http://www.nytimes.com/2014/02/18/business/economy/nobel-winners-frank-advice-to-chinas-leadership.html?ref=business
A. Michael Spence (2001 Nobel Prize winner economist) has some advice for China's economy.
He opines that as the global economy is largely dependent on China, China should move past low wage exports and generate demand domestically too, or else "they'll fail."
China is currently facing a challenge- middle income transition. A challenge faced by developing nations. Only South Korea, Taiwan and city states of Singapore and Hong Kong have made it from a middle income status to a high income status.
The middle income transition requires a much better and sophisticated economic strategy such as production of more complex industrial goods and strengthening domestic demand for consumer goods. The Asian Tigers prospered through exports strategy in the 20th century.
But now Europe and Japan's current stagnant economies decrease this demand for export goods and only USA is a stable economy which is demanding for export goods. Thus the strategy of exports to run the economy is not the best measure.
The Chinese economists want to push firms into more innovative, productive sectors, expose huge public sector banks and often inefficient state-owned companies that control more than half of China’s fixed investment. But these measures will only bring short term gains.
So China needs to increase consumer demand internally to prosper in the long term.
A. Michael Spence (2001 Nobel Prize winner economist) has some advice for China's economy.
He opines that as the global economy is largely dependent on China, China should move past low wage exports and generate demand domestically too, or else "they'll fail."
China is currently facing a challenge- middle income transition. A challenge faced by developing nations. Only South Korea, Taiwan and city states of Singapore and Hong Kong have made it from a middle income status to a high income status.
The middle income transition requires a much better and sophisticated economic strategy such as production of more complex industrial goods and strengthening domestic demand for consumer goods. The Asian Tigers prospered through exports strategy in the 20th century.
But now Europe and Japan's current stagnant economies decrease this demand for export goods and only USA is a stable economy which is demanding for export goods. Thus the strategy of exports to run the economy is not the best measure.
The Chinese economists want to push firms into more innovative, productive sectors, expose huge public sector banks and often inefficient state-owned companies that control more than half of China’s fixed investment. But these measures will only bring short term gains.
So China needs to increase consumer demand internally to prosper in the long term.
In Economic Development, we learned about transitions and how middle income states are often hard to overcome and often lead back to lower income states. If China can move past the point of middle income, they'll move farther up to the higher income state, the middle income is hard to stay at and countries will often go back down to low income or move up to high income.
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