Monday, June 13, 2011

Forecasting China’s Decline

It has become fashionable in the economic blogosphere to predict hard times ahead for China.  Naysayers point to thousands of vacant apartments, bad loans on the banks’ books, rising inflation, an undervalued currency, and other negative indicators.

Using standard economic models, analysts insist that China’s economy will overheat, that it cannot continue to grow at 9-10%.  Nouriel Roubini of financial crisis fame is the latest to chime in, projecting a hard landing in 2013.  Three decades of 9-10% growth must come to a crashing halt.

Thoughtful Ideas remains bullish on China.  The principal reason is China’s investment in high-tech education, in mathematics, science, and engineering.

China’s decline will set in when it begins to emulate the U.S. in higher education–when student enrollment at home and abroad stagnates in science and engineering and grows in law, psychology, education, self-esteem, counseling, and diversity.  At that point, value added will slow and value subtraction will rise.  Meanwhile, investment in high value-added skills and hard work continue to propel growth in China.

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