Guest post: girl shortage keeps China’s boys working hard, driving growth

By Shang-Jin Wei of Columbia Business School

The economic collapse of China has been predicted before, notably by a US best seller in 2001, entitled The Coming Collapse of China.

The only problem with that volume of forceful and insightful analysis is that in the ensuing dozen years, China has been the fastest-growing major economy in the world. It didn’t just grow faster in terms of real GDP than most high-income countries, which is not surprising, but also faster than India, Brazil and Russia, its emerging market peers that are routinely lumped together with China as if they were part of a homogenous brick.

Pessimism over China’s growth is on the rise again. This time the logic is stronger. The country is facing internal constraints: rising labour costs, rising dependency ratio, and rising citizen dissatisfactions with corruption, pollution, inflation, and income disparity. The country is also facing external constraints: the export market cannot grow at double digits forever. Fear of China could accelerate both trade protectionism and investment protectionism further constraining Chinese exports and outward investments.

Both standard economic logic and international experience seem to point to a China slowdown. In terms of logic, as Chinese wages become higher than those of many of its neighbours, the economy would have to shift towards more innovation-driven growth, which is inherently more difficult. In terms of global experience, 30 years of high growth appear to be on the outer bound of a typical successful run.

Yes, both the standard economic logic and other countries’ experiences may miss something important about China that can partly offset the usual forces of a slowdown.

The first is a people factor. One of the unusual forces that have driven China’s past growth, especially since 2002, is a high and rising ratio of young men to young women in the country. The sex ratio for the pre-marital age cohort is about 115 young men per 100 young women, translating into an alarming picture that one out of every nine young men cannot find a wife.

Out of your league...

This has led to a race for wealth accumulation because wealth improves the chance of success in the marriage market, motivating young men, and importantly, parents with a son, to work harder, save more, and be more entrepreneurial. They also press their son to study harder and accumulate more human capital.

Many parents with a daughter, instead of free-riding on their future son-in-law’s higher wealth, also choose to work harder and longer and to press their daughter to study harder, either to enhance the chance for their daughter to be matched with the most successful man, or to protect their daughter’s bargaining power within marriage.

My research with Xiaobo Zhang estimates that this factor has contributed to about 2 extra percentage points per year in Chinese growth and will contribute even more in the next few years.

One wouldn’t want to prescribe a sex ratio imbalance to a country without one, because a sex ratio imbalance lowers happiness for most people. Nonetheless, as the sex ratio for the pre-marital cohort is projected to become more unbalanced in China in the next decade, the pro-growth effect is likely to become stronger.

The second is a government factor. The thing about a strong government is that if it gets something wrong, it can be disastrously wrong. But if it sets its mind on promoting economic development, it can also do things with striking efficiency. The new Chinese Prime Minister, in his first press conference recently, demonstrated his awareness of the major challenges facing his country. This awareness per se sends a message that the government may take forceful measures to address them.

No one should minimise the enormity of the challenges facing China. But China has dealt with enormous challenges before. How many countries have successfully downsized a state-owned sector from 90 per cent of the economy to about 20 per cent within a generation, transformed a domestic banking sector that was technically insolvent not long ago to one that survived the global financial crisis better than most, undertaken massive trade and enterprise reforms for its WTO membership, with scale and scope rarely seen in world history, and have, at the same time, delivered robust growth?

The odds are good that China can achieve an average 7.5 per cent annual growth rate in the next decade, allowing it to be the largest economy in the world before long. Don’t short sell China too easily.

Shang-Jin Wei is the director of the Chazen Institute and the N.T. Wang Professor at Columbia Business School, and is a former chief of the trade and investment division at the International Monetary Fund

Related reading
China’s route to ‘responsibility’
Yukon Huang, FT
China forecast to overtake US by 2016
Data reveal scale of China abortions
China’s only children: risk-avoiding, untrustworthy pessimists?