Sunday, October 27, 2013

China's Coming Economic Slowdown -

China's Coming Economic Slowdown -
Sure what goes up comes down. The one zillion dollar question is when. So far, the China doomsayers have been wrong even though they enjoyed some happy hours during slowdowns, but in last decades, those are just hiccups. 2013 is almost over, so 2014 or 2015 is new year of China crash in tow?
The structural problems are true and serious:
The system moves mountains in its youth but eventually hardens into a mountain range itself—stony, impenetrable and immovable. It empowers vested interests that, like privileged players throughout history, first ignore and then resist change because it poses a mortal threat to their status and income.
This sort of "rent seeking" is visible in every such society. As the social scientist Francis Fukuyama explains, reflecting on the French ancien rĂ©gime: "In such a society, the elites spend all of their time trying to capture public office in order to secure a rent for themselves"—that is, more riches than a free market would grant. In the French case, the "rent" was a "legal claim to a specific revenue stream that could be appropriated for private use." In other words, the game of the mighty is to convert public power into personal profit—damn markets and competition.
If the state rather than the market determines economic outcomes, politics beats profitability as an allocator of resources. Licenses, building permits, capital, import barriers and anticompetitive regulations go to the state's own or to favored players, breeding corruption and inefficiency. Nor is such a system easily repaired. The state depends on its clients, just as its clients depend on their mighty benefactor. This widening web of collusion breeds either stagnation or revolt.
However, the above descriptions can easily be found in today's so-called liberal democracy. How much our laws are written in favor of the big donors, or "vested interest"? Sure, the extent is vastly different, but the direction is not assuring at all.
How much immediate threat such political and structural imbalance poses toward the China's economy growth? Probably much less than limit of natural resource and human capital.
China will slow down. The question is how deep and how soon.

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