China Growing Too Fast?

Published on Author walkerc

Is China growing too fast?  The country that currently lays claim to the second largest economy is experiencing negative externalities from their rapid growth.  One of these externalities that does not seem to go away is the smog and pollution problem in major cities.  As posted by others already, China is also undergoing another strain of the bird flu.  As China pushes for more urbanization and changes to the economy, these impacts will only grow larger and in more variety.  An article (link below) states that even within three years, China’s economy will surpass that of the U.S. The article pointed out that Obama will be the first president to ever leave the white house without the U.S. being the number one economy in the world.  One thing is for certain, if China is to continue this growth pattern it must make some serious changes to business practices and government decisions.


4 Responses to China Growing Too Fast?

  1. After reading many of the posts on the blog, this question is at the forefront of my mind, because it seems that even with these negative externalities and reports that China’s growth could and should decline in the coming years, the government is determined to keep expanding. Between the increased infrastructure funding in urban slums and even building bigger and better airports, I wonder if the government’s goal is to try and keep the economy growing at its current unsustainable rate. If so, how long do they think they can continue this trend and what are the costs that they are willing to accept?

  2. Also, as I just mentioned in one of the earlier posts, growth in China is causing the standard of living of the people to grow. Thus, they might be looking for higher wage jobs now and cheap labor might not be an option anymore. China might indeed be becoming a victim of its own economy growth.

  3. I don’t think these negative externalities are a function of rapid growth. The United States fought pollution well into the ’70s and ’80s. Pollution in the Great Lakes was a point of contention between the United States and Canada, as industries pumped gallons of lead into the water. This problem, however, was rectified after intergovernmental committees between the US and Canada (and among states, too)worked to tighten regulations and increase enforcement resources. The Chinese government should be able to fix these issues as they focus more on pollution issues.

  4. Winn stole my comment – pollution wouldn’t be an issue if the economy wasn’t large, but on the margin a year of higher (rather than lower) growth makes little difference.

    For “too high” we should rather look at macro indicators, in particular inflation and secondarily labor markets. Ah, but we only have measures of the urban price level, and food prices are important (given still low incomes) but those may be a function of weather and not an “overheating” economy. As to labor markets – how do you judge in the face of shifting migration patterns amidst ongoing increases in productivity? We wantto see rising real wages, don’t we? – in the end, what else could growth be for?

    The other metric for developing countries is the trade balance. However, with over $2 trillion in reserves, and a shift to net income from the rest of the world, China would have to run a big, no a huge deficit (US$250 billion equivalent? bigger?) for it to set off alarm bells. At present, they’re still running a surplus.

    So not only is there the challenge of awkward policy tools – monetary policy can’t be employed incrementally in a system where real interest rates are zero or negative while the economy grows near 10% per annum. There’s also the challenge of figuring out what the state of the economy is relative to potential GDP growth.