Martin Wolf, "in China's economy crumble reason"

Martin Wolf, "in China's economy crumble reason" [JoongAng Ilbo]
Visual input: 2013-04-08 PM 3:35:27
10, China's future economic growth will fall. The Chinese government admitted it. Growth rate to fall sharply, the problem is to fall gently. The answer lies more in the world, as well as the future of China.
The renowned Financial Times economic columnist Martin Wolf Martin Wolf warned that the crisis of the Chinese economy in the last column dated April 2, the reason that the Chinese economy can collapse (Why China's Economy might topple) 'column. Gist of the next column.

China's best think tank, the State Council Development Research Center (DRC) recently held a forum to discuss the future of the Chinese economy. '10 Outlook published in this forum: slowdown of potential growth and the launch of a new stage of growth "," who recorded an average annual growth rate of 10% from 2000 to 2010 years, the Chinese economy from 2018 to 2022, the growth slowed to 6.5% analysis will be, "he said. Report, two scenarios are presented. Visual and falling into the 'middle income trap' that 'is the natural landing'. The latter scenario is the Japan of the 1970s and 1980s, the development of Korea will take steps

China, Japan and South Korea to follow the model reasons the report heard five First, a distinct reduction of the investment in infrastructure. The past 10 years, the share of infrastructure investment in the total fixed asset investment fell from 30 to 20%. And a second return on assets declined, the overproduction is serious. Representing the limit of fixed capital investment efficiency coefficient (ICOR) soars to 4.6 percent in 2011 was the highest since 1992. Third labor supply is dropping rapidly. China in 2012 turned to the workforce reduction crossroads. Fourth urbanization that is being delayed. Finally, local government finance and the real estate crisis is escalating.

Trend in the past, the most surprising thing is the fact that getting upset. 2011 gross domestic product (GDP) in the proportion of investment in fixed assets, 49% attained the 2022 is projected to decline to 42%. To 56% currently, from 48% in 2022 is expected to increase the proportion of consumption in GDP. Reduction in the share of manufacturing from 45% to 40%, but was expected to be 45-55% higher service sector. Alternating from investment-driven to a consumption-driven economy. The collapse of the capital stock growth as the major factor in lower growth rate and reduced investment.




Still high growth China's economy will be sustainable in some claims emerge According to statistics, China's per capita GDP (purchasing power parity basis) of Japan in 1966, Korea in 1988 to the level of the level is still. These countries had recorded a time of 7-9 years of additional growth. Yes, per capita GDP in the United States compared with the figures for May. China's current per capita GDP level is only about 20% of the United States. The same level of 1950, Japan, Korea in 1982 and is Talk about a lot of the future growth potential.

However, the pessimistic outlook for the Chinese economy, are also present. The size of the Chinese economy is greater than in the past, Japanese Opportunities in the global economy is relatively small. Again, a former prime minister, Wen Jiabao (温家宝) pointed out, China's economic imbalances and weak sustainability is not controlled. The biggest problem is the dependence on high investment. Permeability of the continuous rise is not sustainable. Rely on additional consumption because the return on investment eventually.

As you can see in the case of Japan, from the center to the slow growth in the high-growth, investment, consumption led to the conversion of a very dangerous is Three major risk is expected.

First, expect growth from 10% to 6% decline in the collapse of the industrial capital investment. Investment in fixed assets fell to 30% from 50% of GDP, and it alone can cause a recession.

Second, the increase of credit results in diminishing returns of real estate and other investments. Increases the growth rate reduction in bad debt. The insolvency of the banking system increases sharply.

Third, because there is no reason to reduce the household saving rate, you can not expect a continued increase in consumption. Previous corporate earnings of the household, including state-owned enterprises are required. However, you can invest the revenue decline sharply recall

For qualitative growth, the Chinese government has been pursuing a balanced and progressive development. Potential. Investment plummeted, however, the insolvency of the financial system without eliciting a soft landing is much more than a general equilibrium model proposed can be tricky.

Inevitable slowdowns can be mismanaged the country has been doing long-term growth spurt. In the case of Japan is a prime example. Given China's growth potential might be able to avoid the crisis, but it is likely to be on the verge of a very high The next 10 years, much more than in the past, it will be a rough road.

Hong Duri China Institute for cleanup = doori@joongang.co.kr