A new report from Huatai Securities puts China’s current economic state in context by matching it to various periods in the developmental history of OECD countries.
According to the study led by Huatai Securities macroeconomics researcher Li Chao (李超), China’s per capita GDP of USD$8123 is at a level close to that of the US, Germany, France or Japan at the end of the 1970’s, the UK at the outset of the 1980’s, or South Korea at the start of the 1990’s.
China’s per capita disposable income for urban citizens was $5,060 in 2015, roughly commensurate with levels seen in the US at the start of the 1970’s, yet equal to 12% of current US disposable income, 26% of levels in Japan, and 35% and 17% of levels seen in South Korean and the UK.
When it comes to urbanisation rates China is lagging much further behind advanced economies. Its 2016 urbanisation rate of only 57.35% is close to the rate for England in 1851, the USA in the 1930’s, Japan in 1955 and South Korea in 1980.
According to Huatai while China is currently experiencing extremely rapid urbanisation, historical experience indicates that the pace of migration to the cities tends to taper off rapidly once urbanisation rates reach 70 -75%.
The Huatai study sees China following the growth model of Japan and Germany, with urbanisation growth slowing markedly at around the 65 – 70% mark, which is likely to arrive in roughly a decade.
In 2016 10.8% of China’s population was over 65 years of age, which makes its current demographic age structure roughly equivalent to 1970’s America and Italy, and 1980’s Japan.
Huatai points out, however, that the ageing of China’s population will be far more rapid than all three of these countries, and could greatly increase the burden of social welfare payments, which are expected by analysts to reach 1.9 times current levels by mid-century.
The rapid ageing of Chinese population could lead to a high consumption, low growth and low savings economy, as well as impact capital allocation given the low-risk tolerance of young and elderly households.
The Huatai researchers used an environmental Kuznets curve to compare China’s economic and environmental performance to other historical stages of advanced economies.
The upside-down U curve shows that as an economy grows it first increases then decreases pollution, for which the Huatai EKC used per capita sulphur oxide and nitrogen oxide emissions as a proxy.
According to Huatai’s research China has now arrived at the downward-sloping right-hand part of the EKC that developed countries reached around twenty to thirty years ago, while China’s per economic unit energy consumption is currently equal to levels seen in high income countries during the 1980’s.