Given Chinaís unmatched record of a 9.9% annual GDP growth right since the time it began experimenting with socialism with Chinese characteristics in 1978, betting against China has always been a bad idea. Indeed, there is enough commentary from even Chinese leaders on how, while Chinaís export-cum-investment strategy has reached its natural limit, all that China needs to do is to recalibrate, to shift emphasis from investment to consumption and it can easily sustain a 7-8% growth rate. While the previous growth was enough to lift 600 million people out of poverty, a 7% growth means China will contribute a lot more to global growth over the next few years than the US and Europe combined. What should give pause to such optimism, however, is what outgoing President Hu Jintao said in terms of how corruption could cause the Communist Partyís collapse, and the points made in the Partyís resolution on Wednesday.
Interesting analysis by BNP Paribas Equities Research team (excerpted on the oped page today) identifies some of these faultlines that can trip up the Xi presidency. First the maths: between 1979 and 2008, roughly 4.8 percentage points (ppt) of Chinaís 9.9% growth could be attributed to its higher capital formation, around 1.2% to the increase in the labour force, and a massive 3.9 ppt to the increase in productivity. According to the BNP analysis, with the labour force ageing and its productivity no longer rising as fast, labour will contribute just 0.3 ppt in the next decade, capital formation