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Revitalising the China story

By Edward Fang - posted Tuesday, 27 November 2012


To accelerate the rebalancing of the growth model towards domestic consumption, policymakers must lower price thresholds by alleviating excessive administrative taxes on consumption, promote greater competition in key product markets, and control housing affordability.

Marketisation, or pricing reform to reduce the state's influence over economic outcomes, must occur more aggressively, which would alleviate non-market driven distortions, foster free-market competition, and create the impetus for long-term productivity gains. The liberalisation of the financial sector would support the structural shift towards domestic consumption. More importantly, it would sever the link that funnels private savings into the inefficient state sector, providing the rationale for the gradual dissolution of the SOEs while improving capital allocation and the efficiency of credit markets. Reducing the dominance of state enterprises and extending support to small-to-medium enterprises will be vital as private sector firms are the fundamental pillars of innovation, productivity growth, and ultimately, long-term sustainable development.

Similarly, social reforms and investments in upscaling human capital, particularly in health care, education and support for the elderly, would lift productivity rates while simultaneously curbing mounting social tensions. Health care spending as a percentage of GDP remains at just 2.1% compared to the OECD average of 9.5%, with just one physician for every thousand people. Expanding the allocation of social services should in theory encourage households to reduce savings in favour of consumption, which would complement the recalibration in the growth model towards domestic consumption.

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China's development story has been truly remarkable. As Professor Richard Levin of Yale University put it, 'Let's remember, this is a nation that has taken more people across the poverty line in 30 years than across the poverty line in a hundred years of industrial revolution in Western Europe and North America.' Moving forward into the next 30 years, China faces profound challenges that will most definitely require bold action on the part of party leaders with a willingness to overcome cognitive inertia and accept the obsolescence of socialist-economic policies.

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About the Author

Edward Fang is an intern at the Centre for Independent Studies.

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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