1/9
“I think they really need to unleash the private sector much more to really capture productivity growth.”
This is a very muddled way of thinking about the structural problems facing China's economy, and leads to very wrong policy proposals.
bloomberg.com
“I think they really need to unleash the private sector much more to really capture productivity growth.”
This is a very muddled way of thinking about the structural problems facing China's economy, and leads to very wrong policy proposals.
bloomberg.com
2/9
The main problem with China's private sector isn't that it has recently been "leashed" by Beijing, but rather than it faces very weak domestic demand that is, ironically, the flip side of the many direct and indirect subsidies it has received over the past two decades.
The main problem with China's private sector isn't that it has recently been "leashed" by Beijing, but rather than it faces very weak domestic demand that is, ironically, the flip side of the many direct and indirect subsidies it has received over the past two decades.
3/9
Real "market-based" reforms would include reducing financial repression and moral hazard in the banking system, eliminating the hukou, cancelling direct subsidies to manufacturing, paring back the massive over-investment in logistics and infrastructure, and so on.
Real "market-based" reforms would include reducing financial repression and moral hazard in the banking system, eliminating the hukou, cancelling direct subsidies to manufacturing, paring back the massive over-investment in logistics and infrastructure, and so on.
4/9
While these would boost domestic demand in the medium term, they would, ironically, undermine private sector manufacturing in the short term, which is the main reason why market-based reforms are so difficult to implement. The system was built on decades of intervention.
While these would boost domestic demand in the medium term, they would, ironically, undermine private sector manufacturing in the short term, which is the main reason why market-based reforms are so difficult to implement. The system was built on decades of intervention.
5/9
It is lazy (and ideological) thinking to suggest that China's economic malaise stems mainly from recent repression of the private sector. The problem is structural, and the relative decline of the private sector is a consequence, not a cause, of these structural problems.
It is lazy (and ideological) thinking to suggest that China's economic malaise stems mainly from recent repression of the private sector. The problem is structural, and the relative decline of the private sector is a consequence, not a cause, of these structural problems.
6/9
In a few years these same analysts will blame China's inability to return to rapid, healthy growth on the failure of Beijing to implement these "reforms", instead of focusing on the institutional constraints that made them so difficult.
In a few years these same analysts will blame China's inability to return to rapid, healthy growth on the failure of Beijing to implement these "reforms", instead of focusing on the institutional constraints that made them so difficult.
7/9
Rather than propose incremental policy changes that will "unleash" the private sector, economists should be focusing on the institutional constraints that inhibit the restructuring of the Chinese economy in ways that allow the economy to shift back to sectors that can...
Rather than propose incremental policy changes that will "unleash" the private sector, economists should be focusing on the institutional constraints that inhibit the restructuring of the Chinese economy in ways that allow the economy to shift back to sectors that can...
8/9
operate under hard-budget constraints. The problem is not that the private sector has been hobbled by the state. It is that domestic demand is too weak for the private sector to deliver the amount of economic activity that Beijing politically requires.
operate under hard-budget constraints. The problem is not that the private sector has been hobbled by the state. It is that domestic demand is too weak for the private sector to deliver the amount of economic activity that Beijing politically requires.
9/9
That is why an increasing share of economic activity in China had to shift to those sectors that are not constrained by hard budgets, and will continue to do so. We should stop confusing the symptoms with the cause.
ft.com
That is why an increasing share of economic activity in China had to shift to those sectors that are not constrained by hard budgets, and will continue to do so. We should stop confusing the symptoms with the cause.
ft.com
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