China’s continuing economic failure

In my post on Saturday on the 80th anniversary of the formation of the National Party, I noted that New Zealand’s main political parties haven’t got much to be proud of in their conduct of New Zealand’s economic affairs.  But our problems need to be kept in perspective.

Today is another anniversary.  It is the 50th anniversary of the launch of the Cultural Revolution in China by the Communist Party government led by Chairman Mao.

Newspapers and magazines around the world have been drawing attention to the fact that the Chinese Communist Party government will not be marking the occasion: “China deploys amnesia” was the FT‘s headline, “China buries memories” was USA Today‘s and “Cultural revolution anniversary now ‘taboo'” was The Australian‘s headline.   For whatever reason, New Zealand newspapers seem to be sharing in the burying of memories –  no mention at all in today’s Dominion-Post, and as far as I can see nothing on the Herald website.  MFAT will, no doubt, be pleased.

The horrors of the Cultural Revolution – coming only a few years after the mass starvation of the Great Leap Forward –  are well-summarized in the Guardian article I linked to above.   Any Party responsible for those sorts of  systematic abuses would normally be shunned by the rest of the world.   And –  which is the point of this post –  it is not even as if the Communist Party of China can claim economic successes to, in some sense, mitigate its guilt.  Eggs (and worse) have certainly been broken, but the subsequent omelette is pretty underwhelming.

Here is a chart showing GDP per capita for China, and a range of now-advanced Asian countries/economies.  I’ve shown each country’s GDP per capita as a percentage of that for the United States for each of 1913, 1950, and 2014, using the Maddison database for the 1913 observation and the Conference Board (which built on Maddison’s work) for the more recent observations.  Data are a bit patchy in those earlier decades, but 1913 was before China descended into civil  and external wars (from the late 1920s), and 1950 was the year after the Communist Party took control of the mainland.

asia gdp pc cf US

What stands out is just how badly communist-ruled China has done economically, and especially relative to the three other ethnic-Chinese countries/territories.  Substantial re-convergence has happened in all the other countries on the chart, but that in China has been excruciatingly slow.  A few buoyant decades (the aftermath of which we have still to see) struggle to make up for the earlier decades of even worse Communist mis-rule.

And, actually, the GDP per capita numbers somewhat flatter China (even if we take them at face value, which few would now do).

Here are the Conference Board’s estimate of hours worked per capita for the countries in the chart relative to the US.

Hours worked per capita: ratio to the US
China 1.94
Singapore 1.70
Hong Kong 1.41
South Korea 1.35
Taiwan 1.23
Japan 1.08

The average Chinese is estimated to work almost twice as many hours per annum as the average American.   One expects people in poorer countries to work longer hours  (and, for example, New Zealanders also work more hours than people in most Western advanced countries), but the difference is particularly stark for China.

There isn’t a good long time series for GDP per hour worked in China, but here is a cross-country chart showing the 2014 Conference Board numbers, with the Asian countries I’ve looked at here highlighted in red.   Not even Singapore is in the really top tier of countries on this measure, but it is striking just how far down one has to go to find China.

gdp phw asia

Real GDP per hour worked in China – even using official data –  is still only about 11 per cent of that in the United States.  It is, among other things, such an enormous waste of potential.

china gdp phw






4 thoughts on “China’s continuing economic failure

  1. Interesting that despite all the ‘growth’ in China via debt fuelled infrastructure spending and housing there is so little to show for it.

    The difference between China and the other Asian nations you show could be partly explained by the relatively small services sector in the Chinese economy and the difficulties the Party is having transitioning from a ‘build it and they will come’ mentality to a ‘services rule’ framework.

    Tyler Cowen had a good piece on this a while back at Marginal Revolution University.


  2. Okay, fair enough. But I think it is a very interesting question to ask what is right with the Asian Development Model (ADM), and what can we learn from it. Since 1978 the CCP has more or less followed the ADM script, with much more successful results. I think there is a fair bit of evidence that the ADM is a pretty good formula for developing countries to generate growth, and also that the model hits some inherent limitations at the middle income stage, at which time it is appropriate to adjust to a more free market approach.

    Joe Studwell has written an interesting book on the ADM which boils down to land reform, keeping finance on a tight leash and tying industry support only to export performance. But another common theme, which he doesn’t discuss, is that ADM countries make sure there are plenty of savings to support the required level of investment. This is not just household savings but also corporate and government savings.

    It is also funny that there are not many Asian economists writing about the ADM for a Western audience. I have a book on the history of Japanese economic thought, and it seems that much of the model originated from politicians, not economists.


  3. “with much more successful results”. If you mean, relative to previous disastrous decades then I agree, but China was so far behind that any development model would have allowed catch-up, probably even an East German one. It is probably harder for a country the size of China to catch-up than, say, Singapore (China’s choices have global ramifications etc), but the performance to date is pretty unimpressive. My hypothesis (unprovable) is that a weak exchange rate, combined with secure property rights, and no govt-driven investment booms would have put China today in a better position (level and sustainability) than it is now.

    I still find it telling that (oil-endowed countries aside) the countries with the highest levels of productivity are Western ones.


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