How did China do it? – Arthur Kroeber

Shanghai mall by Fantake via Flickr

The world is still at best marginally recovering from a global crisis, while China is booming already. Arthur Kroeber explains in Market Oracle how it comes that for the first time the roots for economic rebounds were not found in the US, but in China. And while China’s export fell in 2009, its economic growth went up, for the first time in 30 years. That looks good now, but does not mean China is heading for an easy ride, says Kroeber. He makes two points.

First, the value of the export for China’s growth has always been overestimated, writes Kroeber.

Aside from the roll-over in exports, China’s second important turning point is a bit further off, but is no less crucial. For the entire three decades of China’s reform era, the dependency ratio–the ratio of people of non-working age to those of working age–has been falling, from a high of around 80 dependents per 100 workers in the mid-1970s, to under 40 today.

As in the other high-growth Asian economies before, a falling dependency ratio resulted in a higher saving rate, which enabled large investments, and an abundant labor force, which kept wages low. By 2015 at the latest, this ratio will start to rise because of the aging population, and the “demographic dividend” will turn into a demographic tax. The saving rate will begin to come down, the labor market will get tighter, and real wages will start to rise more sharply. A tighter

Arthur Kroeber by Fantake via Flickr

labor market and upward wage pressures were already in evidence by 2007, and will re-appear quite soon once the impact of last year’s financial crisis fades.

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Arthur Kroeber is a speaker at the China Speakers Bureau. When you are interested in having him at your conference, do let us know.