China’s future growth Even dragons tire

The announcement this previous week regarding China’s Economy indicated a 7.3% growth rate in the third quarter year on year. This rate was widely considered as the economy coinciding with what is described as its new “Normal slower rate”. It is significantly lower than China’s 10% growth rate up until two years ago. The article goes into detail regarding the slower growth rate and how in the future it can be predicted that China’s growth rate is bound to be even lower.

According to the IMF China’s growth rate will go down drastically by the end of the decade, it would further shoot down from 7.3% to 6.3% by the end of the decade (still just an extrapolation). The article points out the theory of “regression to the mean” which is about 2% growth per year based on real GDP per person globally.  It further points out that economy’s that grow rapidly tend to drop quite drastically, judging from past patterns of growth. For example Brazil in 1980 and Japan in 1991, seemed very sound but barely managed any growth for the next 20 years in terms of real GDP per person. However, this may not be a sign of failure but rather a sign of successful policy or good fortune.

In China due to these regressions markets have become more liberal over the years. The article also argues that richer countries than China are democratic and ( if there is a transition) if China were to have a democratic change it would lead to a period of falling growth as indicated by previous cases. The article also predicts that in terms of market exchanges it would be a safe bet to say that China’s economy would still be smaller than America’s.

There is a detailed graph regarding the above made assumptions presented in the article as well.  

source link: http://www.economist.com/news/finance-and-economics/21627627-new-study-asks-how-long-chinese-economy-can-defy-odds-even-dragons-tire