Mighty Things

For the Connected World

Is The Clock Ticking For China?

Consensus forecasts for the global economy over the mid and long term predict the world’s economic gravity will substantially shift towards China and India. While such forecasts may pan out, former US Treasury Secretary Larry Summers and Harvard University professor Lant Pritchett believe that China and India may grow less rapidly that is currently anticipated.

In a new National Bureau of Economic Research paper, they argue that even the more cautious economic forecasts for China are overestimating the country’s growth prospects. Their calculations, using global historical trends, suggest China will grow an average of only 3.9% a year for the next two decades.

First, history teaches that episodes of super-rapid growth are rarely persistent. Second, statistical analysis of growth reveals that when periods of rapid growth end in developing countries, reversals tend to be dramatic. Third, they argue that China’s high levels of state control and corruption along with high measures of authoritarian rule increase the likelihood of an even sharper slowdown.

This isn’t necessarily a widely opinion. China’s growth record in the past 35 years has been remarkable and it’s certainly possible China will defy historical trends. Still, Summer and Pritchett’s analysis suggests that forecasters looking at China would do well to contemplate a much wider range of outcomes than are currently considered.

 

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