This article was originally posted on John’s blog Key Trends in Globalisation on the 2nd of September.
Since 1978 China has seen the most rapid economic growth of any major country in world history, and the most rapid increase of living standards of any major economy. Furthermore, following the beginning of the international financial crisis, China far outperformed any other major economy – in the seven years from 2ndquarter 2007 to 2nd quarter 2014 China’s economy grew by 78% and the US by 8%. In a single generation China has gone from a ‘low income’ economy to the verge of achieving ‘high income’ status by World Bank criteria.
This unprecedented economic development is sometimes explained in terms of unique ‘Chinese characteristics’, but Western economic research over the last 30 years confirms that the reasons for China’s economic growth are rooted in universal economic processes. To be more precise, while the combination of global forces producing economic growth is unique in China, and produces unique ‘Chinese characteristics’, the forces propelling China’s growth operate throughout the world economy.
These modern advances in Western measurement and analysis of the causes of economic growth have major implications for China. Some economists in China have claimed that its very rapid growth is ‘aberrant’ and not in conformity with economic theory. Instead, supposedly China must switch from a growth pattern based on high investment and exports to one based on productivity, more precisely Total Factor Productivity (TFP), growth. Unfortunately such arguments are based on economic methods and concepts that are 30 years out of date and which have been formally replaced by the UN, US and OECD.
Modern economic methods show that growth in the world economy, therefore including China, is fundamentally driven by high levels of investment and by globalisation, which is division of labour on an international scale. The aim of this article, therefore, is to outline the results of the most advanced Western economic methods and their implications for China. First a brief characterisation of the scale of China’s economic achievement will be given, as this establishes the fundamental implications of this for economic theory, and then the implications of modern Western economic research for understanding China’s growth will be analysed. In particular, attention will be given to the formally registered advances of measurement and understanding of economic growth in general, by international economic agencies, and to the most comprehensive application of these to the study of China and Asia’s economic growth – Vu Minh Khuong’s masterpiece The Dynamics of Economic Growth: Policy Insights from Comparative Analyses in Asia.