World Bank: China can grow at 8% for 20 years

World Bank Chief Economist Justin Lin says China will be able to maintain is magic growth number of 8 percent over the next two decades and may eventually be double the size of the U.S. economy: 

The nation can continue to exploit a “latecomer” advantage by borrowing the technologies and industries of advanced countries at low risk and cost, Lin said in a speech prepared for an event in Hong Kong today.

The world’s second-biggest economy may be twice as large as the U.S. in two decades’ time, based on so-called purchasing- power parity calculations, Lin said. Using market exchange rates, it may be the same size, he added. China’s growth averaged more than 10 percent over the past decade as the economy vaulted past Japan, Germany, the U.K and France.

In an InBox piece for the most recent print issue, I look at at a recent paper by Timothy Kehoe and Kim Ruhl comparing China’s recent economic performance with Mexico, another country that liberalized its economy in the early 1980s and has grown largely be taking advantage of the U.S. consumer market. As of 1995, both economies seemed to be on the way up: China and Mexico were both the world’s largest- and second-largest international and the highest recipients of foreign direct investment, respectively. Mexico’s manufacturing sector even kept pace with China’s legendary industrial productivity.  

Since then of course, China’s economic growth has taken off while Mexico has stagnated. The authors argue that the most important factor to keep in mind is that Mexico is in fact a much poorer country than China. In 2009, China’s GDP based on purchasing power parity was only $6,900 vs. Mexico’s $13,200. (Check out this graph from Matthew Yglesias’ blog for a striking representation of the staggering poverty of the world’s second-largest economy.) China’s growth may start to slow, Kehoe and Ruhl argue, as its people get richer relative to the market leader — the United States.

This isn’t necessarily a bad thing. China’s economy becoming bigger than the United States’ will certainly be an impressive headline when it appears. But, for China’s 1.3 billion people, the day when they’re as rich as Mexicans may be more significant.

Hat tip: China Digital Times.