New Model
China would need to shift to new growth model… Since 1980, it relied on:
- mobilization on two mechanisms
- shift in control of resources to state to private
There may be thus diminishing returns.
a new growth model
- China’s capacity outstrips global demand
- incomes no longerr rising as rapidly
- foreign direct investment is slowing
Expansion of credit
China bank access accounts for a large percentage of global GDP; thus bad debt can accumulate and hurt. Banks is thus driving the infrastructure drive via credit. Credit growth comes up, GDP growdth comes down; bad state! Yet, almost 20% of enterprises are loosing money.
Credit is going increasingly to state owned enterprises: state sector is much less efficient in resource usage than private firms.
Declining Productivity
- total factor productivity growth is declining
- investment capacity far outstrips demand—requiring global demand to stay high
- infrastructure has low financial returns
- total credit extended to economy by banks
- over the past 30 years china has not built-up a welfare system—China redistributes less income than the US