Nuggets of economic wisdom can appear in the strangest of places. Consider this chop suey epigram from the 2008 cartoon Kung Fu Panda, which neatly encapsulates the story of modern China’s economy. Down on his luck, our hero Po turns to his noodle-selling father for advice. Po’s father sees that his son has lost his way and, knowing little about kung fu, confides in him this revelation: that there is no secret ingredient to his popular secret ingredient soup.
As it turns out, there is no secret ingredient in good noodle soup, great kung fu—and China’s meteoric economic rise. China’s recent sputtering—to the tune of 5 trillion in lost market capitalization, and financial tremors reverberating across the world—could (with some poetic license) be described as a sudden realization of this fact. For years, self-proclaimed China experts had insisted that China was different—that its blend of authoritarian capitalism or perhaps its Confucian culture meant that it didn’t follow the same rules. Many investors must have believed this as they poured into the stock market with reckless abandon.
But economists had long known that China’s economic model is no secret. If anything, it is the tried-and-true strategy for rapid growth: High rates of investment funded by even higher rates of saving, coupled with a focus on manufacturing exports. Japan and later the East Asian Tigers set the example in the mid-20th century. China is in large part copying this script.
What makes China’s story notable is its scale. Hundreds of millions have moved up from rural subsistence to urban affluence. (Chinese New Year, when urban workers return to their rural hometowns for the holidays, is the world’s largest annual human migration for precisely this reason.) High household savings rates have funded huge investment projects at home, with cities springing up seemingly overnight. And Chinese growth has been the engine of the world economy for over a decade, through recession and recovery.
Perhaps it is no surprise then that China’s economy has acquired a mystic aura of invincibility, the sense that there is some secret sauce. But economists know that this simple growth strategy has its limits.
Eventually, as a country becomes more developed, investment runs into diminishing returns: With the low-hanging fruit exhausted, new projects become less productive and growth slows. Mature economies tend to rely more on domestic consumption than investment and exports, which further lowers the potential rate of growth. Add in the complication that China’s population is aging prematurely (an unintended result of the One Child Policy), and the forecast for growth seems gloomy.
To their credit, Chinese policymakers understood that a slowdown was coming: In 2011, the Central Committee revised its annual growth target down from 10% to 7%. To their detriment, they seem unwilling to accept the inevitable pains of this slowdown: Billions in government dollars have been deployed to shore up the ailing stock market.
So the short-term transition from 10% to 7% (or lower) growth has already proven shaky. But is there hope for the long term?
Once again Kung Fu Panda may provide an answer. In 2008, Panda was a smash hit at the Chinese box office, much to the consternation of Chinese filmmakers and politicians. Here was an American cartoon, about as authentically Chinese as a fortune cookie, that leapt across cultural borders and connected with mainland audiences. Why couldn’t it have been made by a Chinese company?
Producing a film like Panda is enormously complex. Behind the celluloid there is technical innovation, a well-organized artistic industry, a financial system to bankroll the project, copyright laws to protect the intellectual property. Economists lump these factors together under the catch-all label of “technology”—all the growth that cannot be explained by simple investment and population growth.
Economists still don’t understand technological progress very well: where it comes from, how it can be nurtured. But if long-run growth has a secret ingredient, it means more Kung Fu Pandas.