Could Immigration Help China to Make a Comeback?
The New York Times has published a long piece about the over-building of new housing across China’s cities. Both Republicans and Democrats tell a story that China’s economy is stagnating because of an aging population and over-regulation by its autocratic state. I get this.
I understand that China is a highly distorted economy but I want to sketch out a new set of rules for how this high human capital nation could return to a medium term growth path.
In this brief post, I want to sketch out a conjecture. If China welcomes 150 million migrants from the rest of Asia and if it nudges these individuals to move to 3rd Tier Cities and to new Special Economic Zones, this will stabilize the nation’s real estate challenge and slightly mitigate the nation’s demographic challenge.
Some Cliches About China
#1 China’s population has plenty of human capital. When I was a graduate student, our teachers emphasized the role of human capital in causing economic growth and prosperity at the individual, city and nation level.
#2 China is aging.
#3 Up until now, China hasn’t welcomed immigrants.
#4 Shenzhen was an early successful industrial zone. Our 2017 JUE paper sketches out the economic conditions such that industrial parks are productive. We do not conduct a cost/benefit analysis of these place based investments
#5 The dominance of SOEs in China and government discretion lowers the rate of return to private sector entrepreneurship in China.
#6 China has overbuilt housing in 3rd tier cities. Read Rogoff and Yang.
Together these 6 facts mean that the Glaeser and Gyourko (Detroit) thesis is relevant.
Glaeser, Edward L., and Joseph Gyourko. "Urban decline and durable housing." Journal of political economy 113, no. 2 (2005): 345-375.
Ed and Joe tell a dynamic urban story that real estate developers built durable housing in the mid 20th Century in cities such as Detroit experiencing a manufacturing boom. When these cities subsequently deindustrialized, the jobs left and the homes remained. Prices of these durable assets crumbled to clear the market.
In the Case of China’s 3rd tier cities, durable housing was BUILT BEFORE anyone showed up!! Now debt and defaults lurk. The solution here is to raise aggregate demand for such housing. Immigrants can fill this void. What would these people do all day long? The market will decide this.
As I look at the population of Asian nations near China, I see that at least 150 million people could be recruited from these nations.
The top 10 most populous countries in Asia are:
China, 1.37 billion
India, 1.299 billion
Indonesia, 255.46 million
Pakistan, 191.78 million
Bangladesh, 158.76 million
Japan, 126.89 million
The Philippines, 102.96 million
Vietnam, 91.81 million
Iran, 78.77 million
Turkey, 78.21 million
The Roy Model makes predictions concerning who from these nations would want to move to China. I will not delve into the details of how they would be screened and of course they would be watched by the Chinese State.
Globalists would posit that the sending nation and China would both gain.
A Final Conjecture
Would another gain for China from embracing this strategy be that this would strengthen its relations with the nations that send migrants to China? Would Asian Regionalism be furthered by China opening up to immigration? How this would affect international relations is an open question.