1/8
I'm a big fan of Minxin Pei's work, but I disagree with him when he argues that to regain growth, China must privatize state-owned enterprises, create a more business-friendly regulatory environment and support small businesses.
@ProSyn prosyn.org
I'm a big fan of Minxin Pei's work, but I disagree with him when he argues that to regain growth, China must privatize state-owned enterprises, create a more business-friendly regulatory environment and support small businesses.
@ProSyn prosyn.org
2/8
These all sound reasonable, and a lot of economists say the same thing, mainly because this is the same set of liberalizing polices proffered to all developing countries, regardless of their particular set of circumstances or where they are in their development stages.
These all sound reasonable, and a lot of economists say the same thing, mainly because this is the same set of liberalizing polices proffered to all developing countries, regardless of their particular set of circumstances or where they are in their development stages.
3/8
But while these policies may help at the margin, they don't address China's fundamental economic problem. For the past 3-4 decades Beijing has taken a very successful development model to extremes never before taken.
But while these policies may help at the margin, they don't address China's fundamental economic problem. For the past 3-4 decades Beijing has taken a very successful development model to extremes never before taken.
4/8
A successful development model, almost by definition, is one that resolves the main underlying imbalances in the economy, which means, also by definition, that a successful development eventually makes itself obsolete. This happened in China over a decade ago.
A successful development model, almost by definition, is one that resolves the main underlying imbalances in the economy, which means, also by definition, that a successful development eventually makes itself obsolete. This happened in China over a decade ago.
5/8
When that happens, if the model isn't transformed, it inexorably creates a new set of imbalances. In China's case, as I think most analysts accept by now, this means it must shift from a high-savings high-investment model to one more reliant on domestic consumption.
When that happens, if the model isn't transformed, it inexorably creates a new set of imbalances. In China's case, as I think most analysts accept by now, this means it must shift from a high-savings high-investment model to one more reliant on domestic consumption.
6/8
Until it does so, rapid growth necessarily requires surging debt and an expanding government sector. That is why I argue that it is not the retreat from liberal policies that caused the slowdown but rather the slowdown that led to the retreat from liberal policies.
Until it does so, rapid growth necessarily requires surging debt and an expanding government sector. That is why I argue that it is not the retreat from liberal policies that caused the slowdown but rather the slowdown that led to the retreat from liberal policies.
7/8
China must urgently reduce the investment share of its GDP (by far the highest in history), but it cannot do so without a sharp slowdown unless it can power consumption growth through a major redistribution of income. Liberalizing the economy won't do that.
China must urgently reduce the investment share of its GDP (by far the highest in history), but it cannot do so without a sharp slowdown unless it can power consumption growth through a major redistribution of income. Liberalizing the economy won't do that.
8/8
As Albert Hirschman pointed out in the 1970s, this requires above all the kind of political reforms that Pei himself often writes about.
China's economic problems are structural, not ideological, and are similar to problems with which Japan has been struggling for decades.
As Albert Hirschman pointed out in the 1970s, this requires above all the kind of political reforms that Pei himself often writes about.
China's economic problems are structural, not ideological, and are similar to problems with which Japan has been struggling for decades.
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