Eight reasons to be scared of China’s economic reforms, as we’ve recently discussed.
Here are two more reasons to be concerned.
China has been expanding its economic reforms for a very long time now. It has also been expanding its power over international finance in recent years. These two trends have made the Chinese economy the world’s fastest-growing one. They are also the two main reasons to be worried about China’s economic reforms.
But here are two more reasons to be scared of China’s economic reforms:
It is very unlikely that China can successfully carry out its growth targets.
First, China’s growth target of 7.5% annually for the next five years has already been exceeded by several emerging market economies. In the U.S., for example, the economy grew at 5.7% in the second quarter. By contrast, China’s economy grew at 7.5% in the second quarter. That’s a big difference.
Second, even if China meets its target for the next five years (it should be noted, however, that this is just a loose target, and not a set of absolute targets for the country), it will likely fall short of its long-term potential.
When I talk about China’s economic reforms, I’m not talking just about economic reforms that are focused on increasing GDP growth. Nor am I just talking about economic reforms that are focused on increased exports. I’m talking about economic reforms that are focused on improving the quality of all aspects of China’s economy, including its human capital, technology, entrepreneurship, research and development, and infrastructure.
The reality is that China is probably just about at the beginning of a very long road to prosperity. It is unlikely that China can successfully carry out its growth targets of 7.5% annually (by 2022). And even if it manages to do that, it will likely not be in the 7.5% range for at least a few more years.
The road to prosperity is a lot longer than the road to GDP growth.
As we discussed two weeks ago, there are multiple variables that should be considered during any long-term economic forecast. These include the growth of the economy, the growth of labor, the growth of entrepreneurship, and the growth of social capital. China has a very long road to prosperity that is already well-travelled, as we have argued here and here.
The road to