Case Study

China’s successes do need to be kept in perspective. Since 1980, China has grown about 4 1/2 times
faster than the United States that was measured by per capita output. As a result, China has been
closing the relative gap in living standards. In 1980, China’s income per person was only 2% of that in
the United States, but by 2008, it had growth to 13%. Even if China’s output per person continued to
grow at its unprecedented recent rate of 8.4% and the United States at its recent rate of just 1.9%,
China would still not catch-up until 2040.

But continuing to grow at this rate is essentially impossible. Before China grew rapidly, South Korea
did so, and Japan did. The later a country starts modern economic growth, the faster it can grow
because the distance from traditional methods to the frontier technology of the day grows greater
over time. But the pace of catch-up generally slows as an economy reaches the technology frontier
and needs to be innovate. Policymakers in China are actively preparing for this challenge. There are
some other limits and caveats to China’s success that can be lesson to other country. Life can indeed
be harder than ever for the millions remaining in extreme poverty, such as rural peasants in some
parts of the country facing the loss of security; official corruption, including reports of official land
grabs from peasants; rising local taxes; and minimal improvements in technology or skills. Moreover,
the environmental crisis in China is reaching epic proportions. A majority of the most polluted cities
in the world are located in China, and health problems are growing. Water resource problems,
erosion, and loss of habitat undermine the prospects for sustainable development. In parallel,
product safety standards are low, and their regulation is lax. Although the excess of China’s exports
over its imports continued to skyrocket, in 2007 and 2008, highly publicized scandals concerning the
safety of food, drugs, and other consumer products threatened the international public image of
Chinese-made products. Foreign and local investors, and government, all share in the blame. China’s
regulatory institutions will need to catch up with the progress made in other aspects of national
economic development.