustained economic growth, that is make an early transition from exports and investment to domestic consumption. But while growth in China over the past five years fell by a third (from 12 to 8%), growth in India was cut by half (from 10 to 5%). India’s economic slowdown is all the more remarkable as India’s per capita GDP, calculated on a purchasing power basis, is still 60% lower than China’s, and so are labor costs.