an excerpt from
Dec 30 2024
What will happen if China copies the U.S.?
PREAMBLE
Editor’s Note:
Economist John Ross, who has spent the last few years traveling in and out of China, addresses the most heated debate currently taking place there in an exclusive interview with the China Academy : Is China’s economy slowing down because the Chinese are not consuming enough? Can China’s economic woes be swept away with more credit cards?
John Ross:
The most important economic debate in the world is the attempt of the United States to persuade China to adopt the same economic structure as the United States, in which case China's economy won't grow 5% a year. It will grow at 2% a year.
The U.S. economy invests about 40 % of GDP and grows at 5 % a year. The U.S. economy invests about 20 % of GDP and grows at about slightly over 2 % a year. Obviously, if china were to reduce its level of investment down to the level of the U.S., that's to 20 %, then China's economy will also slow down to 2 %.
So therefore, you have this weird debate where whereby people say China's economy doesn't look like the U.S.. It's a sort of bizarre discussion of western arrogance. They say China is different to the west which is absolutely true. Therefore it must be China which is wrong. But this is ridiculous because it's the Chinese economy which is growing faster. Therefore, what they should say is that China is different to the West and it's the West which is less successful.
Let me take a comparison because Goldman Sachs recently produced a report which may exactly this type of argument. Supposing a a company went Goldman Sachs and said we want to enter a new industry. Goldman Sachs, please come give us some advice. What Goldman Sachs would say? These are the income; this is the industry; these are the companies which is most successful; these are the companies which are less successful. If Goldman Sachs said “you shouldn't copy the company which is the most successful. You shouldn't learn from the most successful company, you should learn from the less successful companies”, everybody would laugh at this just before they canceled their contract with Goldman Sachs for giving them idiotic advice.
Nevertheless, the Wall Street journal, the Financial Times, the Economists put out this type of stuff all the time. Therefore, this leads to some, unfortunately, some people in China copy this nonsense. Therefore, this leads to internal discussion in China.
There are then objective problems, which can't be overcome quickly in which China has the correct policies, but they simply can't be solved quickly. For example, research and development. China has by far the highest level of research and development as a percentage of GDP of any Global South country. It's about to 2 . 4 % of GDP. It's almost twice that of the second one, which is Turkey. It's ahead of some of the G7 economies. But it's still behind as a percentage of GDP the United States, Japan, Germany. China can't solve this problem quickly, because it's not a question of money. The fundamental thing that you need for research and development is you need trained people. It takes 20 years from somebody entering primary school to coming out the end at the other end, with an engineering PhD, which is the type of thing you need for research and development.
So we may say there's three levels of problem. One is the slow growth of the United States and Europe and its attempts to slow down China. The second is foolish arguments which have no intellectual validity which are putting forward by the west to try to slow down China.
There are real objective issues which is due to China's level of development. Only about around 15 % of China's population has higher education compared to 50 % or in the united states or 70 % in south korea. And it will take a very long time to train it.
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