Facebook Blogging

Edward Hugh has a lively and enjoyable Facebook community where he publishes frequent breaking news economics links and short updates. If you would like to receive these updates on a regular basis and join the debate please invite Edward as a friend by clicking the Facebook link at the top of the right sidebar.

Saturday, September 20, 2003

China the Superpower?

Another in my Beta 1.0 release series. Anand from Hyderbad is preparing a presentation on the rise of China as a superpower. I put together these notes for him which are probably a hint towards a work in progress.

The importance of demography, and the demographic transition. This is a question in China of an enormous surplus rural population which feeds the rapid growth. The important point is the 'window of opportunity' between having too much population and the 'low birth rate economies' of the western world. I have attached an important article on this point from the Harvard economic historian Jeffrey Williamson.

All three superpowers UK, US, and China have used excess population to obtain growth (India naturally can do the same). The UK used free trade and empire to support an extra population in comparison with its main European rivals - the comparison between the UK case, and it's 'hero model' classical Athens is indeed striking, even down to the importance of naval power. The US was built on the systematic introduction of Europe's surplus population, now China is moving from the interior to the coast. The effect is always and everywhere the same, you change the slope of the labour supply curve and, at the same time, move it outwards, this is profoundly favourable to growth. Then you also have a growing internal market to provide positive feedback. This is the weakness of the 'Asian model', there is insufficient internal demand. Is this rejection of consumerism cultural?

Then you need capital. Again the most important factor in the UK and then the US was the development of capital markets - to 'feed the machine'. Initially this is not possible simply on accumulated internal saving, so you need international capital markets, or empire. The important change in China comes in the last ten years, and this is above all associated with an introduction of foreign investment. So the opening of China to international capital markets is, and will continue to be important.

In order to obtain this capital you need institutions domestically which inspire confidence, hence you need political reform. A great deal of silly nonsense is spoken these days about reform. Reform in the ageing European societies is extremely complicated, and some of the benefits are not always obvious. In young, vibrant societies like China and India reform is essential to break the inbuilt influence of the traditional groups and to let the new ideas take hold.

All in all, in the time period you have suggested, I would place most emphasis on the 1990's to date. I would stress that China is going to be the world's manufacturing hub. That this is not just low end shoes, toys, and clothes, but will reach to the very heart of the general purpose technology revolution. It will also involve 'mass engineering' in the product design area. I would stress that this is both good and bad. It is good because it will shake up the existing world order in a fundamental way. But it will also present problems for many developing countries in Africa and Latin America.

For India, the lesson is clear. China will be the manufacturing hub, and India can be the services one. One last word of advice. Check out some of the material about India and China before 1800. It is important to emphasise that a gap which opened over only 200 years can now be closed in only 20 or 30.

No comments: