While the American left is looking longingly at China’s state-capitalist economic model, the World Bank just published its “China 2030” report advising Beijing to move toward a more free-market capitalist system. In other words, be more like America:
This report makes two points: first, that government should encourage increased competition in the economy, including by increasing the ease of entry and exit of firms as soon as possible; and second, that public resources should be used to finance a wider range of public goods and services to support an increasingly complex and sophisticated economy. Reforms of state enterprises and banks would help align their corporate governance arrangements with the requirements of a modern market economy and permit competition with the private sector on a level playing field. This would create the appropriate incentives and conditions for increased vigor and creativity in the economy in support of China’s successful transformation into a high-income society.
And if Beijing decides to stick to its current model—cheap-labor manufacturing, exports, and the adoption of foreign technology—the Middle Kingdom may end up like many fast-growing emerging nations that eventually got stuck in the “middle-income trap.” As one study found:
Using international data starting in 1957, we construct a sample of cases where fast-growing economies slow down. The evidence suggests that rapidly growing economies slow down significantly, in the sense that the growth rate downshifts by at least 2 percentage points, when their per capita incomes reach around $17,000 US in year-2005 constant international prices, a level that China should achieve by or soon after 2015. Among our more provocative findings is that growth slowdowns are more likely in countries that maintain undervalued real exchange rates.
And the World Bank study notes that most economies in Latin America and the Middle East reached middle-income status as early as the 1960s and 1970s—and have remained there ever since. Of 101 middle-income economies in 1960, only 13 became high income by 2008: Equatorial Guinea; Greece; Hong Kong SAR, China; Ireland; Israel; Japan; Mauritius; Portugal; Puerto Rico; Republic of Korea; Singapore; Spain; and Taiwan, China.
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It is a matter of perspective. To tell a nation that has a GDP of less than $8,000 per capita, that they ought to worry about being stuck in middle income, is note really much of a threat.
And it is not as if the WB, which is a warehouse for washed up American politicians, has anything to teach the Chinese!! Stability? If American economists know how to achieve that, you’d thunk Americans would not have to live through the turmoil since 2008. Note that China’s economy RECOVERED, and America’s continued to be unstable – today American banks are synonymous with TRADING (mostly OTC derivatives), and the derivatives casino had grown to over $700 Trillion (about 50 TIMES the American economy) – and that will bring about stability?
This is simply stating facts. The WB under American leadership has nothing worthwhile to teach. In the past few years, when the going gets tough, both Germany and China BANNED their banks from massive gambling in derivatives. America’s did not, and American banks doubled down and expanded the gambling tremendously.
Western economists cannot even explain how the Chinese did it AFTER THE FACT, let alone project what to do next to improve upon the economic miracle now going into the 34th year.
The key IS reform. After Deng, China basically went into reform mold whole hog. Amplify what works, discard what does not. No ideology need apply. With that, Beijing, achieved 87% citizenry support (Pew Research). Beijing was essentially one big reform since Deng took power in 1978, and the reforms are still ongoing.
The role of the CPC is to maintain one party meritocracy, to plan and execute those valuable 5 year plans that worked so well for the last 33 years, and to occasionally execute corrupt officials acting out of line. The vision is clear. Those who do not see it only choose not to see it. As long as they can stick to REFORMS (adjust course according to results), and continue to ignore ideology, all will be well.