China's Emergence as a Superpower (till 2014)

[Firn]

Sometimes it is good to look once again at some older articles, The End of Hypergrowth: Political and Economic Responses to a Slowing China by Naughton in late 2012.

The Opportunity for a Revival of Broad Market-#Oriented Reforms

These challenges have created a rich new opportunity for China’s frustrated market reformers. Reformers have been sidelined for years, especially since the muscular response of the Chinese government to the global financial crisis in 2008–2009. Now their fortunes have changed. Reformers can now get a hearing, and find outlets for their views. Many reformers today strike a note of doom and gloom: without major reforms, there would be big trouble ahead.

I did already write about the many issues, especially in the financial sector. China did the right thing in stimulated the economy big time in 2008 when the export-driven economy faced a collapse in demand. However they lacked in execution especially after the quick initial response which could of course not be perfect given the dire circumstances. I think the Chinese government got too complacent about the economy and their Chinese way and now China is paying the price for the lack of liberal market reforms. This has changed in the last year or so and some of recent reactions point into the right direction. For example the interest rates, partly responsible for the shadow banking system are no longer controlled. I explained my rather similar view a couple of posts earlier.

China certainly faces big problems and will face big problems in the future. The hyper-growth of the last decades has been amazing and likely unmatched on that scale. There is IMHO still considerable scope in China for the 'old' type of growth we saw in the last decades, with a still relatively large rural population and much demand for big infrastructe, social security, education, health spending. The deep integration into the global value chain will be a key element from the market side. A very big question mark is the political aspect of China. So far only rather democratic countries have achieved a high standard of living without sitting in on a sea of oil, and for good reasons touching the heart of economics.