Will China’s rapid rise continue?

Just this week Ben Christopher has blogged that China poised to pass US as world’s biggest economy. It’s an interesting question of measurement, and there’s a long running debate about When will China ‘overtake’ America?It will be many years yet before China really catches up on a per capita basis, of course. Rather depressingly, I have been wondering if the great catch-up is slowing down. From around 2000 to 2008 poor countries made galloping progress, but they seem to have hit headwinds. Will China also suffer this fate?

The Economist has pointed out that around 7% is China’s “new normal” of slower growth. That is well below the roughly 10% pace China had averaged from 1980 until two years ago. Yet the worry is that Chinese growth is likely to be lower still in future. Forecasters often extrapolate from recent growth rates, according to one research paper. Yet in reality, the picture from past patterns of growth around the world is that economies suffer from “regression to the mean”: growth rates in countries that have been growing fast tend to drop, often sharply, toward the long-run global average (of about 2% growth per year in real GDP per person).

Given this tendency, China’s long spell of breakneck growth—of more than 6% a year since 1977—already stands out. Researchers say it is the longest such spell “quite possibly in the history of mankind, but certainly in the data”. In almost every other remotely comparable episode, very fast growth ended in a sharp slowdown, with a median drop in the growth rate of 4.7 percentage points.

This poses a great thought experiment: you might ask 'what it is that will slow China’s growth', but perhaps you should be asking 'why should China continue to defy history'. Slowdowns often occur despite seemingly sound prospects: both Brazil in 1980 and Japan in 1991 looked like juggernauts, yet they managed scarcely any growth at all in real GDP per person over the following 20 years.