China may appear one of the strongest economies in the world, but Canada's leaders must be prepared for the risk that it stagnates, an economist said in Whistler last week.
Paul Summerville, a former chief economist at RBC Dominion and economist at numerous banks including Lehman Brothers, Deutsche Bank and Richardson Greenshields, told an audience at the Nita Lake Lodge that China may look good today, but "things are not always what they seem."
He spoke as part of a talk titled "Canada's Excellent Future," an event sponsored by the Whistler Forum for Leadership and Dialogue's seventh Leadership Sea to Sky Cohort.
A graduate of the University of Tokyo with a Ph.D in international relations, Summerville has paid close attention to the Japanese economy and the degree to which it has transformed since the 1980's, when a hot market in that country threatened economic dominance by the United States.
Car companies like General Motors, Ford and Chrysler were being pushed aside in favour of Japanese brands. A "Godzilla economy," as Summerville put it, was "devouring real estate" such as Rockefeller Center and Pebble Beach.
Eventually, however, the Japanese economy stagnated. Growth stagnated in the late 1990's due to factors including a failure to cut interest rates and market behaviour that saw people save their money too much, rather than spend it.
Summerville said a similar stagnation could hit China, a country to which Whistler is now marketing for tourism since the People's Republic gave Canada Approved Destination Status (ADS), a designation that makes it easier for Chinese nationals to visit this country.
"Rapidly-developing economies enjoy a one-off surge in growth due to a high rate of what economists call Total Factor of Productivity Growth," he said. "This surge occurs as companies and workers gain access for the first time to finance, roads, ports, computers, medicines, capital endowments, technology and other productivity endowments.
"It really is like golfing with a new high-tech driver and ball for the first time, having played with sticks and rocks for hundreds of years."
Summerville said that China is exhibiting many of the same "woeful characteristics" Japan did as its economy grew.
That country's modernization strategy, he said, has been used as a blueprint for the People's Republic, a model that encouraged people to maximize savings, investment in exports, and minimize borrowing, consumption and consumer goods imports, and to flood the American economy with cheap manufactured goods.
A bias towards these areas, coupled with improvements in communication, transportation and manufacturing, has led to investment making up 35 per cent of the country's GDP. It has also led to wages collapsing and to personal consumption falling from 50 per cent in 1980 to 30 per cent in the present day.
Beyond those issues, Summerville said there's an income gap in China. Citing statistics from the World Bank, he said China has become the "most unequal country in Asia on an income basis," with 400 million Chinese seeing their incomes fall.
"This income gap is particularly pronounced between the urban-coastal and rural-interior cities," he said. "This difference will only risk revisiting the most consistent theme in the country's 4,000-year-old history, the ebb and flow of great centralization and regionalization, often marked with violence.
"Suffice it to say that today's China story has a degree of unsustainability that ought to at least give us pause before we extrapolate today's trends to tomorrow's inevitability."