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China’s Quarter-Century

The picture of the two Asian giants that most people carry around in their heads shows China racing ahead economically while India bumbles along, falling ever further behind. People even talk about the 21st century as “China’s Century”, just as they called the 20th century the American Century. But it may turn out to be only China’s Quarter-Century.

The headline economic news this year is that India’s economy is growing faster than China’s. Not much faster yet, according to the official figures – a 7.5 percent annual rate for India vs. 7.4 percent for China – but there is good reason to suspect that the real Chinese growth rate is considerably lower than that.

Anybody who goes to both countries can see that India has a huge amount of catching up to do. The contrast in infrastructure is especially striking: China has 100,000 km of expressways (freeways, motorways); India has only 1,000 km. But the differences in income and productivity are also very big: Gross Domestic Product per capita in China is between three and five times higher than in India, depending on how you calculate it.

But that is a snapshot of now. It was very different thirty-five years ago, when per capita income in India was still higher than it was in China. It was then-leader Deng Xiaoping’s decision in 1978 to open up the Chinese economy that unleashed the spectacular economic growth rates of the recent past, and an economy growing at ten percent a year doubles in size every seven years.

That means (allowing for a little slippage) that the Chinese economy has grown more than twentyfold since 1978. That’s why it is so far ahead now. India’s growth rate was a quite respectable three or four percent for most of that period, but that gave the Indian economy a doubling time of around twenty years, so it has only grown around threefold during the whole period. India is not chronically poorer than China. It just missed that particular bus.

The next bus has now arrived: India actually could catch up with China if its economic growth rate is now really surging ahead of China’s. There is good reason to believe that it is, because China’s declared growth rate for this year is pure fiction.

China avoided the global recession after the 2008 crash by opening the credit taps to full and embarking on the largest spending spree on infrastructure (roads, housing, railways and airports) that the world has ever seen. But capitalist economies cannot avoid recessions forever. The country is now full of empty apartment buildings, the private debt load has doubled in five years – and the recession is coming.

More than that, China’s period of high-speed growth was probably always going to be limited. Japan enjoyed a quarter-century of ten percent annual growth in 1955-80 and became, for a while, the world’s second-biggest economy. But once its per capita income reached developed-world levels, the growth rate dropped down to developed-world levels too: between two and four percent. (Now it’s almost nothing.)

In fact, all the East Asian economies (except North Korea, of course) have followed the same pattern: a lengthy burst of ultra-high-speed growth, followed by a fall to the developed-state norm once a certain level of prosperity has been achieved. South Korea and Taiwan both did it – and then subsided to a growth rate not very different from that of the United States.

China has also had its quarter-century of ten percent growth, and it is probably over. The official figure for economic growth last year was still over seven percent, but the less easily manipulated numbers for rail freight, electricity production and bank lending suggest that the real growth rate was only around three percent. That is to say, less than half of India’s.

The other thing that will hold China back in future is a steady fall in the population of working age. India’s birth rate is still 2.7 children per woman (though it’s falling fast). China’s is at most 1.7, and the one-child policy means that it may even be lower than that. So fewer and fewer young Chinese are entering the work-force, whereas there will be no shortage of young Indians.

India’s total population will overtake China’s in less than five years (they are both around 1.3 billion), and after that the gap will steadily widen. While China’s population shrinks and its economic growth slows, India is only now entering the golden quarter-century of high-speed economic growth. In 25 years’ time, India may be back in the position it occupied for most of the past two thousand years: the biggest economy in Asia.
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To shorten to 725 words, omit paragraph 9 (“In fact…States”)

Democracy Stalls in Burma

There was supposed to be a referendum in Burma this month. It would have addressed all the cynical clauses that the military regime wrote into the 2008 constitution to safeguard its own hold on power. But that isn’t going to happen: not now, and probably not before the national election that is due in October or November of this year. There are even people in Burma who wonder whether the election itself will be held on time.

“I would just like to remind you,” said Aung San Suu Kyi, for almost thirty years the leader of the pro-democracy movement in Burma, “that I have been saying since 2012 that a bit of healthy scepticism (about the army’s real intentions) would be very, very good.” Speaking to The Guardian newspaper last month, she warned that “too many of our Western friends are too optimistic about the democratisation process.”

She certainly got that right. Since Suu Kyi was released from house arrest in 2010, her supporters abroad (who include most leaders of democratic countries) have assumed that democratic reforms were well underway. So they ended the sanctions against the military regime, and their citizens swarmed into Burma to invest in an almost completely undeveloped economy.

China and other non-democratic countries piled in too, of course, and an enormous economic boom is transforming Burma. Foreign investors have profited mightily, and ex-generals and other people with close ties to the military have benefited even more. There is even a more or less free press. But democracy? Not so much.

Former general Thein Sein is still president, and a parliament controlled by military officers and regime supporters remains in place. Suu Kyi’s National League for Democracy (NLD) will doubtless win most of the seats if the election is actually held next autumn, but the constitution written by the military bars her from the presidency on the ludicrous ground that her two sons are foreign citizens. (Her late husband was British.)

That is one of the reasons why changing the constitution has become a key issue. Another is the provision that gives unelected military officers one-quarter of the seats in parliament, which gives them a veto on any changes to the constitution. The regime did not really decide to hand power over to the civilians; it made just enough cosmetic changes to convince foreigners that it was now acceptable to invest in Burma.

A large majority of ordinary Burmese revere Aung San Suu Kyi (she is the daughter of independence hero Aung San), and five million of them signed a petition asking for an end to the constitutional ban on her being chosen as president. The regime simply ignored it, and it looks like it is getting away with it. The foreign investment just keeps coming.

The referendum on constitutional changes is in the hands of the current parliament, which is packed with regime supporters who were elected in a vote boycotted by the NLD. It was originally promised for this month, but no date has yet been announced. Neither has anybody revealed exactly which of the 201 sections of the constitution where changes were proposed will actually be put to a vote.

Which of the eight versions of a new clause about Suu Kyi’s eligibility for the presidency will be in the referendum, if it actually happens? Nobody knows, and it is basically the regime that will choose. Maybe none of them will. And it is now practically certain that the autumn election will be held under the old constitution.

It is possible that Thein Sein, the current president, is really trying to get his more recalcitrant military colleagues to accept democratic reforms and is just meeting a lot of resistance. The military have had absolute control of Burma for the past fifty-three years, after all, and a lot of them have got very rich out of it. But Thein Sein actually doesn’t sound like he’s very eager for full democracy himself.

In an interview with the BBC in March, he insisted that the army must remain active in politics – “Serving the interests of the people means being involved in national politics” – and that the role of the military would only change gradually “as the political parties mature in their political norms and practice.” In other words, the army itself will decide if and when to stop running the whole show.

Perhaps we shouldn’t be surprised that the military will cling to power for as long as possible, but it is remarkable how the foreign supporters of democracy in Burma have gone along with the pretense. US President Barack Obama, for example, has visited Burma twice since 2012, but the harshest thing he had to say was that “I don’t understand a provision that would bar somebody from running for president because of who their children are.”

It’s probably too late to reinstate sanctions now, so the Burmese are effectively on their own. The only recourse that might work is massive non-violent protests of the sort that happened in 1988 and several times since. The trouble with that is that the Burmese army has never been reluctant to shoot its own fellow citizens.
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To shorten to 725 words, omit paragraphs 7, 9 and 12. (“A large…coming”; “Which…constitution”; and “Perhaps…are”)

The End of the BRICs

“The only function of economic forecasting is to make astrology look respectable,” said John Kenneth Galbraith, the wisest American economist of his generation. (“A paltry honour,” he would have murmured.) But you still can’t resist wondering when the Chinese economy will be bigger than the US economy – or the Brazilian bigger than the British, or the Turkish bigger than the Italian – as if it were some kind of horse race.

The latest document to tackle these questions is “The World in 2050″, drawn up by HSBC bank, which ranks the world’s hundred biggest economies as they are now, and as (it thinks) they will be in 2050. It contains the usual little surprises, like a prediction that per capita incomes in the Philippines and Indonesia, now roughly the same, will diverge so fast that the average Filipino will have twice the income of the average Indonesian by 2050.

The Venezuelan economy will only triple in size, but Peru’s economy will grow eightfold. Per capita income will double-and-a-bit in Nigeria; in Ethiopia it will grow sixfold. Bangladesh powers past Pakistan, with a per capita income in 2050 that’s half again as big as Pakistan’s. (It’s only two-thirds of Pakistan’s at the moment.) And so on and so forth: local phenomena mostly of interest to local people.

But what’s happening at the top of the list is of interest to everybody. That’s where the great powers all live, with the BRICs nipping at their heels. Or rather, some of the BRICs are nipping at their heels, and some are not. That’s the big news.

We owe the concept of the BRICs to Jim O’Neill, who came up with it almost fifteen years ago when he was head of economics at Goldman Sachs. He was the first to realise that some big, poor countries were growing so fast economically that they would overtake the established great powers in a matter of decades.

The really impressive performers were Brazil, Russia, India and China, so he just called them the BRICs – and pointed out that at current growth rates the Chinese economy would be bigger than that of the United States by the 2040s. We’re quite familiar with that kind of prediction today, but at the time it was shocking (especially to Americans), and the term BRIC has become firmly entrenched in the language. Just in time for HSBC to spoil it.

By now the BRICs are formally the BRICS (with a capital S added for South Africa), . But the South African economy is only in the group out of courtesy, because you couldn’t leave Africa out altogether. It’s much smaller than any of the others and growing very slowly, so you can safely leave it out of the calculations altogether.

China is performing roughly as expected, and by 2050 its economy will be around 10 percent bigger than that of the United States. (Per capita income, of course, is a different matter, and even then China’s will be only a third of America’s.) India will come next, but with an economy only one-third as big as China or the United States
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But the other BRICs practically vanish from view. Brazil hasn’t even overtaken Britain by 2050, despite having three times as many people. And Russia’s performance is downright embarrassing: its economy barely doubles in the next 35 years, and it ends up smaller than Spain’s. So six of the top ten countries in the 2050 list are already there today, and the world isn’t going to look so dramatically different at all.

Now, predictions like this are open to all sorts of criticism. China’s growth rate has consistently been two or three percentage points higher than India’s for several decades. Project that to 2050, and China ends up far ahead of India. But China’s growth rate is falling, and India’s may even overtake it this year.

India will almost certainly grow faster in the long run, because it has a young, rapidly growing labour force and China does not. There’s enough time for that to change the pecking order radically by 2050.

The recent performance of the economy obviously affects the long-range forecast more than it should, so Russia drops down the list and Mexico goes soaring up. Five years ago it would have been the other way around, and yet there’s no reason to believe that the fundamental strengths of either economy have changed.

And then there are the “Black Swans”, events like the Sarajevo assassination that tumbled the world into the First World War and invalidated all existing assumptions about the economic future. Not to mention the disasters that you know are coming, like catastrophic climate change – but leave out of your calculations anyway, because you don’t know how to quantify them and don’t know when they will arrive even to the nearest decade.

All that said, some sketchy notion of what the future may bring is better than no idea whatever. And the basic idea behind the BRICs is still sound: the centre of gravity of the world economy is moving south and east.
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To shorten to 725 words, omit paragraphs 3, 7 and 12. (“The Venezuelan…people”; “By now….altogether”, and “The recent…changed”)

Breakthrough on Climate Change

When news got out that US President Barack Obama and China’s President Xi Jinping had reached an agreement on climate change, the American blogosphere lit up with negative comments. “The problem is, Obama probably means it,” wrote Jazz Shaw of the major conservative political blog Hot Air, “while China is almost certainly just yanking the world’s collective chain yet again with a bit of lip service as they seek better trade arrangements.”

But Jazz Shaw has got it exactly backwards. It’s the United States that cannot be trusted to keep its commitments, because the American political system is mired in a perpetual civil war and at the moment it is the climate-change deniers who have the upper hand. Whereas the Chinese will probably keep their word, because there are no denialists in China and the government is genuinely terrified of climate change.

The Obama-Xi deal is not wonderful, but it is the first step in the right direction that the world’s two biggest emitters of carbon dioxide have taken together. Obama promised that the US will reduce its greenhouse gas emissions to at least 26 percent below the 2005 level by 2025. Xi promised more vaguely that China’s emission would peak by 2030 or earlier (and, by implication, then start to decline).

That looks a bit lopsided, of course, but any deal that takes account of current realities is bound to look like that. China is still a poor country, and it is racing to grow its economy fast enough to preserve political stability. That means it has to generate a lot more energy fast.

China is installing a great deal of clean power (around half the world’s new solar energy plants last year, for example), but just to keep the lights on it has to go on building lots of fossil-fuel plants as well – and most of them burn the dirtiest fuel, coal. Official policy is driving the number of new coal-fired plants down, however, which is one reason why Xi thinks he can keep his promise that emissions will stop growing by 2030.

Obama, by contrast, presides over an economy that is already very rich. The average American citizen still consumes twice as much energy as the average Chinese, but total US energy consumption stopped rising years ago. Making 26 percent cuts in American energy use over the next ten years is not a huge challenge; it only requires a reduction of about 2.6 percent a year.

So the American and Chinese commitments in the new deal, while asymmetrical, are not unequal in terms of the political and economic burdens they impose. The real difference lies in the likelihood that the two sides will stick to the deal over the next 10-15 years as they have promised. China probably will. The United States probably won’t.

The Chinese regime knows what global warming will do to the country if it is not contained. A study commissioned by the World Bank about a decade ago, but never published (quite likely at China’s insistence), concluded that if average global temperature rises by 2 degrees C, China will lose about 38 percent of its food production.

As in all predictions of this sort, that number may be wrong by five or even ten percentage points, but that doesn’t really matter. Even a 28 percent loss of food production would mean semi-permanent famine in China. The regime would not survive that, and much of the growth that has been achieved by great sacrifice in the past three decades would be lost.

Beijing takes climate change VERY seriously. Even though the regime must also keep the economic growth going if it wishes to survive, it knows that it must start making real concessions on emissions in order to facilitate a global deal.

Xi did not set this target of capping Chinese emissions by 2030 without a great deal of discussion and debate within the regime. Having made the promise, he will keep it. So will his successors, at least so long as the Communist Party goes on ruling China. Whereas Obama will be gone in two years, and cannot bind his successors to keep his promise in any way.

Indeed, even in the past six years he has never got any legislation on climate change through the Republican-dominated House of Representatives. Instead, he had to resort to issuing executive orders through the Environmental Protection Agency (EPA) to make even modest improvements like raising the fuel efficiency of US-made cars.

Now the House has voted to repeal the EPA’s authority to regulate greenhouse gases under the Clean Air Act, which would strip even that power from him. The new Republican majority in the Senate will probably do the same. Obama could veto such a law, but all the Republicans have to do is attach it to the budget and they would set up a confrontation that would shut the US government down again.

The Chinese know this, of course, but they are so desperate to get matters moving on the climate front that they are willing to take a chance that the deal will survive.
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To shorten to 725 words, omit paragraphs 10, 12 and 13. (“Beijing…deal”; and “Indeed…again”)