China’s economy is not as precarious as it looks, says Simon Cox. But it still needs to change
IN 1886 THOMAS STEVENS, a British adventurer (pictured), set off on an unusual bicycle trip. He pedalled from the flower boats of Guangzhou in China’s south to the pagodas of Jiujiang about 1,000km (620 miles) to the north. He was disarmed by the scenery (the countryside outside Guangzhou was a “marvellous field-garden”) and disgusted by the squalor (the inhabitants of one town were “scrofulous, sore-eyed, and mangy”). His passage aroused equally strong reactions from the locals: fascination, fear and occasional fury. In one spot a “soul-harrowing” mob pelted him with stones, bruising his body and breaking a couple of his bicycle’s spokes.
A century later the bike was no longer alien to China; it had become symbolic of it. The “bicycle kingdom” had more two-wheelers than any other country on Earth. Many of those bikes have since been replaced by cars—one obvious sign of China’s rapid development. But even today the bicycle looms large in the battle for China’s soul.
For China’s fast-diminishing population of poor people, bikes remain an important beast of burden, piled high with recycled junk. For China’s fast-expanding population of city slickers, the bicycle represents everything they want to leave behind. “I’d rather cry in the back of your BMW than laugh on the back of your bicycle,” as China’s material girls say. Some dreamers in government see a return to the bike as an answer to China’s growing problems of prosperity—pollution, traffic and flab. The country’s National Development and Reform Commission wants government officials to cycle to work one day a week, though only if the distance is less than 3km.
Even if it is a fading symbol of Chinese society, the bicycle remains a tempting metaphor for its economy. Bikes—especially when heavily laden—are stable only as long as they keep moving. The same is sometimes said about China’s economy. If it loses momentum, it will crash. And since growth is the only source of legitimacy for the ruling party, the economy would not be the only thing to wobble. From 1990 to 2008 China’s workforce swelled by about 145m people, many of them making the long journey from its rural backwaters to its coastal workshops. Over the same period the productivity of the workforce increased by over 9% a year, according to the Asian Productivity Organisation (APO). Output that used to take 100 people in 1990 required fewer than 20 in 2008. All this meant that growth of 8-10% a year was not a luxury but a necessity.
But the pressure is easing. Last year the ranks of working-age Chinese fell as a percentage of the population. Soon their number will begin to shrink. The minority who remain in China’s villages are older and less mobile. Because of this loss of demographic momentum, China no longer needs to grow quite so quickly to keep up. Even the government no longer sees 8% annual growth as an imperative. In March it set a target of 7.5% for this year, consistent with an average of 7% over the course of the five-year plan that ends in 2015. China has been in the habit of surpassing these “targets”, which represent a floor not a ceiling to its aspirations. Nonetheless the lower figure was a sign that the central leadership now sees heedless double-digit growth as a threat to stability, not a guarantee of it.
The penny-farthing theory
Stevens’s 1886 journey across south-east China was remarkable not only for the route he took but also for the bike he rode: a “high-wheeler” or “penny-farthing”, with an oversized wheel at the front and a diminutive one at the rear. The contraption is not widely known in China. That is a pity, because it provides the most apt metaphor for China’s high-wheeling economy.
The large circumference of the penny-farthing’s front wheel carried it farther and faster than anything that preceded it, much as China’s economy has grown faster for longer than its predecessors. Asked to name the big wheel that keeps China’s economy moving, many foreign commentators would say exports. Outside China, people see only the Chinese goods that appear on their shelves and the factory jobs that disappear from their shores; they do not see the cities China builds or the shopping aisles it fills at home. But the contribution of foreign demand to China’s growth has always been exaggerated, and it is now shrinking.
It is investment, not exports, that leads China’s economy. Spending on plant, machinery, buildings and infrastructure accounted for about 48% of China’s GDP in 2011. Household consumption, supposedly the sole end and purpose of economic activity, accounts for only about a third of GDP (see chart 1). It is like the small farthing wheel bringing up the rear.