China has been a great economic success. From 1999-2011, GDP and exports were rising at about 20% per annum in dollar terms. Something similar was observed earlier in Japan, South Korea and Taiwan. The East Asian export model is about recycling export income into investment to expand export capacity.
When Japan slowed down in the 1980s, its income was already similar to that in the West. South Korea and Taiwan made it to about half of that. China is slowing at only one-fifth of the OECD level. And herein lies China’s dilemma.
China is too big to export all the way to the top income bracket. But the government is unwilling to shift to a balanced growth model at so low an income level.
China can solve all its problems through structural reforms. The key is to scale back investments to fit in with slower growth. If the potential growth rate is 5%, which I believe to be the case, investment needs to fall from 45% to 25% of GDP.
China’s investment model is based on the government’s ability to raise financing with whatever means are available at its disposal.
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Andy Xie 謝國忠 is a renowned Chinese economist based in Shanghai who has been named one of the “50 Most Influential Persons in Finance” by Bloomberg.
Andy Xie’s skill and has been tried and tested through the years. He is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States.
He joined Morgan Stanley in 1997 and was Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. Before that, Andy spent two years with Macquarie Bank in Singapore an associate director in corporate finance and five years as an economist with the World Bank. Dr Andy Xie is currently a director of Rosetta Stone Advisors.
Dr Andy Xie earned a PhD in economics in 1990 and an MS in civil engineering in 1987 from the Massachusetts Institute of Technology.