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.”

“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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