(Economist) China’s Paradox of Prosperity

Posted by Kendall Harmon

[A]..mix of political control and market reform has yielded huge benefits. China’s rise over the past two decades has been more impressive than any burst of economic development ever. Annual economic growth has averaged 10% a year and 440m Chinese have lifted themselves out of poverty—the biggest reduction of poverty in history.

Yet for China’s rise to continue, the model cannot remain the same. That’s because China, and the world, are changing.

China is weathering the global crisis well. But to sustain a high growth rate, the economy needs to shift away from investment and exports towards domestic consumption. That transition depends on a fairer division of the spoils of growth. At present, China’s banks shovel workers’ savings into state-owned enterprises, depriving workers of spending power and private companies of capital. As a result, just when some of the other ingredients of China’s boom, such as cheap land and labour, are becoming scarcer, the government is wasting capital on a vast scale. Freeing up the financial system would give consumers more spending power and improve the allocation of capital.

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Filed under: * Culture-WatchHistory* Economics, PoliticsEconomyConsumer/consumer spendingCorporations/Corporate LifeHousing/Real Estate MarketLabor/Labor Unions/Labor MarketForeign RelationsPolitics in General* International News & CommentaryAsiaChina

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Posted January 30, 2012 at 6:00 am [Printer Friendly] [Print w/ comments]
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