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Monday, September 06, 2004

Chinese Miracle Busters via Forbes

More and more companies are betting their future growth on China, the economy that seems to defy gravity by floating ever-higher. China-watchers at the Rand Corp. have calculated the scenarios most likely to crimp China's future growth and estimated the effect on the go-go Chinese economy.The two most likely disasters China would face are big increases in unemployment that spark social unrest, which would lower China's annual gross domestic product (GDP) growth by up to 0.8% a year, and a dramatic increase in the number of HIV/AIDS carriers, which would lower growth by up to 2.2% a year, said Charles Wolf Jr., Rand's senior economic advisor and corporate fellow in international economics, speaking recently to the Asia Society in Hong KongTo put China's booming economy in perspective, remember that China's economic growth averaged 8.6% a year between the late 1970s and 2003. That's faster than the growth of Japan's miracle economy of the 1970s and 1980s, when growth averaged 5% a year. If China were to continue to grow at the 8.6% pace on average, its annual GDP would nearly reach U.S. GDP in 2025. Because of China's huge population--1.4 billion people vs. 270 million in the U.S.--per capita income would reach just 15% of the American per capita income by 2025, Wolf said. There's near certainty that China's AIDS crisis will worsen, Wolf says. Because the number of infected people is increasing by 20-30% per year, there could be between 11 million and 80 million carriers by 2015. If China spends $600 per person on AIDS treatment, it would be spending between $7 billion and $48 billion per year by 2010 for treatment. If China's AIDS crisis worsens, Wolf calculates that China's GDP growth would be reduced by a whopping 1.8% to 2.2% per year.An unlikely but extremely dangerous scenario is that China allows its festering disagreements with Taiwan to escalate into military conflict. Growth in China would drop by between 1% and 1.3% if that happened, Wolf estimates. Very few people are properly assessing china's downside - Its time such articles begin to appear and discussions start.

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