Gavyn Davies has a long analysis of the sustainable speed of China's economic growth on his Financial Times blog. Below is the comment I wrote on it - the comment is rather self-contained so can be read as a stand alone. Normally, of course, I would like to reproduce both sides of the argument but I cannot do so without infringing the Financial Times copyright. Readers are therefore, of course, encouraged also to read Gavyn Davies own analysis which can be found here.
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Rather than taking 3rd party projections, which do not control China's economic policy, the starting point needs to be China's own stated goal. As set out in the latest 5 year economic programme this is to double GDP between 2010 and 2020 - average growth 7.2%.
So far since 2010 each year growth has exceeded this target. On the official target, total GDP growth 2010-2014 should be 32.1%. If a probably excessively conservative 7.3% growth in 2014 is assumed then actual growth 2010-2014 will be 36.1% - significantly above target. This means 6.7% average annual growth would have to be maintained until the end of the decade. If I were in the habit of making bets I would place a very significant sum of money on the fact China's target will be met, rather than the deceleration to 3.9% endorsed by Larry Summers, the Conference Board or 'bought' by George Magnus, to use his own phrase on a recent Twitter discussion (or the 3-4% projected by Michael Pettis).
One of the good things about this discussion, however, is that numbers are now used by serious participants instead of vague talk of 'slowdown' - if China's growth is 0.5% or 7.0% this is 'slowdown' but evidently the real meaning of the two numbers would be totally different.
I have set out at the fundamental factors which permit China to maintain such high growth rates in 'China's Economic Growth in the Light of the Findings of Modern Western Economic Research' which can be found here.
My own view is that China at present is making some policy mistakes which are knocking a bit, probably 0.5% - 1.0%, off the actual growth rate it could achieve. This would not be the first time such mistakes have been made, and in other periods its targets have been exceeded - naturally the targets are averages. But the present situation merely means China is coming down closer to its official growth rate rather than substantially exceeding it.
There is no indication China will not make its own target and every indication Larry Summers, the Conference Board and George Magnus will be wrong - although I much respect the fact they are engaging in serious projections which can be empirically tested, as opposed to meaningless rhetoric sometimes used in discussion on China.
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