SEOUL – China’s economic performance over the last few decades has been outstanding. Despite possessing very different institutions than those seen in the advanced economies, no doubt a result of its communist system, China managed to achieve 8.7% average annual per capita GDP growth from 1980 to 2015. The key has been its unique strategy of “crossing the river by feeling the stones,” whereby it has gradually tested, implemented, and adjusted reforms and growth-enhancing policies.
But, while China’s economic development has been exceptional in many ways, its growth performance is not unique. Both Japan and South Korea also transformed their economies through rapid industrialization and export-oriented policies, backed by strong investment, before experiencing slowdowns. If China is to manage its current challenges – in particular, sharply decelerating growth – it should look to these countries’ experience for guidance.
All three countries have followed a similar path, but at a different time. Based on per capita GDP, China is more than 40 years behind Japan and about 20 years behind South Korea. Specifically, Japan’s annual per capita GDP growth averaged 8.6% in the 1960s, before plummeting to 3-4% in the 1970s and 1980s. South Korea’s GDP growth dropped from 7-8% in the 1970s and 1980s to 4% in the 2000s. China’s three-decade-long run of double-digit growth came to an end in 2010, with the annual rate now below 7%. In each case, the decline in growth came when per capita income reached about $8,000.