Is this China’s lost decade? The economy is slowing, and now’s the time to focus on quality of life
Richard Harris says China’s decade of development was in the 2000s and as its economic growth inevitably slows, the real target for Beijing is to keep improving its GDP per capita to enhance quality of life for ordinary citizens
Looking north from Jingshan, the little hill just north of the Forbidden City in Beijing, one can see the ancient Drum Tower located between the Old Beijing first ring road and the second ring road that encloses the small houses and hutongs of the pre-1930s.
Between the second and third ring roads are expressionless four- or five-storey concrete blocks housing the migrants, factories and services of the Mao-era. The third and fourth ring roads are bounded by the tall, functional buildings that epitomise China’s modern development, kick-started by Deng Xiaoping’s southern tour in 1992.
Outside the fourth stands the exotic architecture and advanced engineering of the 2000s, exemplified by the towers in the Olympic Park that reflect the nation taking its place globally. The fifth ring road encloses land prepared for future development, while there is a sixth, 220km long, whose development has been stalled by China’s lost decade.
Chinese GDP rose by a staggering 1,100 per cent between 1992 and 2010. The global share of goods exports grew from 2 per cent to over 17 per cent. Income per head rose 970 per cent, 10 times faster than in the United States. A full half a billion people were lifted from rural poverty to middle-class comfort. No country in history has accomplished so much in so short a time for so many people.
When I stood on Jingshan in 2010, it was widely assumed that this meteoric rate of growth would continue – we were entering China’s decade – the decade when China’s economy would become bigger than the US’.
One of the lessons of investment, however, is that just when things are looking their best, the best may be over. The Shanghai Composite Index, the stock market and bellwether of an economy reflecting 8½ years of economic activity, is actually down 17 per cent since January 1, 2010. The yuan is also weaker against the US dollar. It reminded me that a full four years ago, I mused in these columns that the 2010s might be China’s lost decade, so as an update, I surfed the International Monetary Fund and World Bank databases.
The data shows Chinese annual economic growth has fallen from the over 10 per cent per annum to around 6 per cent this decade. This shouldn’t be a surprise as it is impossible for an economy of 1.4 billion people to grow above average forever. The current account surplus has fallen from 4 per cent to just over 1 per cent of GDP. The much-heralded foreign reserves stand at just 8 per cent more.
Total investment and savings rates are down. Chinese GDP per capita at current prices is still only 16 per cent of the US – although that metric will always suffer due to China’s giant population. Chinese government debt has increased by 52 per cent, reducing policymaker flexibility. It is likely that China’s underlying economic growth rate this year will be no bigger than the US’. This is China’s lost decade.
But since 2010, life for the average Chinese person has become distinctly better. Tens of millions have been better housed, with improved sanitation, communication and education; even pollution control is moving in the right direction. Ninety per cent of the poorest 100 million people have been lifted from poverty and infant mortality has sunk from 13.5 deaths per 1,000 to 8.5, close to the world’s top quartile.
The slowdown is not, as many Chinese intellectuals believe, because the whole world is against China. It is merely a reaction to the enormous growth of the two decades before 2010. Investors must look at the cycles of development from the perspective of decades. Europe boomed in the late 1980s as the Berlin Wall fell and investors shunned America.
A decade later, Europe was “sclerotic” and it was the US that had a “young, dynamic and digital” economy. China is now a developed economy and future growth will be incremental; with phases of investment opportunity broken by long periods of consolidation.
China’s decade of development was the 2000s, not the 2010s. Sheer numbers mean that the nation will inevitably exceed the GDP of the US in the 2020s. The real target for China will be to keep improving GDP per head to lift the quality of life for the ordinary citizen. It is not for nothing that another young country identified in its constitution that what people really seek is the pursuit of happiness.
Richard Harris is chief executive of Port Shelter Investment and is a veteran investment manager, banker, writer and broadcaster and financial expert witness.