China Policy Institute: “As the new Chinese leadership takes over, their biggest economic challenge remains generating growth for another 30 years. In addition to re-balancing the economy and stimulating more productivity, a key aspect will be the re-defining the role of the state. After over 30 years of marketisation and reform, China remains a mixed picture of state-led policies and a growing number of facially neutral laws with some exemptions for state-owned enterprises.
In addition, the state-owned commercial banks continue to benefit from official “financial repression” policies, such as the preservation of a spread between lending rates and deposit rates. It helps to generate margins for banks and facilitate their recapitalisation. This policy also enables the state-owned commercial banks to continue to support government policies ranging from fiscal stimulus to supporting state-owned enterprises, though not without cost to overall economic growth as financial repression distorts the allocation of capital.
The high levels of capital formation (some 40% of GDP) in the past two decades and the inefficient allocation of capital away from more productive private firms are worrying. The Twelfth Five Year Plan (2011-15) plans to re-balance the economy towards greater domestic demand and less of a reliance on exports. A key part of the plan is to increase consumption and other parts such as more urbanization and services development would support investment in developing larger urban areas where migrants can settle and government services can be dispersed more efficiently.
This plan in actuality has an implicit 30 year time horizon as these policies of migration, urban development and boosting consumption cannot be achieved in a short time period. Unless China can re-orient its growth model including towards more efficient investments by private firms, then it could find it difficult to sustain a strong growth rate. Part of this challenge will include creating a more secure welfare state.”
via China Policy Institute Blog » The next phase of growth.
Related articles
- China’s affluence trap (newstatesman.com)
CHINDIA ALERT: You'll be living in their world, very soon 