China Inefficiency

From the 11 April Business Week, pp.50-51. (Via Marginal Revolution)

University of Alberta political economist Wenran Jiang calculates China spends three times the world average on energy — and seven times what Japan spends — to produce $1 of gross domestic product. It also is far more inefficient than nations like Brazil and Indonesia…Chinese steelmakers on average use about twice as much energy as Japanese or Korean rivals per ton of output. Only 5% of the country’s office and residential towers meet China’s own minimal energy-conservation standards.

One interpretation here is that China’s inefficient capital markets are burning capital to produce goods. The other is that labor is so cheap that China can afford these sorts of production inefficiencies. The later explanation begs the question of what happens when China’s GDP per capita and laber costs rise. Will it have enough capital to convert to more efficient production approaches or are the fears about an economically powerful china simply overwrought.