The high savings rate, the intention of the leadership in Beijing to moderate the overproduction of certain sectors, the likely development of services and metropolitan areas all make it credible that China is not about to start following Japan into lost decades of stagnation. Already, in recent months, analysts such as Stephen S. Roach explained the evolution of growth in China, writing: “The fate of Japan was marked by a reluctance to give up on a dysfunctional growth model. While China’s commitment to a structural rebalancing is precisely what distinguishes it from Japan”. China’s non-financial debt positively rose from 150% of the GDP in 2008 to today’s 255%, with two thirds of its growth in the business sector, largely state-owned businesses. However, in a nation with savings exceeding 40% of GDP, such an increase is put into perspective. The ratio of Japan’s debt compared with its GDP is approximately 140 percentage points higher than that of China. Moreover, Japan, with a savings rate of 24% of its GDP and in possession of its public debt, is also invulnerable to the flight of foreign investor capital. Logically, this should be worth much more to China, with its savings rate being double that of Japan since 2007. Also, setting the pace of Japan’s lost decade were the moribund companies, kept alive by bank credit with an accumulation of non-performing loans, eluded by the hypocrisy regarding the Japanese leadership. That of China, however, has not removed the problem, but seeks to moderate excess production.
The sustained growth of the Chinese provinces
#China accelerated its economic rebalancing, shifting from export growth to domestic consumption
Besides, the latest data also confirm the optimism: while the rich province of Shanxi and some provinces in the north-east are still suffering the effects of the recession, the provinces in the south-west, Chongqing and Guizhou are experiencing sustained growth and the heavy industry of Tianjin, Shandong and Jiangsu is booming. After the 2008 financial crisis, China accelerated its economic rebalancing, shifting from export growth to domestic consumption goods and services. The ICT, transport, finance, insurance, education and health care sectors which, in recent years have had a low labor productivity, are recovering their productivity margins much faster than other sectors. Moreover, the growth of services in China to meet the domestic demand does not discourage capital investments. On the contrary, it has virtuous effects even in terms of capital investment in infrastructure and equipment. As explained in a paper by Jong-Wha Lee and Warwick J. McKibbin, the growth of service sector productivity in Asia “has beneficial effects in all sectors, ultimately, and contributes to the sustained and balanced growth of the Asian economies”. By examining the trend in the economic development of South Korea, the authors even estimate that the average added value per employee in the transport, real estate and ICT sectors is currently higher there than the average in the manufacturing sector, and is confirmed by similar dynamics in the United States, Japan and even in China. Therefore, a rapid development of a services economy could reverse the slowdown in growth that began in 2008. However, for this to happen, the rate of Chinese urbanization - delayed by years of export-led growth - would need to accelerate. The expansion of metropolitan areas and, therefore, their growth driven by services, could provide a leap for the Chinese economy towards high levels of per capita income.
A rapid development of a services economy could reverse the slowdown in growth that began in 2008. However, for this to happen, the rate of Chinese urbanization – delayed by years of export-led growth - would need to accelerate