Long Live China’s Boom
After three decades of 9.8% average annual GDP growth, China’s economic expansion has been slowing for 13 quarters – boosting bearish sentiment among investors. But China's latecomer advantage – which means lower relative costs for innovation and industrial upgrading – implies that its GDP can grow at 8% per year until 2023.
BEIJING – After three decades of 9.8% average annual GDP growth, China’s economic expansion has been slowing for 13 consecutive quarters – the first such extended period of deceleration since the “reform and opening up” policy was launched in 1979. Real GDP grew at an annual rate of only 7.5% in the second quarter of this year (equal to the target actually set by the Chinese government at the beginning of this year). Many indicators point to further economic deceleration, and there is a growing bearishness among investors about the outlook for China. Will China crash?
In fact, many other rapidly growing emerging economies have suffered – and worse than China – from the drop in global demand resulting from ongoing retrenchment in high-income economies since the 2008 financial crisis. For example, GDP growth in Brazil has slowed sharply, from 7.5% in 2010 to 2.7% in 2011 and to just 0.9% in 2012, while India’s growth rate slowed from 10.5% to 3.2% over the same period.
Moreover, many high-income newly industrialized economies (NIEs) with few structural problems were not spared the effects of the 2008 crisis. South Korea’s GDP growth slowed from 6.3% in 2010 to 3.7% in 2011 and to 2% in 2012; Taiwan’s fell from 10.7% to 1.3% over this period; and Singapore’s plummeted from 14.8% to 1.3%.