China fact of the day

But China’s public capital stock per head is already far bigger than Japan’s at comparable incomes per head.

That is from Martin Wolf at the FT.  Here are the associated conclusions:

Slowing urban household formation means that fewer new homes now need to be built. Not surprisingly, returns on investment have collapsed. In sum, investment-led growth must come to an early end. Because of its size, China has also hit the buffers on export-driven growth, at a lower level of income per head than other high-growth east Asian economies. The trade war with the US underlines this reality. China’s working-age population is also declining. Given the huge rise in debt as well, sustaining fast growth will be very hard.

We will see, perhaps indeed in 2019, one way or the other.


Cowan says the truth.

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'We will see, perhaps indeed in 2019, one way or the other.'


"Public capital stock". What a joke. How has MW defined and measured it? Maybe he took a look from his hotel in a few cities. Does MW have any idea of how poor was China 25 years ago? Did he take a look from his hotel 25 years ago? Has MW or any other economist taken a serious look a what has been happening in China in the past 40 years, in particular, the last 25 years? Have they been able to explain the apparently extraordinary high household's saving rate and how it has been changing? Have they been able to explain how the savings have been intermediated and spent? Do they have any good idea about how the government's control of their intermediation and spending has been changing? If you think they have, please give me references. Last time I checked MR archives on China there was none.
Tyler, I hope that your new resolution is not to continue circulating nonsense comments about China. And please be sure that if you link to an article your readers may access it free --otherwise, it is not a reliable source.

Seven question marks and I learned nothing from your comment. How do you disagree with the post?

He's a Chinese nationalist internet troll. Don't expect actual arguments in the posts from these bots.

First, you should know that Tyler and all other economists in the neoclassical tradition, including me, don't use the concept of "public capital stock". In addition, neither Tyler nor all other macroeconomists in the monetarist and Keynesian traditions use that concept (I abandoned the two traditions long ago and I don't use it).

Regarding China's "public capital stock", when I worked in Beijing in the 1990s nobody used that concept. I used to work in the reform of SOEs and the question of which enterprises were still owned and controlled by the state never had a good answer. Anyway, no economist will use ownership or control to divide the capital stock into public and non-public. Most likely, if a serious economist were to use "public good" at all, he will mean non-rival in consumption and/or non-excludable in accessing it. Although I couldn't access MW's article, I bet he didn't elaborate on his definition and especially on how he could measure it. You may hope he had a good view from his hotel --but I bet he didn't.

In addition, it appears that MW didn't address the issue of household savings, the one that Franco Modigliani attempted to address late in his life. I did some work in the 1990s but I was never comfortable with my estimates based on the national accounts and other macro data (rates well about 30% of household income). In a WB study about household savings in several countries, the author claimed that the rate was zero just before the Asian crisis (he used household surveys).

Indeed, it's not enough to study household savings. One should also study how those savings are invested. Since I advised in the reform of state banks in the 1990s, I was concerned about the rapid increase in their loan portfolios. I advised the government first to reduce the rate of increase by investing abroad a larger share of domestic deposits --via PBC, the central bank-- and by implementing a PBC's control system of the loan portfolios. I don't know how the intermediation of household savings by the state banks has been changing in the past 20 years. I bet, however, that MW and none of the economists Tyler has been referring on China have any idea about the changes and their consequences.

Last September I visited China after 20 years. I was surprised by how much they have invested, but since I visited only cities on the coastline, I didn't draw any conclusion about what may happen in the next 10 years. It depends too much on household savings increasing at a rate similar to the average rate of the past 25 years, and on how the savings are intermediated.

The growth depends on new technologies. Are there some on horizon?
Besides AI (which somehow makes many news, but still no clear how it will apply to real economic outcomes, except for continuation of even deeper automation), there are few technologies, which will transform the world.
these are - autonomous cars, which will reshape cities, public transport, etc
artificial meat
cheaper and cleaner energy ( besides, China won't need to buy such staggering amount of oil abroad )
so while there are really factors which do not favor china compared to predecessors, there are factors, which favor them, such as much more concentrated and connected population ( and it's a huge factor - say NY has twice an income compared to sparsely populated states )

"...there are few technologies, which will transform the world."

You forgot virtual reality and augmented reality, where the number of users is growing exponentially, just as the internet did in the 1990s. And of course, increasingly powerful weak A.I. is huge.

You also left off medical technology. David Sinclair recently wrote about the health pill NMN, a cousin of NR, both a vitamin B3 derivative:

"I think the public doesn’t realize how advanced this technology is and how many investors and companies are also involved. 2019 is going to be a watershed year for this field. Just so many things are converging. The science, the business side, the clinical trials reporting out, and the general interest from the public — all of that means that in a year from now, we may find ourselves in one of the most interesting times in human history."

Kudos for shortening the eternal "in 10-15 years everything changes" meme, but obviously things at the end of 2019 will look almost identical to today, regarding medical technology.

A year is too fast but if the University Washington NR trial of heart failure patients is positive, then that will get the public's attention this spring/summer. Likewise, if the NR trial of people with dementia and those without is positive, that will also wake up the public by the end of this year or early 2020.

The routine use of stem cell therapies looks to be ready by 2021 to 2024.

Never change, Todd. Of course that's total baloney.

You and Tyler could always try reading about this, check in what's going on at Stanford, etc.

You could try not always assuming that the most optimistic cases will always come through. There's your take, there's the 'nothing will ever get better' opposite take, and then there's the correct, real world take which is that things will continue to improve, slowly, in fits and starts.

If you have been following stem cell research since 2000, you know that it has been a process of improvements. One researcher at Stanford recently said that in 2000 he thought stem cell therapies would work in 5, maybe 10 years so the progress hasn't been along the most optimistic timelines. My (very good) guess is that you are like Tyler in hardly reading on these topics. You just aren't interested in medical science.

Not as interested as you are, for sure. I think Tyler and I have to budget our attention and if something truly big happens in that space we will know about it not long after you do.

And it won't be in 2019. I'm not teasing you for your interest in this stuff, I'm teasing you for your attitude about it.

btw the article is about longer timeframes (2045 is mentioned if I remember correctly), 2019 year is a Tyler take on the article, while in fact, 2019 is not that much important when thinking about decades


Many China and Japan watchers are interested in these countries futures. For the past 15 to 20 years both Japan watchers and journalists have repeatedly written about some inevitable great hardship for Japan in 2040, 2050 or 2060 (every few years the goalposts get moved back a decade) because of some "population time-bomb" Yet so far almost 100% of these journalists and academics assume no technological changes in medicine or automation, which is a completely naive, non scientific assumption. Much of this is probably academics needing grant money and journalists needing clicks. Still, it is as serious as Cowen predicting no medical breakthroughs before 2030 - that is, not at all. Almost no researcher in microbiology / medicine would agree but Cowen's audience is almost entirely the non science crowd.

Here is a 5 minute clip of a stem cell researcher at the U of Washington, Charles Murry:

4:35 "We're expecting to do our first patients in 2020."

In 2016, A British group was able to keep 20 patients with severe heart failure alive at least two years with stem cells even though all were expected to die within a year.

" and it's a huge factor - say NY has twice an income compared to sparsely populated states )"

The actual data contradicts that statement. The per capita income of New York (#16) is nearly the same as Wyoming (#18) and North Dakota (#17)
and substantially less than Alaska (#4).

How wealthy are those states once you strip out oil and gas earnings?

'we will see, perhaps indeed in 2019, one way or the other'


They don't call him The Wolf for nothing.

I'd like the MR explanation/analysis of the phenomenon of China building tons of poorly constructed houses that fall apart in a few years. I suspect the builders are completely aware they are building garbage houses, and they are knowingly scamming investors, but it seems in any reasonable market, the investors would realize they are getting burned and change course.

Unfortunately, the market for Chinese investors is not reasonable because both the Chinese government and non-Chinese governments put severe restrictions on what they can invest in, funneling the bulk of their savings into things like the aforementioned trash real estate, while China’s most valuable companies are primarily owned by non-Chinese investors.

Trump's withdrawal from international leadership creates a void that China may fill, setting China on a path of accelerated economic and political growth.

What's that they say about "When all you have is a hammer" again?

I think they say "Build that Wall! All I have is this hammer!"

Articles have been predicting the end of Chinese growth for years. The flaw in these articles is innumeracy. China’s economy does have many flaws and inefficiencies, but these are more than reflected in the fact that its GDP per capita at PPP is about 1/4th the US’s, 1/3 Taiwan’s, or 1/2 Russia’s or Greece’s (and even less at nominal). China is a country that has learned from its historic failure of communism and is now single-mindedly focused on economic growth, with an extremely high savings rate and hardworking culture; do people really think it cannot catch up to Russia or Greece? I think China’s economy is still far from its production possibility frontier, even with current institutions, and will have at least another decade of fast growth.

You're talking about some kind of Chinese spirit and national characteristics once breaking free of Communism. There's something to that, but there are also material forces to consider - their export growth really does have hard limits, many of the workforce advantages in cheap wages and a young population are evaporating, their debt is multiplying.

Maybe they will catch up with Russia, but the real question here is whether they will ever combine Western levels of wealth per head with their large population, because this is crucial to determining whether they could ever have the potential to be the main superpower in the manner of the late 20th century US, not just one large player in a multipolar world, with a coast developed to a similar standard as Japan and Korea (under a rather more dystopian government) and a less developed hinterland, able to be effectively sealed off by a multilateral alliance of the developed world, should they fail to move to multi-party parliamentary democracy.

Well, there are two questions that are often conflated but are both relevant. First is whether China will continue to grow and escape the middle-income trap into the lower tier of first-world countries. I think this is likely to happen, because China’s institutions and culture are not worse than what you see in the lower tier of the first world, and its current relative poverty is a historical legacy of communism and colonialism that will dissipate over time.

Second is whether China will be a superpower like the US. Here, I think the answer is no. For one thing, it doesn’t seem interested in being a superpower. It is also far behind the US in non-economic areas of power like technology, culture, military, alliances, finance, etc., which are as or more important than economy.

I think China’s position in the mid-21st century will in some ways resemble the mid-19th century, when it had the world’s largest GDP but was geopolitically impotent.

Mind, the US wasn't interested in being a superpower, until it was, either. In that case going from "We don't do grubby, expensive imperialism" isolationism to "Industrialized authoritarian collectivists are actually quite serious and the British and French Empires clearly aren't up to much to stop them, so....". (A unpredictable historical transition which was deeply contingent on WWI and WWII working out as they did! In terms of the conflict itself and the changes to economic balance of power and structure of innovation.).

I don't think the historical analogy is totally off base (or at least I hope it won't prove to be), but limits to those; no longer are there large European imperial spheres of influence, and there is a globalised economy where China will have a interest in African, South American, SE Asian resources (and settlers of a sort in most of them, and a government that, if nothing changes, views the worldwide Chinese diaspora as rightfully ought to be ethnically loyal to them).

This is an excellent series of comments by Zaua and M.

I think you have the right perspective, but these are questions economists have never really been able to answer. Nobody understand what really sustains high growth for an extended period of time (like China has experience). At the same time, it's not really clear what level we should expect China to catch up to. Their hard-working culture has to be balanced with their propensity against fair-dealing, which has dramatic costs across an economy. Surely the situation is not worse than Russia or Greece, right? I guess we'll find out.

I think this is quite correct, although I don't know if China's per capita incomes will exceed Russia's. It may have some cultural advantages but it still has the disadvantages of a highly anti-democratic government. So my guess is that when its growth slows, it'll be around the Russia/Greece level.

But you're correct that that's still a ways off , so it should continue growing for awhile.

What does it mean that "fewer homes need to be built"? According to what definition of need? Homes in Chinese cities are still quite expensive relative to their incomes. If more homes were built, the price would fall. That would be a benefit to many people.

I also think it's funny that this is "caused" by "slowing urban household formation." The formation of households in Chinese cities is obviously endogenous to the price of housing, which depends on the number of homes. Suppose that homes were free and infinitely plentiful. Undoubtedly, some people living with parents would move out, and more people from the countryside would move into the cities.

hasn't Tyler been predicting a crash in China for years now?

Perhaps China will need to increase its zero percent immigration limit!

Interesting that coastal China is rich just like coastal USA while the middle of the middle kingdom is middling just like the middle of the USA.

Shanghai and Beijing's GDP per capita (PPP) is at $37,000.

Here is a map of China's provinces' GDP per capita (PPP). Almost all are above $11,000 except Gansu toward the center is at $8,000. Go Gansu!

An impressive share! I have just forwarded this onto a coworker who had been conducting a little homework on this. And he in fact bought me dinner due to the fact that I found it for him... lol. So allow me to reword this.... Thank YOU for the meal!! But yeah, thanx for spending time to discuss this topic here on your website.

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