Friday, June 29, 2007

China the behemoth

Reihan Salan points out on the revamped group blog the American Scene that the noted economic historian and analyst Robert Fogel has just issued some quite optimistic predictions about China's economic prospects. In a draft article, Fogel argues that China's economic output in 2040 will reach $123 trillion, or three times the output of the entire world in 2000. By 2040, China will still lag the United States, but it will have left India and Europe in the dust.

In other words, the world's most populous nation will grow "from a poor country in 2000 to a superrich country in 2040." The following speculative figures give a sense of how the world's economic power centers could shift: The European market (meaning the countries now in the EU) will grow by roughly 60 percent. The United States market will grow by 300 percent or so. The Indian market, meanwhile, will balloon by some 1,400 percent, and China's by 2,400 percent. (As of yet, the article is available only to subscribers to the working-papers service of the National Bureau of Economic Research.)

Fogel imagines that the English language may still dominate in 2040, but we could see "an explosion of business managers in the West who can speak Mandarin."

Why so bullish on China? For one thing, China's leaders, the University of Chicago business-school professor says, have stressed education more than any other politicians in the world, including ours. From 1998 to 2002 enrollment in Chinese colleges grew by 165 percent. (India, on the other hand, is dogged by mass illiteracy, despite excellent universities.) China has also been remarkably effective at shifting workers from agriculture into industry.

Skeptics of Chinese growth cite such negatives as environmental recklessness, the rigid thinking inherent in a one-party system, looming social unrest, and a stifling lack of freedom of expression. But Fogel says it's crucial to grasp that the Chinese Communists "are aware of" these problems and working to fix them.

Isn't that last argument a bit curious -- sort of like saying, "No worries: the king is well aware of the drawbacks of a monarchy"? (For a much more skeptical take on China than Fogel's, check out Tyler Cowen's comments at Marginal Revolution.)

In any case, Fogel says that the Communist Party is distributing power to the provinces, tapping the expertise of free-market-minded thinkers, and laboring to reduce inequality. And India, with its Hindu-Muslim split and caste system, is far more likely to explode than China, he thinks.

"The gradual loosening of controls on expression in China is likely to continue," Fogel predicts. And if it doesn't? Fogel says China will still be an economic super-tiger -- eclipsing Europe, if not the United States.

Posted by Christopher Shea at 03:50 PM

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