Growth elements: urbanization, debt, industrialization, privatizations

From that NYT piece referred to below:

As some of the optimists note, China’s debt is public, not private, which means that the risks are largely borne by the state, which has deeper pockets. The borrowing is largely domestic, rather than external. And despite a surge in mortgages, Chinese households have a low overall debt burden compared to their counterparts elsewhere. For all its heady growth, China’s financial system also remains relatively simple, without the exotic securitization that nearly brought down the American economy a decade ago.

China’s banks are no longer just serving state actors; now they also serve the private sector, notably after the privatization of state-owned housing in the late 1990s and early 2000s created a broad-based commercial property market. As much as two-thirds of credit expansion between 2005 and 2013 — including via unofficial or so-called shadow banking — went into property-related assets, helping establish a market price for land.

Corruption is said to impede growth by inhibiting investment. Not so in China, where the state controls major resources, such as land and energy, yet generates lower returns on assets than the private sector does. Privatizing those resources was a nonstarter under communism, and so corruption has served as a makeshift alternative, by allowing more private actors to use state-owned resources after striking arrangements with officials. Because those actors’ practices are more profitable, the economy has benefited overall.

Some China observers also are concerned that China’s speedy growth cannot be sustained unless consumption replaces investment as the economy’s main driver. (The Chinese government appears to agree, or claims to at least.) They point out that while investment accounts for an unusually high share of gross domestic product, consumption accounts for an unusually low share.

Over the past four decades China’s urbanization ratio has increased from less than 20 percent to nearly 60 percent. In the process, workers from labor-intensive rural activities have moved to more capital-intensive industrial jobs in cities. And so, yes, an ever-greater share of national income has gone into investment as a result. But corporate profits have also risen, leading to higher wages, which have spurred consumption. In fact, even as the consumption share of G.D.P. has fallen, personal consumption has grown multiples faster in China than in any other major economy.

There’s also the crazy industrialization: when we loaned money to coal and steel companies 40 years ago, US steelmaking capacity was 100MM tpy, and it still is. Contrast this with China, when went from 70MM tpy in the early 1990’s to over 800 million tons per year recently.

Hey, let’s not forget cement, which China used in 3 years the same amount that the US did in the entire 20th century. Stay tuned.

2 Responses to “Growth elements: urbanization, debt, industrialization, privatizations”

  1. feeblemind Says:

    I dunno.

    It’s a NYT piece and they are Sinophiles (Is that a word?).

    And the likely reason why consumption in China has grown multiples faster than elsewhere. They were starting from virtually nothing which leads to huge percentage gains even if increased consumption isn’t really that much in aggregate.

    Having said that I will readily concede that what China has accomplished in the last 30 years is absolutely remarkable.

  2. feeblemind Says:

    A very good piece by Goldman:

    How to Meet the Strategic Challenge Posed by China

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