The secret of China's success - and what it means for the west
“Every dollar the Chinese government invests creates two dollars in extra gross domestic product.”
Summary below by Anthony O'Brien
There’s little doubt that China is challenging the existing world economic order, just as the United States did in the late 19th century. But what has made China’s meteoric growth possible? And what does it mean for the developed world?
The secret to China’s success is simple: sustained capital investment, especially in infrastructure. Productivity enhancing investment creates sustainable, and more equitable, economic growth — and since 1980, China has been out-investing the developed world by a considerable margin. Since 2003, it has been investing more than 40% of GDP every year.
Driving demand by increasing supply
In China it is supply, not demand that constrains economic growth. By investing in infrastructure to drive up supply, Chinese authorities help to unlock latent demand.
Raising wages for increased equality
There’s a clear purpose to China’s investment spending: raising real wages across the entire population. In so doing, China will begin to consume more while also tackling the great problem of inequality.
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Frequently Asked Questions about this Article…
The secret to China's economic success lies in its sustained capital investment, particularly in infrastructure. This approach has allowed China to enhance productivity and achieve sustainable and equitable economic growth.
China has been out-investing the developed world by a significant margin, consistently investing more than 40% of its GDP annually since 2003. This focus on infrastructure and capital investment is a key differentiator.
In China, economic growth is constrained by supply rather than demand. By investing in infrastructure to increase supply, China can unlock latent demand and drive economic growth more effectively.
China's investment in infrastructure aims to raise real wages across the population, which helps to increase consumption and address inequality, contributing to more balanced economic growth.
Infrastructure plays a crucial role in China's economic strategy by enhancing productivity and enabling sustainable growth. It helps to increase supply, which in turn drives demand and supports overall economic development.
China's approach of investing heavily in infrastructure has resulted in significant GDP growth, with every dollar invested by the government generating two dollars in extra GDP.
The long-term goals of China's investment spending include raising real wages, increasing consumption, and reducing inequality, all of which contribute to a more equitable and sustainable economic future.
China's rapid economic growth, driven by its unique investment strategy, challenges the existing world economic order by positioning itself as a major economic power, similar to the rise of the United States in the late 19th century.
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