China's relatively slow growth

China's growth performance, good as it's been, hasn't been as good as that of other important East Asian countries (Taiwan, S. Korea, and Japan) that have taken off since WWII.

That's surprising, because China has had a lot of things going for it, for example, its "hard-working and initially cheap labour force, the ability to transfer huge numbers of workers from low productivity agriculture to higher productivity manufacturing, an accommodating external environment, political stability and a development-oriented government..."

...says Martin Wolf ("China has further to grow", Financial Times, April 12; "Why is China Growing so Slowly?", Foreign Policy, Jan/Feb 2005).   

The key to the puzzle, Wolf says, is, "inefficiency of investment." 

He points out that, among other things, the ratio of investment to additional output is high (that's bad, because "the lower [the ratio] the greater the bang for the investment buck."  China's five year moving average of this ratio is now 5; Japan, Taiwan, and S. Korea all had lower ratios.   The volume of bad loans by Chinese banks is also very high (in the Foreign Policy piece he notes that 40% of loans made by Chinese banks are bad).

"The principal explanation for the high level of losses [and I assume he means for the slow growth in general - Ben] has been the pouring of credit into the voracious maw of the state-owned enterprises..."

This is interesting:

"Still more remarkably, inward foreign direct investment was only about 4 per cent of GDP in the first half of the 1990s and 5 per cent in the second. Yet, according to two other IMF economists, FDI generated almost all of the efficiency gains. The share of foreign-owned companies in gross exports is also close to 50 per cent. Their share in the gross output of industrial enterprises rose from nothing in the early 1980s to 12 per cent in 1995 and 29 per cent in 2002."

Comments

[Cardozo Bozo]

FT is for subsribers only. Full text of that Financial Times piece here:
http://www.thelongwaveanalyst.ca/news/april13_05_catchup.htm