In suggesting that China could emulate South Korea’s path to economic prosperity, Martin Wolf’s column (“We should not call ‘peak China’ just yet”, Opinion, September 20) glosses over a number of key differences between the two economies that make a similar Chinese economic feat highly improbable.
The most important difference is that South Korea did not have the epic property and credit market bubble of Japanese proportions that China has had. This is underlined by the past decade’s Chinese private sector credit expansion which has been equivalent to over 100 per cent of gross domestic product. Nor did South Korea grossly unbalance its economy by allowing its property sector to account for close to 30 per cent of GDP as China has done. By so doing, China seems to have invited a lost economic decade.
Further differences are that South Korea was not confronted with a protectionist US and being a small economy it had not exhausted the possibility of exporting its way out of its economic problems.
South Korea’s economy was also not handicapped, as China’s is today, by a declining population, courtesy of its earlier one-child policy, and by a government that seems to value political power more than economic prosperity.
If Wolf’s optimism about China pulling off a South Korean-style march to economic prosperity proves to be correct, I will be the first to congratulate him.
However, I will keep insisting that all the clues were pointing in the opposite direction.
Desmond Lachman
American Enterprise Institute
Washington, DC, US
Letter in response to this:
China, South Korea and the middle-income trap / From Khairy Tourk, Professor of Economics, Stuart School of Business, Illinois Institute of Technology, Chicago, IL, US