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China’s Leaders Had No Choice But to Ditch the Old Model

Sep 02 , 2015

Sir, Praise to George Magnus for setting out so plainly a few of the hurdles facing China’s leadership, especially the recentralisation of power and its intrusion into economic policymaking (“The Chinese model is nearing its end”, August 22). There are two developments worth noting.

First, under efforts to unravel past legacies and restructure the growth model the economy has become bifurcated. This is inevitable as it moves from a fixed-asset investment and export-driven manufacturing economy into a consumer and services-driven one. None of the leadership or their advisers ever said this was going to be an easy road.

Beneath the gloom there are positive signs emerging from the new economic model. Private consumption is now 46 per cent of gross domestic product and disposable income 50 per cent, compared with 38 per cent and 42 per cent respectively in 2007. The services sector has become the real driver of growth and employment as manufacturing’s share of GDP continues declining. Quality of life is becoming important as a consequence of these trends: spending is being geared towards leisure activities and travel, with outward bound tourism forecast to rise from about 100m now to about 500m by 2020. In the manufacturing trenches credit remains tight and expensive but is having the desired policy goal of precipitating bankruptcies and mergers where the horrendous surplus capacity caused a complete loss of pricing power and made real profits difficult to achieve.


Copyright: Financial Times

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