Max Fischer is skeptical that China can keep growing just by trying to get its interior to catch up to the rich coasts. His points are well-taken, but I think he may be underestimating just how low a bar needs to be cleared to generate additional catch-up out of interior China.
Even if you assume that the PRC government isn't going to be able to pull anything off other than very wasteful infrastructure mega-projects, you still have two things going on. One is that the projects will, in the aggregate, do something to increase productivity in the interior even if they don't pass a reasonable cost-benefit test. The other is that you'll be transfering income to poor areas. Combine that with what we know to be high levels of residential investment throughout China, and you have lots of people moving for the first time into bigger more modern houses and having money in their pocket to buy chairs and rice cookers and all the other stuff that happens if you get some cash and a larger home. That on its own seems like enough to stabilize production levels in China's industrial centers while continuing to raise living standards in poor places.
Meanwhile, the availability of more "household capital" to newly appliance-owning people should increase the scope for service-sector economic activity and give you another boost.
Maybe it won't happen. Certainly, I know there are a lot of people out there who've been calling for a China crash consistently since 2008 or so. It didn't happen in 2008 or 2009 or 2010 or 2011 or 2012, but maybe 2013 will be the year. Every country crashes sooner or later, so the Sinopessimists are bound to be right one of these days. But look at a place like Sichuan and just imagine it as a country. It's got almost 90 million residents and a per capita GDP below $4,000. It certainly hasn't run out of room for catch-up growth. And while the political institutions that govern it aren't fantastic, they aren't worse than the institutions that presided over industrialization in Guangdong and Fujian and Zhejiang.
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