When is the Growth Rate in China Going to Slow Down?

Double digit growth rates in developing countries are nothing unusual. The post-WWII period is full of examples of countries engaged in catch-up growth - Japan and South Korea in the 1950s and 1960s, and China, Brazil and India in this century. But at some point growth rates start to fall back - the BRIC countries will hit a BRIC wall so to speak. Gaining ground on leading economies is easier than overtaking them.
 
Rapid initial growth is often easy because developing countries can take over technologies - or better, skip over certain technology developments. A developing country today doesn't have to weave the country with a telephone line network but can simply move to a more cost effective and efficient mobile network.
 
The more an emerging economy represents the leaders, the harder it will be to maintain the pace. Borrowed technologies won't suffice, self-innovation must become the norm. The supply of cheap workers from rural communities starts to dry up and increasing numbers move to service sectors where productivity rates are more difficult to improve. Growth rates slow down as they did in the post-WWII reconstruction countries of Western Europe and, more recently, the Asian tigers. They may even falter as happened in Latin America in the 1990s.
 
In a recent NBER working paper (Eichengreen, et al, March 2011), and using international data starting in 1957, the authors construct a sample of cases where fast-growing economies slow down. The evidence suggests that rapidly growing economies slow down significantly, in the sense that the growth rate downshifts by at least 2 percentage points, when their per capita incomes reach around $17,000 US in year-2005 constant international prices, a level that China should achieve by or soon after 2015.
 
Among the more provocative findings of the same paper is that growth slowdowns are more likely in countries that maintain undervalued real exchange rates.
 
The authors are careful to note that theirs is not an iron law of slowdowns. But they do comment that given the Chinese economy's risk factors - an aging population, low levels of consumption and the above noted undervalued exchange rate - the odds of a Chinese slowdown are over 70%. Whatever, the lean years will follow the present fat ones eventually.