For all its success, China is still not living up to its potential.

When people discuss China's economic growth, it's usually with awe. But these assessments of the country's economic performance almost always end with one question: How long can China's rapid growth continue? It's an obvious, even banal question. Yet it is not the right one. Because asking it suggests that there has been something extraordinary about the growth of the Asian colossus over the past 25 years. What is remarkable is not how quickly China's economy has grown, but rather how slowly it has done so.

It may seem an odd thing to say of the world's fastest growing economy. But, given where the country stood when economic reforms were introduced in 1978, China should have grown even faster. This, in turn, suggests that, with the right mix of policies, China's economy should not maintain its current rate of growth: It should accelerate.

China's growing gross domestic product (GDP) is Exhibit A for those who laud the country's economic success. Between 1978 and 2003, China's per capita GDP grew at a compound rate of 6.1 percent a year, which amounted to a 337 percent increase a quarter of a century later. It's an impressive performance, but it's not record-breaking. Japan's per capita GDP, for example, topped 490 percent between 1950 and 1973. South Korea outpaced China with 7.6 percent compound growth a year between 1962 and 1990, and Taiwan achieved annual growth of 6.3 percent between 1958 and 1990.

It may not seem fair to compare China to these smaller economies. That's true. China should have outperformed them all. The speed with which a country can grow is a function of how far it is lagging behind the productivity levels of the world's most advanced economies. That is why each generation of catch-up economies has tended to grow faster than the previous one. When China's surge began, its per capita GDP was only a twentieth of that of the United States. Even now, after 25 years of growth, China's per capita output is only 15 percent of that of the United States. Japan's was a fifth of that of the United States in 1950, even before its record-breaking growth surge began.

To be fair, many developing countries haven't caught up to the leaders as quickly as they should have. But most of them lack the fundamental ingredients for success. China can't claim that excuse. It, like Japan, South Korea, and Taiwan before it, possesses a hardworking, cheap labor force; the ability to transfer huge numbers of workers from low-productivity agriculture to higher-productivity manufacturing; political stability; and an effective, development-oriented government.

And China possesses something else few ever do: an extraordinarily high rate of investment. At more than 40 percent of its GDP, the country's fixed investment is probably the highest ever achieved in a large economy. Nor has any country ever been awash in so much capital at this stage of its development. For example, China's per capita GDP (at purchasing power parity, or internationally comparable prices) is roughly the same today as South Korea's was in 1982, Taiwan's in 1976, and Japan's in 1961. But, in those years, Japan's investment rate was just above 30 percent of GDP, and South Korea's and Taiwan's were both below 30 percent. None of those countries invested as much capital at comparable stages in their development as China does today.

So why hasn't Beijing done a better job? Because, China's economy is still highly inefficient. The voracious maw of China's stateowned enterprises accounts for much of this drag. Between 1993 and 2000, more than 60 percent of all loans went to these state-owned behemoths. The country's notoriously high level of bad loans tells you how good an investment they have been: The Standard & Poor's rating agency currently estimates that China's banks have issued about $650 billion in bad loans, or about 40 percent of outstanding loans. If an economy growing at close to 10 percent a year generates bad loans on this scale, the misallocation of capital has to be gigantic. Although countries such as South Korea or Taiwan may not have had as much capital, they obtained considerably more growth for their investment buck. The same was true of Japan in its highgrowth phase. The same is true of India today.

Those who object to the idea that China could have grown faster will argue that a country of China's scale required far greater investment than its neighbors to build its infrastructure. And they will suggest that inefficiency should be expected in a country still trying to throw off the trappings of its socialist past. These points, though valid, do not reverse the verdict: Given China's ample opportunities and investment, it should have raised its living standards even faster than it did.

The bottom line is clear. Do not think China's rapid growth is either extraordinary or a flash in the pan. It is neither. The social and political obstacles to China's rapid growth are considerable. But the opportunity remains enormous. China's economic boom could well be in its middle, not its end.