Can China avoid the middle-income trap?

 

The World Bank has just released its detailed report (below), China 2030: Building a Modern, Harmonious, and Creative High-Income Society, which seeks to answer the questions:

  1. Can China’s growth rate still be among the highest in the world even if it slows from its current pace?
  2. And can it maintain this rapid growth with little disruption to the world, the environment, and the fabric of its own society?

The World Bank believes that the export-led model that has delivered the past 30-years of growth and development in China has now run its course and that China can only succeed in becoming a modern, high income country if it implements a six-step series of reforms, namely:

  1. Market-based reforms, including redefining the role of government, reforming and restructuring state enterprises and banks, developing the private sector, promoting competition, and deepening reforms in the land, labor, and financial markets.
  2. Accelerate the pace of innovation and create an open innovation system in which competitive pressures encourage Chinese firms to engage in product and process innovation not only through their own research and development but also by participating in global research and development networks. Essentially, the World Bank recommends that China seek to move away from being an imitator to an innovator in its own right.
  3. Introduce market-based incentives, regulations, public investments, industrial policy, and institutional development that encourages China to transition to a greener economy and fosters more efficient resource use.
  4. Reducing inequality by expanding opportunities and promoting social security for all by facilitating equal access to jobs, finance, quality social services, and portable social security.
  5. Strengthen the fiscal system by mobilizing additional revenues and ensuring local governments have adequate financing to meet heavy and rising expenditure responsibilities. This reform could also reduce the need for local governments to raise tax revenues via property development and speculation.
  6. Sixth, seek mutually beneficial relations with the world by becoming a pro-active stakeholder in the global economy, actively using multilateral institutions and frameworks, and shaping the global governance agenda.

According to the World Bank, these six priority reform areas lay out objectives for the short, medium, and long term, and Chinese policy makers need to sequence the reforms within and across these areas appropriately to ensure smooth implementation and to reach desired outcomes.

At the heart of the World Bank’s paper is the middle-income trap – the notion that developing economies tend to stop developing without institutional change once their per capita income reaches $10,000-12,000 a year. The China Bystander blog has a fantastic post explaining the middle-income trap phenomenon and relating it back to China:

“There is not a single country that has good quality institutions and is poor,” Mihov said in Singapore. “The gap between rich and poor is driven by poor productivity that is linked to poor quality institutions and poor business environment.”  As evidence he offers the contrasting experiences of Singapore and Venezuela. Even more dramatically, consider the economies of the old Soviet bloc, which collapsed as per capita incomes hit and then got stuck at the $12,000 a year level (adjusted for current prices).

China’s annual per capital income is $4,000. At current growth rates that gives it less than a decade before it starts bearing down in earnest on that tipping point or The Great Wall as Mihov inevitably dubs it [see below chart].

What makes for the aforesaid poor quality institutions and a poor business environment includes political instability, government inefficiency and the prevalence of corruption. Those are factors within government’s control…

The growing economic and political clout of state-owned enterprises is another possible impediment to progress. Like Japan before it, China has grown fast by replicating and improving on what advanced economies have already done and producing and selling the results much more cheaply. Yet, as Japan found out, there comes a point where innovation has to replace imitation if growth is to be sustained…

Beijing is throwing a wall of money and of engineers and scientists at making its national champions more innovative (dealing with diversity isn’t even on the radar). Yet in the process of building up the SOEs it is distorting markets and entrenching vested interests that increase the resistance to reform. It also crowds out small and medium sized companies where growth-generating innovation truly flourishes. Those need a particular business environment which is possible only with good institutions and a regulatory and governance regime that may not be to the taste of big business in the form of the SOEs, who see their (patriotic) role to be competing with other multinationals not fending off pesky upstarts at home.

That sets up a dilemma for the leadership. If the Party’s legitimacy to monopolistic rule depends on continuing to deliver the economic growth that keeps its citizens getting richer and Mihov is right that the country’s rapid economic growth cannot continue beyond a certain point without institutional reform, then managing the role of government in the economy and overcoming state-owned vested interests — in other words reforming itself — becomes China’s policy planners most important concern.

With China also facing a demographic timebomb courtesy of its rapidly ageing population from its one child policy, many observors believe that China will ‘grow old before it grows rich’, impeding its ability to achieve high-income status.

What do you think: can China avoid the middle-income trap? Or will it join the long list of nations stuck in the middle?

World Bank China 2030 Complete

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Unconventional Economist

Comments

  1. this is an excellent article with pointed question.

    can china avoid the trap is the same as asking if the institutional framework can change for the better. Such a framework should, at least on paper, to bring the best out of the people, and this is sadly not the case today.

    so will china stagnant like some many other nations before it? unlikely. one theme doing rounds a few years back amongst china’s intellectuals is : why dynasties always end in a bloodbath and can not find a middle ground, like meji restoration.

    • History would suggest it will stagnate.

      The MAJOR observation of the industrial revolution was, and it was the first time in history, that a sizable middle class developed.

      It should be an economic-history 101 lesson that aggregate demand is analogous to a vine crawling up from an economically empowered middle class, who collectively award margins to (the best) product providers. Not trickle-down with product providers ‘creating jobs’ out of their margin.

      The industrial revolution was seismic in-so-far as productivity gains and hence margins were to be distributed. Coincidence was that the artisan class captured a lot of this margin, then this spurred this ‘vine’ like nothing seen before in history.

      Now essentially China and India are going through their industrial revolutions, and this is what what inspires the RBA’s ‘super-boom’ thesis in regards to the Australian economy.

      History has shown that to continue their path of productivity gains, the grand children of the for ‘industrialisers’ are now skilled technicians (ala. 500,000 Chinese engineers coming on line every year). For the Chinese government, unfortunately for such an autocratic regime, these skilled people require an education, which traverses beyond calculus and into independent thought.

      Independent thought means they will demand things. China is stuck between giving them ‘stuff’, which isn’t a lot on $4,000 a year.. or making them graft which will lead to dissent.

      Dissent can’t be channeled away easily in an autocratic regime, unlike say the dissent of Liberal party voters can be channeled away by Andrew Bolt like muppetry.

      China views its mission to be like Singapore on steroids.

      I think that will not work, Singapore succeeds in part because it is niche. One fifth of the worlds population can’t be niche. Dissent will stagnate its cause until it gets old.

      • Singapore (like Hong Kong) succeeds comparatively because it derives a lot of state revenue from land / rents, rather than capital or labour. In turn, high-market niche products are produced (much like in Switzerland and Liechtenstein).

        China is just like America: a rentier’s paradise (somewhat dirty as a result).

        • Yep, 5 million people in Singapore can easily obtain suitable rental income rom the rest of the world.

          Now for China with its 1.3 billion, it needs to find rental streams 260 times that of Singapore to have parity in rental income.

          A bit harder.

      • a stagnant china in the 21st century will be quite unlikely. AD 618 or 960, maybe.

        unless the institutional framework changes for the better, and becomes for the people (not even of the people or by the people), driven by whatever reason, china will likely slam into the great wall, or descend into chaos if a peaceful transitional route can not be found.

        in 10 years or so the inflection point will arrive and all that will transpire then is caused by events today, providing of course, we do see sunrise at end of 2012

  2. Old before rich will apply to the vast majority of the chinese populace, while the connected party crooks will escape offshore with the loot. Ageing will be the ultimate hard landing and the young will revolt…not a question of if, only when…a decade might be a bit short but then investment and shadow banking card tricks can’t keep their economy afloat while the world economy slides down and ever steepening slippery slope.

    What will happen to China’s fabled reserves as inflation eats the dragon from the tail?

  3. So the World Bank publish another paper that advocates China to be ‘more like the West’, ‘open up their market’, and ‘consume more. The problem facing China cannot be solved with these policies.

    The biggest problem facing China right now is land. Too many vested interest relies on the price of it remaining high, however that makes it unaffordable to the average worker. The median price to income ratio of an apartment is over 30 times in major cities, and goes to 60 times and more for Beijing and Shanghai. The rich ends up owning more and more land, while the poor owns less and less, and this pattern is repeated throughout Chinese history, eventually leading to social unrest and disintegration.

    China need a new asset class for the rich and powerful to speculate that will not impact the average citizen. Because you can never have a ‘free market’ when it comes to real estate, it is far better to have a ‘regulated market’ compared to one controlled by vested interests.

    • Well those that suffer will be the Chinese, and further lead to them stagnating.

      High housing prices mean NOTHING as far as wealth goes.

      The aggregate price of ‘stuff’ is really the ratio of money to product, nothing more. If the distribution of money is overly concentrated in something like housing, thus the owners are rich by default, so be it.

      The impediment here is, and PhilBest narrates its more than anyone, is that high housing prices are a productivity barrier. Housing is a shelter utility for labour, and high housing prices effects motivstion and mobility.

      Ulimately, product brought to market is real wealth, not the price tags associated with them.

      High housing prices and its effect in the economy can be summed up as;

      “There’s nothing here, but what here is mine”.

      Japan to date, with high housing prices now exceeding one full generation has shown us a phenomenom called ‘freeters’.

      If they feel they are locked out of housing, thus other societal outcomes such as marriages , thus children, they do not strive for much beyond substinance.

      It is a rational outcome when you think you are eternally locked out of housing.

      The Germans probably abhore high housing prices for this reason.

    • Land prices are too high because the Chinese financial system has developed at a slower rate than the real economy. ie. incomes and savings have grown much faster than desirable savings vehicles.

  4. Sex imbalance in the younger generations must also be considered. How does a society manage a situation of too many potential husbands vs wives?
    Relaxed immigration rules?
    How does that impact the supposed homogenity of ‘Han’ Chinese?
    Doesnt it introduce dangerous new ideas and social tensions?

    This is a sleeper issue.

    • ,i>Sex imbalance in the younger generations must also be considered. How does a society manage a situation of too many potential husbands vs wives?
      Relaxed immigration rules?

      Yep, selective migration.

      i.e. Brides from

      How does that impact the supposed homogenity of ‘Han’ Chinese?

      Bumniputra/Apartheid in favour of the Han

      Doesnt it introduce dangerous new ideas and social tensions?

      Yep, but if it is sole superpower, so what?

      The U.S has had a major element of racial tension since 1865, and its current MO with dealing with it is gated communities.

  5. The WB report itself states:

    “…But two questions arise. Can China’s growth rate still be among the highest in the world even if it slows from its current pace? And can it maintain this rapid growth with little disruption to the world, the environment, and the fabric of its own society?

    This report answers both questions in the affirmative, without downplaying the risks.”

    The risks are assessed in considerable detail, clearly acknowledging the continuing challenging path ahead. China’s socio-economic shift is of a magnitude not witnessed in the modern era, fraught with potential dangers and no doubt, occasional setbacks – a key one in my view will be massaging and moderating of the social-fabric, striving to reduce inequality and some reduction of corruption, particularly at local government levels.

    The report containing the graph above maintains that China has considerable potential for further growth, for a period of years and this is fully expected. The Economist article is also worth a read. The article again covers the idea that the fixed asset infrastructure development to date is desirable, will be utilised (despite the occasional white elephant). The Economist tells of China’s plan to build (over the next couple of years) more than fifty new airports and to quintuple the high speed rail network by 2015. Pettis and Roubini issue the obligatory warnings.

    It appears that escaping the middle-income trap as described, most importantly depends on the strength of a nations institutions. The report sees this an area where China is substandard. China is a nation that has refined the art of bureaucracy to the nth degree, with established methods, community expectations and even idiosyncasies (eg Guaxni). I would expect their institutional framework to continue to evolve and believe they be successful in that regard.

    It may turn out that China achieves a solid middle-income demographic, avoiding any trap – simultaneous with the developed West watching over the rapid decline of its very own, formerly very comfortable middle-class!

    • This is a very positive view.

      China is attempting something that has never ever been achieved on this scale. The chances of it being successful must be extremely small.

      In its history, it has had numerous implosions caused by changes of smaller magnitude.

    • The article again covers the idea that the fixed asset infrastructure development to date is desirable

      Yeah whatever MineBot. You keep telling yourself that.

      China has many, many challenges ahead including:

      – Reducing its total dependency on fixed asset investment for economic growth
      – A looming demographic timebomb resulting from the one-child policy that began in the late 1970s
      – Supplying itself with enough oil (at reasonable prices) for several hundred million new car owners
      – Supplying itself with enough electricity without making the air in Chinese cities completely unbreathable and without tipping the globe towards climate catastrophe
      – Feeding itself without completely depleting the aquifers in northern China.

      All of these problems have to be overcome before most Chinese will experience Western-style standards of living.

      Remember, Australia has bet the house on being the supplier of raw materials to China. There is no Plan B for the Australian economy.

      • Lorax…. your being silly. Our plan B is to create a “clean energy future” where we will create wind turbines, magical fairies who give us reliable electricity from the sun and tree’s, so many tree’s as the eye can see.

        We will then export these products to China and become green.

        Australia’s plan.

        Part 1 – Sell dirt to China to build its economy
        Part 2 – Once China is a big western style country we will export green technology as they become concious of their effects on the environment.
        Part 3 – Stick our heads in the sand about everything else.

        On paper it looks good, but how many other plans look good on paper but are not realistic or achievable.

        • Actually we’ll export the dirt to China, and import it back as wind turbines, solar panels and electric cars. We sure as hell won’t be designing or building those things here.

        • Challenges you routinely gloss over and put a positive spin on.

          BTW, was this you who posted here? It seems completely out of character!

          • 1. Well I’m not going to waste my time anxiously obsessing over them!

            2. Yes. I will be attending Nicole Foss’ (Stoneleigh) presentation here in Perth in March. Have read TAE for some time now, like some of what she has to say, thought she was one of the first (and spot on) to assess Fukushima.

            I attempt to avoid confirmation bias by reading widely, maintaining an interest and curiosity in a range of issues, listening to diverse opinions (even those I may not agree with). You should try it.

            Take off those blinkers!!!

          • 1. Yeah, I mean why even bother thinking about these things. Denial is so much easier. I mean, take climate change…

            2. I read you every day, is that not enough? I was once a regular visitor to Bolt’s blog, until he started banning me, and it became downright offensive. I read, and post at, several right-wing blogs, so I certainly see the other side. Heck, I even read Gittins! for as long as I can before vomiting.

      • “All of these problems have to be overcome before most Chinese will experience Western-style standards of living.”

        PC adherents of the Standard Model need read no further!

        Pro:
        “According to the 1992 Wonderlic Personnel Test and Scholastic Level Exam Users Manual, at an IQ level of 106 we might expect to find bookkeepers, credit clerks, lab techs, salesmen, and secretaries. At slightly higher IQs we find registered nurses, sales account executives, administrative assistants and store managers.

        These people are not rocket scientists. They are, however, vital to a flourishing economy. Any nation can supply enough businessmen and CEO types, but to succeed economically it needs a cognitive core to carry its water–a smart fraction if you like.”
        http://www.lagriffedulion.f2s.com/sft2.htm

        Con:
        http://www.guardian.co.uk/environment/graphic/2010/oct/13/wwf-living-planet-report
        In short “most Chinese” will NEVER “experience Western-style standards of living” for the very simple reason that the planet does not possess enough resources.

  6. Thats a good question. I think they will be stuck in the middle.

    To become a high income country and avoid a period of deflation, the median Chinese income has to grow rapidly – long-term growth depends on it.

    But short term, the Chinese elite continue to benefit through the supression of incomes – (the fast industrialisation, low wage, export model).

    I don’t reckon they can just switch gears and go from one model to another without some major political changes. The elite isn’t ready for these changes and even if they were, it would probably take decades. You can’t just flick a switch and create democracy, legal equality, labour unions etc. etc.

    • “…the Chinese elite continue to benefit through the supression of incomes…”

      You could substitute ‘Chinese’ for almost any other!

      “…You can’t just flick a switch and create democracy, legal equality, labour unions etc. etc.”

      Are all of these even necessarily desirable from a Chinese perspective? We tend to see things through a Western social democratic prism. Just thoughts.

      • Well, as an immigrant from China, I can tell you people there desire the social security we have here in Australia. Otherwise, why the demand for permanent residency in western countries with good welfare systems like Canada and Australia?

        The reason lots of people stay behind is because they can’t leave because of cost and lack of education and work opportunities.

        What you’re suggesting, if China doesn’t need legal equality etc. is that it keeps going the way it is ad infinitum. There’s no way that a middle class proportionate to western countries can form if the vast majority of people are still on very small incomes.

        • I am not suggesting that is the case, I am pointing out that we see things through our own prism – a view that may or may not be that of those we prescribe our view to, nor necessarily in their best interests at a particular point in time.

          This month’s Foreign Affairs magazine has a range of thoughtful articles under the umbrella of “The Clash of Ideas: The Ideological Battles that Made the Modern World – and Will Shape the Future”. Well worth purchasing. The article by Fukuyama discusses the role of the middle class, the middle class’s sometimes surprising preference for a sort of non-democracy (curiously to protect their relatively new-found and fragile economic position). This and other discussions are probably uppermost in my mind, hence my point.

          The journal also has interesting articles on the challenges and future of globalisation (given the hollowing out that transpires in some economies together with increasing pressure on the middle class) and on the future of the Euro, the Dollar and the Yuan.

          Buy it Now!

      • “Are all of these even necessarily desirable from a Chinese perspective?”

        I think they are. Because when a country is growing at 9% and changing so rapidly to an industrial economy, various interests and tensions emerge which didn’t previously exist. One voice wants free trade another wants protection, one wants a deeper financial system another wants financial repression, one wants social reforms another doesn’t and so on. If you don’t have a political system which allows these debates to happen and compromises to be reached (ie a liberal democracy), the country isn’t able to develop.

        Look at the US during the gilded age. The only reason they were able to go from a country torn by civil war to a superpower at WW1, was because the political system included new interest groups and allowed compromises to be reached.

  7. Basically, China needs to give up its centrally planned economy to prosper. That simply wont happen.

    In terms of their “growth”, much of it is unproductive. Constructing buildings for the hell of it does not bring genuine growth.

    In terms of creating a middle class, China must rely on the wealth of developed nations as its “growth” engine. It cannot organically create a large middle class through internal demand; the structure of the economy just doesnt allow it. Given that the developed nations are at or nearing debt saturation, the main growth engine for China wot be there. I dont see China being able to innovate in the manner required any time soon.

    All in all i cant see how China can maintain rapid growth that is also productive and creates the consuming middle class that they desire.

    • In terms of their “growth”, much of it is unproductive. Constructing buildings for the hell of it does not bring genuine growth.

      Yes it does.

      It may not bring about an immediate boost in productivity, which is what ‘opportunity cost’ is all abut, but it does bring about an eventual gain when the utility of the building is exercised.

      What is unproductive is bidding up the price on existing buildings.

      In terms of creating a middle class, China must rely on the wealth of developed nations as its “growth” engine. It cannot organically create a large middle class through internal demand;

      No it doesn’t rely on it. it’s using is current process to capture and transfer the existing wealth of developed nations because it is easier.

      But the second statement, IMO, is a certified falsehood.

      The middle class create wealth if it can demand it. If more of the wealth it generated was distributed to them, they’d demand more.

      But we can observe their wealth is not distributed to them, it is showing up instead in China’s current account surpluses and being costed into an artificially low Yuan.

      the structure of the economy just doesnt allow it. Given that the developed nations are at or nearing debt saturation, the main growth engine for China wot be there.

      The existing structure, yes. But I am of the belief as few minor tweaks can resolve this part.

      I dont see China being able to innovate in the manner required any time soon.

      The Chinese have never been innovative. Their last major technological breakthrough was the wheelbarrow.

      They don’t need to be innovative, there are 5.7 billion other humans who can do that, they have 1.3 billion consumers to fund it.

      All in all i cant see how China can maintain rapid growth that is also productive and creates the consuming middle class that they desire.

      Domestically wage share increases and profit share decreases.

      Problem fixed.

      • Where is this wealth you are talking about? As far as i can tell China’s debt to GDP ratio is over 100% just like the rest of us. Their recent growth has been through stimulus not due to demand. I dont see where this excess wealth is coming from that they can then redistribute under the model you propose. I dont see where there is any kind of engine for internal demand that is not artificial and supported either by printing or debt.

        You assume that there will be utility from those buildings. I dont. That same argument was made during Dubai’s construction boom as well. For there to be utility in the mass construction there needs to be genuine wealth-producing growth.

        I think you underestimate the structural issues. Its far beyond a few tweaks, and IMO far beyond anything that a command economy can repair. A command economy will tend towards greater inefficiency over time, China is no exception to this rule.

        • RP is in fine form today so I am sure he will respond to the bulk of your question.

          A couple of quick things:

          From The Economist (referred to above)

          “…the country still enjoys a considerable tailwind from urbanisation and a huge potential for productivity gains as it adopts new technology. He says a scattering of white-elephant projects (including the odd ghost-town of uninhabited new housing and office developments) does not concern him: “There’s no question that there are excesses, but the basic thing they are doing is sensible.” Louis Kuijs of the World Bank agrees. He sees the trend growth rate easing over the coming decade, but not dramatically. New infrastructure is generally being put to good use. Even though investment as a proportion of GDP is high, China’s accumulated investment in fixed assets is still low. Real wages have been rising strongly, which should help boost consumption.”

          A recent link from Sinocism re China rebalancing:
          http://www.eastasiaforum.org/2012/02/12/china-s-economic-rebalancing-already-underway/

          I just think it a mistake to wear the China Fail glasses all the time (permanently affixed to Lorax). The China story is unprecedented, the mix of centrally planned economy with strong market characteristics uncommon. China is a ‘wait and see’ and ultimately I hope, a success.

          • I just think it a mistake to wear the China Fail glasses all the time (permanently affixed to Lorax).

            At least I don’t have rose-tinted glasses glued to my forehead!

            Besides, if China has a major hiccup now, I think that is far better for Australia in the long-term than a few more years of us betting everything on an unsustainable construction boom.

            I would argue mine is the optimistic view, its just not very good for miners in the short-term, and if there’s one thing the MineBot is interested in, its the short-term interests of miners.

        • Where is this wealth you are talking about?

          It is in the factories that dominate their landscape and provide a grat deal of world manufacturing.

          It is in the mines and farms they own throughout Africa and Australia.

          It is in the productivity enhancers they such as ports and fast rail.

          They own real assets that brings product to market. Product other people pay for.

          As far as i can tell China’s debt to GDP ratio is over 100% just like the rest of us.

          Their debt is also owned by other Chinese, in that scenario all that happens is a change of Chinese owners. The real asset still keeps on producing.

          Their recent growth has been through stimulus not due to demand. I dont see where this excess wealth is coming from that they can then redistribute under the model you propose.

          The wealth is as I described above. The means for Chinese to demand it inolves a re-calibration of wage share.

          I dont see where there is any kind of engine for internal demand that is not artificial and supported either by printing or debt.

          It is supported by increased wages, an increase that can come from taking from Current account surpluses or inflating their currency. They have plenty of scope to increase wages.

          You assume that there will be utility from those buildings. I dont. That same argument was made during Dubai’s construction boom as well.

          They will be filled in the future, it’s just while they are empty they aren’t providing utility. This opportunity cost, and can test the solvency of those that may have built this with credit.

          In the case of insolvency, what happens is a change of owners, the building, thus the wealth, does not implode and disappear.

          For there to be utility in the mass construction there needs to be genuine wealth-producing growth.

          Population won’t be shrinking any time soon, it will be occupied. Maybe not now, thus it is a less than ideal formation of wealth, but it is a formation of wealth none the less.

          I think you underestimate the structural issues. Its far beyond a few tweaks, and IMO far beyond anything that a command economy can repair. A command economy will tend towards greater inefficiency over time, China is no exception to this rule

          I never said it was an exception, I’m saying China is full of wealth, they are buying ours for example. I am also saying they have the capacity to increase the demand capabilities of their population.

          • They will be filled in the future

            Er, why? Plenty of infrastructure has been built all over the world that was never used to its full capacity. China has built more infrastructure more rapidly than any nation in history. Its inevitable that more of it will go underutilised forever.

            Call me when the South China Mall has more than 5% occupancy. Then I’ll start listening.

          • Er, why? Plenty of infrastructure has been built all over the world that was never used to its full capacity.

            Never is along time, care to name them?

            Infrastructure by its very nature will eventually be fully utilised barring a catastrophic impact on population.

            Things like the empire state building and the first trans-atlantic telegraph cables were initially underutilised for a long time, but that changed.

            China has built more infrastructure more rapidly than any nation in history. Its inevitable that more of it will go underutilised forever.

            As I said, forever is a long time.

            Call me when the South China Mall has more than 5% occupancy. Then I’ll start listening.

            OK, leave your number here and I’ll give you a call.

          • Infrastructure by its very nature will eventually be fully utilised

            Even if its not actually, ummm, useful?

            Care to name a few? Ummm … Sydney monorail, Sydney cross-city tunnel, various Olympic stadia around the world (Montreal, Athens, Beijing), actually pretty much everything built in Athens leading up to 2004, London Millennium Dome, Shanghai Maglev train, the NBN?

          • Infrastructure by its very nature will eventually be fully utilised
            Even if its not actually, ummm, useful?

            If it is not useful, then it has no meaningful utility and would slip outside the realm of infrastucture.

            The Empire State building has utility, the first trans-atlantic telegraph cables had utlity…. they were just price mismatched.

            However to follow on with your examples….

            Care to name a few? Ummm … Sydney monorail,

            Priced incorrectly.

            Priced correctly it would take away immense traffic from the tram for example. Priced correctly it would always serve traffic.

            Sydney cross-city tunnel,

            Definately price, see above.

            various Olympic stadia around the world (Montreal, Athens, Beijing),

            Price, see above.

            actually pretty much everything built in Athens leading up to 2004,

            Price, again see above.

            The are facilities that will always have a desire to be used, sporting facilities are always in demand. Its just at this point in time the clearance price is mismatched.

            London Millennium Dome, Shanghai Maglev train, the NBN?

            First two, price mismatch.

            Now the last one, c’mon 😀

            That will never be utilised now? Now you’re really having a laugh. At a cheap enough price I will use the entire NBN’s bandwidth all by myself.

            I agree that the NBN may not now, or for a long time meet its full utility poetential or return a decent IRR, and for that the extraordinary expense will be opportunity cost, but that does not means it has no measureable utility.

            With measureable utility, it has wealth.

          • If it is not useful, then it has no meaningful utility and would slip outside the realm of infrastucture.

            Well ok. I would argue that there’s a lot of stuff being built in China ATM the purports to be infrastructure but its not really.

            Yeah, I threw then NBN in there to see if you were awake. Mind you, by the time the demand is there, it may have been superseded by a superior technology.

  8. There is absolutely no way they can avoid the middle-income trap. The main reason being, in order to progress from an exporter of goods based on cheap labour they need to educate people. Once people are educated they will start asking questions about the government.

    The last thing the government of China could withstand is a large proportion of their citizens asking too many hard questions. The country is almost as divided as Europe in terms of culture (not quite but it certainly has parallels).

    China is held together by an autocratic iron fist. A modern, rich and free society is the anti-thesis to this kind of government, especially one where everyone speaks a different language.

    The first sign of dissent from one of the provinces would be met harshly and that would be the end of any modern institutional reform.

    It’s not going to happen. The next big economy will either be India come out of South America (seen Colombia’s growth lately?). China’s boom is going to end up a blip on history and will either divide itself up or stagnate indefinitely.