Is the world of forecasting overly fixated on China’s growth rate staying at 8 per cent? Certainly, investment banks in the past few days have tripped over themselves trying to guess the size of the China stimulus package and whether it’ll keep China on track for that default growth figure.

But has the time come to lower China’s magic number?

Ruchir Sharma, head of emerging markets equity for Morgan Stanley and author of recently published Break Out Nations: In Pursuit of the Next Economic Miracle, thinks it is time to adjust expectations on China to less lofty levels. Its economy should instead decelerate to a more natural level of 6 per cent GDP growth, just as South Korea, Taiwan and Japan did when they attained similar levels of per capita income as China has today.

“This talk of China needing a stimulus is misguided,” says Sharma. “That really is pushing on a string.”

Like many other observers, Sharma is concerned that another stimulus would push up debt levels in China. In his book, he calculates that the debts of China’s government and state owned enterprises taken together already accounts for 180 per cent of GDP. “That’s more worrying than the US,” says Sharma, arguing that the US’s combined private and public debt to GDP ratios, almost twice those of China, are easier to offset because of the US’s much higher per capita incomes. “There’s no case for a stimulus,” he says.

Sharma’s larger point is that “China has already emerged.” It is, after all, the second largest economy in the world.

Nonetheless, he says his colleagues on Wall Street are not facing up to the fact that China’s rate of GDP growth is “naturally slowing down”. He does not believe that consumers are in a position to rebalance the economy. He argues that rebalancing will occur when China’s exports and investment come down and the GDP growth rate slows to about 6 per cent.

The argument that China needs 8 per cent growth to maintain jobs growth and in turn social stability is wrong-headed as well. Not only is just about every employer in China’s export hub, Guangdong province , complaining of labour shortages, but the population is greying rapidly as well.

China’s average age is already markedly higher than Taiwan and South Korea were at an equivalent rate of development. What needs an urgent stimulus, improbably for a country that is the most populous in the world, is China’s birth rate.

Financial Times