Ignore the pessimism and hype over China's slowing economy. To know where China is headed, focus on property rights, writes Larry Hatheway.
About the author: Larry Hatheway is a co-founder of Jackson Hole Economics, which originally published this commentary, and the former chief economist of UBS.
Hyperbole shapes perceptions, but it does not change truths. So, at the risk of losing audiences egged on by exaggeration, the truth about China is almost certainly more nuanced, complex, and uncertain than the purveyors of hype would have us believe. In short, China’s trend economic growth rate has slowed and will slow further in the years to come. Even with some allowance for catch up into higher value-added sectors, China’s long-term sustainable real GDP growth rate has probably decelerated to about 3% per annum, only marginally higher than that of the U.S. It is therefore little surprise that many economists have postponed the date when China’s economy will overtake that of the U.S. until the middle of this century or later.
A vast pool of existing human capital—Chinese universities produce more engineers annually than any other country—is also a key strength. Moreover, China is poised to make massive education gains. Today, over 70% of Chinese workers have not completed secondary education, but the histories of other successful middle- and high-income countries suggests that increasing average education levels will provide China with legions of skilled workers increasingly tooled for the challenges of modernity.
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