“The China Debate Continues”

From the WSJ, a piece about two economists squaring off on China’s future:

Arvind Subramanian, an economist at the Peterson Institute for International Economics, argues in a new book, “Eclipse: Living in the Shadow of China’s Dominance,” that China is bound to become the world’s number one economy even if it’s growth rate slows substantially. That’s because China is still likely to grow faster than the U.S. for years to come and its population is four times the U.S.

A China with GDP-per-capita of just 26% that of the U.S. would be number one — although it would still be a poor country. That would be the first time since the industrial revolution that a poor country was also the world’s biggest economy.

At the U.S. Federal Reserve’s Jackson Hole conference, Harvard economist Dani Rodrik, a development specialist, was far more skeptical about the inevitability of convergence. While the manufacturing sectors in some poor countries can catch up to those of wealthy ones, Mr. Rodrik argues, that doesn’t necessarily translate into an economy wide catch-up. Why? As manufacturing sectors get more productive, they need to employ fewer people to do the same amount of work, so the gains don’t necessarily spread to the whole nation.

The gains in manufacturing often also require subsidies of one sort or another, which can produce a backlash in rich countries — witness the threats in the U.S. to retaliate against China because Beijing keeps its currency undervalued.

In follow-up comments to the Wall Street Journal, Mr. Rodrik said that while Mr. Subramanian’s projections about China may turn out to be correct, “I see lots of fragility in the Chinese system. Combine the stresses that will arise from the need to alter their economic model with the restiveness beneath the surface (the number of riots that take place in that country every single day is mind boggling) and their inability to effectively deal with political dissent, and I think you have a very explosive situation.”

“It could well be that a balance that you can maintain at 9% growth becomes impossible at 6%.”

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