China Wasting Its Huge Capital

The decision to let some get rich first has lifted 400 million Chinese out of poverty, but it also gutted the state-run health care system. A pay-for-care system has slowly grown up, but it is still far too small to handle anything like the projected vast increase in the country's elderly population. And of course, most of the elderly will retire without the means to pay for health care in the pay-for-care system.

In many ways, the Chinese face the same crisis that we face in the U.S.: how to care for the immense future costs of an aging population.

But the resources of the two countries are vastly different. The U.S. gross domestic product was $13.5 trillion (in nominal dollars) at the end of 2006. Per capita income came to $35,000.

The Chinese economy, official numbers say, is just $2.7 trillion, and per capita income is just $1,740. Even if you do the standard adjustments for the difference in costs between the two countries (called purchasing power parity), net income in China goes up to only the equivalent of $6,300.

An economy roughly five times smaller. A per capita income six times smaller. Inadequate pension plans covering just one in four workers. A health care system that is too small and too expensive (I'll grant you that, on the surface, that doesn't sound that much different). And a population that is aging much, much faster.

So maybe China really doesn't have a yuan in capital to waste.

And before any reader in the U.S. starts to get too comfortable, just think about what happens to our economy when the Chinese need to use all those U.S. dollars they've been building up to take care of their own population and can't afford to finance our lifestyle.

In a global economy, every wave rocks every boat.

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