« What is the Role of Psychological Considerations in Economics? - INET | Main | Links for 04-06-2013 »

Friday, April 05, 2013

Is China's Growth Model Sustainable?

A few quick., unorganized thoughts as I wait for today's sessions to start:

As I noted in an earlier post, one of the things I wanted to learn about at this conference is the sustainability of China's growth model and its applicability to other countries. One of the big issues is China's ability to rebalance its economy toward more reliance on internal consumption and less on exports. It's a delicate process because of China's large reliance on export-led growth. If China reduces its exports, but isn't able to successfully replace it with domestic consumption, it could cause huge problems for the economy. Nevertheless, rebalancing is essential. A second issue is growing inequality and the social unrest that comes with it.

What surprised me is an argument from Huang Yiping, Professor of Economics, National School of Development, Peking University, that this process is already well underway. He claims that if you correct for the service component of GDP, which is under reported, consumption has already climbed from somewhere in the 40 percent range to 52 percent of the economy. In addition, according to his estimates -- which I found convincing -- inequality is falling as well. Then main reason for this is a labor shortage (believe it or not) that is driving up wages, a process that began around 2008. Thus, there has been a transfer from profits -- which flow to higher incomes -- to wages of those at the bottom of the distribution (the five year plan allows for a 13 percent per year increase in the minimum wage).

So the argument is that it is not only possible to rebalance the economy and reduce inequality, this is well underway. Still, there's a long way to go yet and it's far to soon to declare victory.

[The video for this session isn't available yet -- I'll post it when it is.]

    Posted by on Friday, April 5, 2013 at 06:05 PM in China, Economics | Permalink  Comments (50)


    Feed You can follow this conversation by subscribing to the comment feed for this post.