Commentary: No more 10% growth for China but is 6% so bad?

BEIJING: There has always been a fixation on Chinese economic growth. And with good reason. For a large economy, sustaining annual growth rates of 10 per cent over several decades is unprecedented. And yet that’s exactly what China did from 1980 to 2011.

With China having hit that income threshold in 2017, according to International Monetary Fund estimates, its post-2011 slowdown looks all the more ominous. First, a middle-income trap may not even exist. That is the conclusion of Lant Pritchett and Lawrence Summers’s rigorous empirical study covering a broad cross section of 125 economies from 1950 to 2010. The best they could come up with is a strong tendency for growth discontinuities and mean reversion.

Since early research on the middle-income trap was published in 2012, the world economy has grown by about 25 per cent – presumably boosting the moving target of a middle-income threshold by a comparable magnitude over that period. Given that China will hit about 30 per cent of America’s per capita GDP in 2019, it must be time to worry.Third, not all growth slowdowns are alike. A country’s GDP is a broad aggregation of a multiplicity of activities across sectors, businesses, and products. Structural shifts from one sector to another can give the appearance of a growth discontinuity that may be nothing more than the outcome of a deliberate rebalancing strategy.

Notwithstanding the temporary effects of periodic exogenous disturbances – such as deleveraging, global slowdowns, or even trade wars – catching up to the frontier and joining others pushing to move beyond it is the ultimate reward of economic development. That goal is enshrined in President Xi Jinping’s aspiration for China to achieve high-income status by 2050.Lastly, productivity growth is far more important than GDP growth in determining a country’s development prospects.

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