China’s Economic Model Is in Crisis

nymag.com

7 points·1PlayerOne··5 comments

China’s growth model has two parts. First, through a variety of policies, you increase the share of national income that goes into savings and reduce the share that goes into consumption. In practice, this means restricting the amount of GDP that goes to households and increasing the amount that goes to businesses. Second, you channel those savings through the banking system into investment.

This model is not unique to China. Quite a number of countries have followed it. China has just followed it to a greater extent than any country in history.

A successful growth model will disproportionately benefit certain constituencies. And it will also make those constituencies disproportionately powerful. Which makes it politically difficult to shift away from the model after it’s become obsolete. So you end up following an outdated economic strategy.

There’s a stereotype that to be a millionaire in China, you have to write computer code. But that’s not true. The vast majority of rich Chinese are rich because they were in the property sector or in the construction sector or in other basic parts of the economy that receive lots of government spending. So adjustment requires a major transformation in all of the business, political, and financial institutions that have developed over the last 30 years.

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A falling population is a problem for China as a military power. But if you’re thinking about the Chinese economy, it’s much less of a problem.

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