Tuesday, November 3, 2009

Why China Isn't Ready to Lead

I recently came across these two interesting articles by Prof Victor Shih. Mr Shih, an assistant professor of political science at Northwestern University, is author of “Factions and Finance in China:” (Cambridge University Press, 2008). He blogs at Elite Chinese Politics and Political Economy.

In recent months, with the global economic slowdown, there has been a lot of talk about the role of emerging economies, in particular that of China, in helping to put the world economy back on track. But Prof Shih says, in an article in the Wall Street Journal on 22 Oct 2009, "why china isn't ready to lead" the world,
To lay credible claim to a bigger global role, Beijing must show it understands the rules that make a modern economy work and how to play by them. The economic downturn has only shown how far behind Beijing is in this regard. China's market institutions clearly lag those in more advanced Asian and Western countries. Parts of the government continue to blatantly disregard property rights and contracts. Rules are conveniently bent to favor powerful state entities.
In an earlier article, again in the Wall Street Journal, on 22 July 2009, titled "China takes the brakes off". Prof Shih says,
The official Chinese press recently issued a series of stories celebrating an apparent recovery of the country’s growth rate to 8%. By all appearances, China has once again deployed its enormous state capacity, including state control of the banking system, to ward off a recession. However, unlike the last major stimulus program in the late 1990s, this stimulus relies on an unconstrained credit expansion and is generating much fewer marginal benefits to the economy. Quite the opposite: Out-of-control credit expansion contains the seeds of future financial problems.

1 comment:

  1. World Bank's "China Quarterly Update" paints a robust picture. The WB now projects China to see GDP growth of 8.4 percent for 2009. The report’s lead author Louis Kuijs wrote an accompanying blog post, which can be read here.(http://blogs.worldbank.org/eastasiapacific/china-robust-growth-in-sight-provides-room-for-shift-in-policy-focus)
    The complete report can be read here (http://worldbank.org/chinaquarterly).