Download China

PEET STRYDOM
COLLOQUIUM
EMERGING MARKETS, GROWTH RESILIENCE OR
HITTING A LOW GROWTH TRAP?
Introduction

The global economy is slowing
o
o


Will China have a hard or soft landing.
How will / can policymakers deal with it?
This seminar is concerned with a much broader
question: Is the current slowdown the end of catchup growth? Can China get stuck in a middle-income
trap?
What will be the role of the developmental state?
Global slowdown

The rise of China is a familiar story: Gapminder.htm
But growth is slowing:

What part is cyclical and what part structural?

Chinese slowdown

There are many causes of the current slowdown.
 Exports
and investment account, respectively, for 30%
and 40% of China’s GDP growth, which means that the
economy is particularly vulnerable to weakening
external demand and accumulation of non-performing
loans caused by excessive and wasteful spending on
fixed assets.
 Can, or should policymakers respond?

Keynesian vs. (neo-) Austrian views.
Chinese slowdown

To assess the risks and options for China, one must
understand China’s “Made in the World” production
system, which rests on four distinct but mutually
dependent pillars:
World factory.
 China infrastructure network.
 Chinese financial services supply chain.
 Government services supply chain.


With the onset of the current global crisis, and changes
in demographics, urbanization, and resource constraints,
all four pillars are now under stress.
Can China adjust?

A new consumption-based growth model for China?


Reflected in the government’s recently approved 12th FiveYear Plan.
If this view is right, the solution is straightforward:
China can correct its imbalances by increasing its citizens’
incomes (by cutting taxes, raising wages, or increasing social
spending), so that they can consume more.

But what if there are underlying constraints?
Can China adjust?
Can China adjust?

Export dependence partly reflects the high degree of
difficulty of doing business in China.



Official corruption, insecure property rights, stifling regulatory
restraints, weak payment discipline, poor logistics and distribution,
widespread counterfeiting, and vulnerability to other forms of
intellectual-property theft.
In “the ease of doing business” China is ranked 91st, behind
Mongolia, Albania, and Belarus. It is particularly difficult to start
a business in China (151st), pay taxes (122nd), obtain
construction permits (179th), and get electricity (115th).
All of these obstacles increase transaction costs and make it
difficult for entrepreneurs to thrive in domestic markets.
Can China adjust?


In order to enjoy the same low transaction costs that
they have in exporting, China’s entrepreneurs need
a much better business environment.
The key governance question is: which top-level
architecture would enable the country to adopt the
reforms needed to meet global and domestic
pressures?
Can China adjust?

China 2030 report
states that reforms
are required:








Land
Labour
Energy
Competition
Banking
Capital markets
SOEs
Taxes and
spending
China as a developmental state

John Knight defines the development state as one
that gives overriding priority to rapid economic
growth.
 There
can be differences in degrees of democracy or
dictatorship, nature and extent of state intervention in
the economy, strength of industrial policy.


The evolution of reform in China.
Institutions: "regionally decentralised
authoritarianism".
China as a developmental state

How China grew fast:
 Rapid
capital accumulation.
 Conditional convergence from a low base.
 Sectoral change
 High physical capital investment.
 Structural reforms: expansion of trade, privatisation of
production, transfer of labour out of agriculture.

High confidence, high investment, high growth.
China as a developmental state

Sustainability of this model will depend on:
 Power
of the top leadership.
 Strength of bureaucratic, business and military vested
interests.

There are many threats:
 Adverse
shock, a bubble, financial collapse.
 Social instability.
Conclusions




China will continue to lead global growth.
But possibly at lower rates.
Inclusive economic (and political) systems will matter
for future growth.
What does it mean for South Africa?
 For
our resource exports, for our manufacturing
sector…
 For Africa?