Thursday, January 21, 2010

China's Economy To Reach $123 Trillion? gordon chang says it's hot air

jan 16th, 2010
 
fogel is a communist nobel prize-winner in economics?
 
i guess he must be like amartya sen-rothschild.
---------- Forwarded message ----------
From: Ram Narayanan

http://www.forbes.com/2010/01/07/china-economy-robert-fogel-opinions-columnists-gordon-g-chang.html?partner=alerts  

FORBES.COM 

China's Economy To Reach $123 Trillion? 

Gordon G. Chang, 01.08.10, 12:01 AM EST 

A Nobel Prize winner seems to think so. Here's why he's wrong.
 

China will have a $123 trillion economy by 2040. By then, the country will account for 40% of the world's gross domestic product and be "superrich." The American economy, by way of contrast, will produce only 14% of global output. And Europe? The E.U. will claim just 5%. So says Robert Fogel, and he has a Nobel prize in economics to prove he knows a lot.

The famous University of Chicago professor believes analysts "fail to fully credit the forces at work behind China's recent success or understand how those trends will shape the future." Far from overestimating China's growth, Beijing is underestimating it.

Why will the Chinese economy expand so fast? There are many factors at work, Fogel says. First, China has made an "enormous" bet on education, substantially increasing school enrollments following a campaign initiated in 1998 by then-supremo Jiang Zemin. "I forecast that China will be able to increase its high school enrollment rate to the neighborhood of 100% and the college rate to about 50% over the next generation," Fogel writes, apparently channeling New York Times columnist Thomas Friedman, who also is euphoric about China's educational system.

The second underestimated factor is the now-undeveloped rural sector, which last year was home to 55% of China's people. Urbanization, which boosts economic output by three percentage points a year, is the key here.

Third, we do not fully take into account the fast-growing service sector. Small firms hide their successes from the government, and Beijing's statisticians do not capture "improvements in the quality of output."

Fourth, Fogel thinks highly of China's one-party state. "The Chinese political system is likely not what you think," he writes. There is a back-and-forth between government officials and technocrats. Fogel states: "Chinese economic planning has become much more responsive and open to new ideas than it was in the past." He cities his participation in something called the Chinese Economists Society as evidence of reformed one-party state politics.

Finally, Fogel places much hope in China's "long-repressed consumerist tendencies." Beijing, he believes, is responding to what people want: "Indeed, the government has made the judgment that increasing domestic consumption will be critical to China's economy, and a host of domestic policies now aim to increase Chinese consumers' appetite for acquisitions." 

Is Fogel's sunny view correct? First, he neglects to mention that China's educational system, despite all the money it receives, remains inappropriate for a modern society. Hu Jintao, China's leader since 2002, has been reinvigorating Marxist education and reinforcing orthodoxy. That's great, but only if you want to know what Engels or Mao thought about the value of labor or why the Communist Party must maintain a monopoly on power. Fogel should also have mentioned something about the ingrained corruption, pervasive plagiarism and creativity-stifling curricula that are the hallmarks of Chinese schooling. There's no question the county's educational system has made some progress in the last 10 years, but the surprisingly meager advance is hardly a reason to think the Chinese will dominate the global economy in a generation.

Second, Fogel is right to note that migration of labor to cities has been the engine of Chinese growth, but that process has stalled in the global economic downturn. Yes, China still has cheap labor, but not mentioned in the article are the generally accepted projections that the labor force will level off in a half decade and then shrink. Moreover, he neglects to note that wage rates will increase as China becomes more prosperous. Already, industry is moving to other counties, such as neighboring Vietnam, to take advantage of even cheaper labor. So urbanization in the next 30 years cannot continue at nearly the same pace as it has in the last 30.

Third, it's true that Beijing's National Bureau of Statistics does not fully account for the output of the fast-growing service sector. That's why its estimate of 13.0% growth for 2007 is low by about two percentage points. Then, small businesses were the most vibrant part of the economy. Today, the failure to properly assess the output of small business is resulting in an overestimation of GDP because these enterprises, which tend to be more dependent on exports, are suffering more than the larger ones. Fogel, a recognized genius, should have figured this out.

Fourth, Fogel's views of the political system are questionable. He neglects to say that Hu Jintao has presided over a seven-year crackdown and that the Communist Party tolerates less criticism today than it did two decades ago. Economic reform has stalled because China has progressed about as far as it can within its existing political framework.

Further economic reform would threaten the power of the Communist Party, so the Party will not sponsor much more change.

A true market economy, for example, requires the rule of law, which in turn requires "institutional curbs" on government. Because these two limitations on power are incompatible with the Party's ambitions to continue to dominate society, China cannot make much progress toward them, at least as long as the Communist Party is around. I don't care how many conferences Fogel gets invited to. China's economy has just about reached the limit of what is possible.

Fifth, Fogel apparently knows almost nothing about Chinese consumer spending. Historically, consumption contributed about 60% of China's economic output. Today, it accounts for about 30%--and that number is going lower. Why? Beijing's stimulus spending, about $1.1 trillion last year, is devoted almost entirely to building infrastructure and industrial capacity. As a result, the role of consumer spending is decreasing. Moreover, Beijing's export-promotion policies, like holding down the value of the renminbi, are also anti-consumer. Although Chinese leaders talk about increasing consumption, on balance they are doing their best to undermine it.

Fogel lists all of China's problems in this 2,400-word article in exactly one single sentence (although he did find room for three paragraphs on the infertility of European women).

I smell economist malpractice, and Fogel should be relieved that the Swedes don't take back Nobel prizes.

Gordon G. Chang is the author of The Coming Collapse of China. He writes a weekly column for Forbes.

To read Robert Fogel's article on China, please click:
http://www.foreignpolicy.com/articles/2010/01/04/123000000000000 

__________________________________ 

PS: (*)This update is being sent to you because we believe you welcome it. If, however, you prefer not to receive similar information updates on India, US-India relations and related security issues, please reply to this message with the word "UNSUBSCRIBE" on the subject field.



Powered By PanWebMailer Version 2.0 © 2004-2005

12 comments:

Inferno said...

Different topic:
President Obama said Wednesday that the anger that elected Brown is the same anger that elected him, and it goes back eight years. In other words, Massachusetts has elected its first Republican senator since the 1970s because it was still mad at George W. Bush. Wow.

Inferno said...

Another offtopic:

"At the BBC, where I worked for seven years, homosexuality was very nearly compulsory." !!

asd123 said...

You should stop bringing up Gordon Chang. He has already proven himself to be quite wrong. It is making you look rather jealous.

Either way undoubtedly expect India to lag (greatly) behind China as long as the pseudo-secular Democratic Republic of India continues to exist.

chitrakut said...

asd123

could you please enligthen us about how gordon chang has been proved wrong? imho he makes perfect sense.

hokiepride said...

To asd123,

Are you a Chicom agent, you seem to delight bashing India and propping up China. China is ahead of us,sure but they had a 15 year head start on us. The past 5-6 years economic performances of India-China are quite comparable. Irrational exuberance of "superpower" India is wrong but then so is this defeatist notion of "we are inferior to the Chinese" bull. Rajeev is not jealous just pointing out some flaws in the "Chinese are the masters of the universe" story.

asd123 said...

It's called reality. India has much worse problems than China, do not deny it.

Gordon Chang predicted 9 years ago that China had 5 years to get its economy in order. Well China is still around and living standards have improved dramatically for the average Chinese. Whereas in the West the home of "Democracy", "Freedom" and market fundamentalism, their domestic economies have seen great turmoil.

China did not have a 15 year head start. CCP China and India came into being at around similar times. Go look at the time between 1955 and 1970 even before Deng Xiaoping came into power, choose a year in that time period and compare how each of the two nations advanced and developed. The past 5-6 years in terms of growth, is not comparable to China by any means. Go to an average Indian city and compare it to an average Chinese city. I have never stated that Indians were inferior to Chinese. Indian democracy and the modern Republic of India is clearly an abject failure. if India is to survive it should not even think about comparing itself to China first. Look at China's allies Bangladesh and Pakistan (two nations which should not even exist). India cannot even deal with fourth rate powers, how can it be compared to China?

hokiepride said...

Gordon Chang predicted 9 years ago that China had 5 years to get its economy in order. Well China is still around and living standards have improved dramatically for the average Chinese

So? No one said Gordon Chang was 100% right. Besides, there is a lot of social unrest in China as the poor people in the North and West are not able to partake in the new prosperity

China did not have a 15 year head start. CCP China and India came into being at around similar times. Go look at the time between 1955 and 1970 even before Deng Xiaoping came into power, choose a year in that time period and compare how each of the two nations advanced and developed

China started down the path to a market economy in 1976 and India started in 1991. Therefore, a 15 year head start.

The past 5-6 years in terms of growth, is not comparable to China by any means. Go to an average Indian city and compare it to an average Chinese city.

Indian per capita income has doubled since 2003 and so has China's, so how are they not comparable? Yeah, and I guess you have been to every part of China, not just the gleaming glass facade buildings of Shanghai,huh?

India cannot even deal with fourth rate powers, how can it be compared to China?

Pakistan is a joke, surviving on the begging bowl from Uncle Sam. China has problems with Tibet and Xinjiang too. And who has China dealt with anyway also?

It's called reality. India has much worse problems than China, do not deny it.

It is called being a Chicom troll, you don't deny it,either

nizhal yoddha said...

hokiepride, i think i am convinced that asd123 is a chinese troll, or at last a JNU-type indian jaichand. his attack on BRF -- for being pro-india, not for being psec -- is another indicator.

so henceforth any and all of asd123's rabid assertions of 'china is great' will be deleted.

it's funny because i used to do this on a chinese forum before: the NYTimes had some fora, and i used to beat up on chinese mercilessly. and i knew enough about china that the blighters eventually started testing me with chinese phrases etc. that was in my young days when i had time to spare, sigh. so i can understand how a chinese or chinese-wannabe-jnu-type is doing his bit of information warfare here.

Non Carborundum said...

Gordon Chang's rebuttal seems quite opinionated and full of wishful thinking.

It's really that one factor that could work against China and that is that it's freaking everyone out and p###i\ng everyone off right now. They can forget about soft power. It's unl;ikely, but hopefully the world will economically boycott this rogue.

asd123 said...

Do you realize that san was banned from from BR recently? For criticizing Indira Gandhi at that. The site was allegedly like this before the BJP took to power.

Blind admiration for India will lead to India's destruction.






Ethnic riots and tensions are nothing new for China. They have seen such riots and protests continuously since the beginning of the PRC.

Who forced India to start development of their market economy specifically 15 years after China? Both the PRC and the ROI came into power at similar times.

Are you forgetting the great wealth disparity in India? Do you see the massive slums and huge loads of people living on the streets of India like you do in China?, no.

Are you forgetting China that defeated India in the '62 war? Pakistan is a satellite state of foreign powers and always will be, no one has any interest in breaking up pakistan unless India does so. Are you forgetting the millions of naxalites that greatly outnumber the populations of tibetans and uighurs? Let's not forget all of the terrorists acting out in India's major cities while India sits helpless.

India is clearly an absolute disaster. Look at what happened when the BJP was power, even then. Did they get the slum dwellers off of the streets?, no. Did they correct any long-term problems in India such as terrorism or the islamic birth rate?, no. All they did was shameless politicking in the same fashion that the republicans do in the US. Democracy does not work for India, period. This is why India has been an utter disaster post-WW2.

A real "chinese troll" would promote the current ROI to no end. This way they would be able to keep India down and keep Indians deluded in their failure of a government, while Indians would continue ignoring the real social situation in day to day life, only to be concerned with bollywood movies.

A real traitor or delusional ROI supporter would respect the current government, as it is what India's enemies would like. Remember the foreign affair's article a few weeks back, the current world power structure does not want India to succeed and it never will as long as the current republic of India along with its corrupt government continues to exist.

I have never stated that China does not have any problems, but does that make India better off? No relatively India is worse off.

Inferno said...

@NY,
If you ask me, some dissent is actually good for this blog. After all, these are just comments.
There are a lot of opposing views on other blogs like Kanchan Gupta's. We don't want all yes men here.

hokiepride said...

Who forced India to start development of their market economy specifically 15 years after China? Both the PRC and the ROI came into power at similar times.

No one, to which I give PRC credit for. But to bash India saying that the past 10 years of development is nowhere near China, when both per capita incomes have doubled is just being overly pessimistic

Are you forgetting the great wealth disparity in India? Do you see the massive slums and huge loads of people living on the streets of India like you do in China?, no.

That is because the poor people have been forcibly uprooted off their lands to make way for development. Riots occur in China regularly due to this. Imagine Nandigram 10,000 times over. Gini coefficient is worse in China that in India.

Are you forgetting China that defeated India in the '62 war?

So what?,a small state like Vietnam defeated China in 1979. Going by that argument China is third rate power too.

A real PRC troll also would criticize India endlessly while pretending to be a patriot. I have seen trolls like these on BR and TOI.

My point is if you think India is an "absolute disaster", then China cannot be a great power given that economically China is better but not that much better.