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March 7, 2014

Why China's GDP Will Double in 10 Years

Yes, it’s true: reports of China’s imminent demise are greatly exaggerated, says Shang-Jin Wei, the NT Wang Professor of Chinese Business and Economy and the director of the Chazen Institute.


Don’t believe everything you hear and read about China. Shang-Jin Wei served up some surprising data points that could dramatically affect the nation’s trajectory at a recent World Economic Forum sponsored by the Chazen Institute. He’s the NT Wang Professor of Chinese Business and Economy and the director of the Chazen Institute.

Why pessimism about China is unfounded: China’s GDP will double in size in about a decade. Many people will be overly pessimistic about China in the first half of the next decade and will start to revise their views along the way.

What it will take to get there: On the path to catch up with the United States in absolute GDP, there will be growing pains. There may well be a crisis or two in China: financial, environmental, international relations, and maybe some other crisis for which we don’t have a label yet. Yet the country will grow out of crisis and will do reasonably well. Of course, the future is preordained. There is a 70 percent probability that China will be recognized as another Korea, successfully transitioning to a more innovation-based growth model. There is 30 percent probability it will be like another Argentina, a once promising but eventually disappointing performer.

The eventual slowdown: If China is an “average country,” the growth rate should naturally slow down after three decades of high growth. In addition, it is common to hear pundits stating that demographic factors are not favorable for China. By demographics, people typically mean either the population size or the age structure. But China is not an average country, and there is another dimension of demography that is very, very important for about a dozen or so countries, and China happens to be one of those. That demographic feature is the ratio of young men to young women in the dating and marriage cohort. Now, what am I talking about? For most countries, including the United States and Germany, the ratio of young men to young women is one to one. That’s just the natural ratio. In a few countries — China, Singapore, Vietnam, India, Korea, and Switzerland — for the youth cohort, the young-men-to-young- women ratio is above one. China happens to have the highest ratio in the world right now – about 1.15. That means than one out of every nine young men cannot find a wife, or even a date. This is a serious situation.

Why sex ratio matters: Because of the preponderance of men would want to have a wife, the actions they and their parents are willing to take to avoid involuntary bachelorhood can affect economic growth rates. Because relative wealth is a competitive weapon on the marriage market, Chinese men are more willing to do hard work, take risks to be entrepreneurs, postpone consumption, and save and invest now than when the sex ratio is more balanced. In Chinese provinces, those regions with worse-than-the-national-average sex ratio imbalance also tend to produce more entrepreneurship. Look at the growth of newly incorporated privately owned firms. They are more numerous and grow much faster in regions where the marriage market is more competitive. More entrepreneurship, more savings, more investment, and willingness to undertake harder worker are things that contribute to higher productivity and higher growth rate. This demographic factor is not captured by standard economic textbooks.

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