Today Singapore and Japan, Tomorrow China

It has suddenly become fashionable to be concerned about China's growth rate slowing down. This is not a matter of a short-run cyclical downturn, with normal service being resumed shortly as the economy roars ahead once more. It is a worry that there will be a permanent slowdown by the end of this decade. Instead of annual growth rates around 10 per cent and even more, the Chinese economy will settle down to the much more sedate rates seen in the West in the 1950s and 1960s in the range 3 to 5 per cent.

The source of the problem, it is argued, is that the workers are getting a bit uppity. Certainly, the Chinese authorities have held down increases in the living standards of the average person. The economy as a whole has grown faster, with the surplus being ploughed back into capital investment projects.

A couple of years ago I was in Shanghai in August. It was 35 degrees even at nine in the evening. Watching a group of middle aged women perform Pilates in the street to the sounds of an old ghetto blaster, I could not help but feel: it will not be very long before they demand an air-conditioned gym and cutting edge music. More seriously, 'internal security' is a major headache for the Communist Party. There are frequent demos and riots demanding more.

We have been here before. This is how the UK industrialised. In the first half of the 19^th century, the share of wages in national income was much lower than it is now. As with China in recent decades, profits were high. This is how almost all rich countries started on the path of development. Marx even coined a phrase for it. The 'primitive accumulation of capital'.

Paul Krugman was not always the darling of the metropolitan liberal elite. In 1994, he published a brilliant paper in which he wrote of his 'faith in free markets'. The title was 'The Myth of Asia's Miracle'. Twenty years ago, the West feared economies like Japan and Singapore, which were apparently poised to take over the technological leadership of the world. Their growth rates had been spectacular.

Krugman essentially rediscovered Marx and showed that their success was effectively based on letting profits and investment boom. He concluded 'If there is a secret to Asian growth, it is simply deferred gratification, the willingness to sacrifice current satisfaction for future gain'. Intriguingly, given the current advocacy of increasing government debt, Krugman went on: 'That's a hard answer to accept, especially for those American policy intellectuals who recoil from the dreary task of reducing deficits and raising the national savings rate'.

But the slowdown in Asian growth rates was not at all bad news. Rapidly rising living standards created export markets for consumer products. In China – and everywhere else - people now demand services, the sorts of things in which the US and the UK excel. The process of China growing up is a massive opportunity, not a problem.