Arthur Kroeber
Arthur Kroeber

Foreign media see – wrongly – often many crises appearing in China, writes economist Arthur Kroeber in his upcoming book China’s Economy: What Everyone Needs to Know®. The Australian Financial Review has an early review. There are problems, but “he does not see a headline-grabbing crisis, rather a slow Japanese-style decline.”

Australian Financial Review:

“Visitors to China observe the waste and inefficiency visible everywhere and often conclude the economy will soon hit a crisis,” Kroeber writes.

“These predictions have so far been wrong, not because observers are wrong about the degree of waste, but because they fail to realise that in a country of China’s size such waste can be irrelevant so long as it is a by-product of any effective process of meeting basic needs.”

In making his point Kroeber points to the boom years between 2000 and 2010, where China needed to create 20 million new jobs and build 8 million new homes each year just to meet the basic shelter and employment needs of its population.

“It is hardly surprising in this scramble many fairly useless jobs were created and many housing units were built which had to wait months or years for buyers,” he writes.

Kroeber argues the overall result of this building boom has been to provide China with world class infrastructure.

But he says this phase of growth is now over and Beijing must look to a new model which emphasises “efficiency rather than scale”.

“This transition will be difficult,” he writes.

This is where Kroeber and others see emerging problems for China.

Their concerns have less to do with economics and more to do with politics — an area of study those predicting a perpetual crisis should perhaps focus their energy.

The central question is whether the Communist Party and its increasingly authoritarian leader, Xi Jinping, can relinquish sufficient control over the economy to allow it to grow at elevated levels over the next decade.

On this front Kroeber is sceptical.

But he does not see a headline-grabbing crisis, rather a slow Japanese-style decline.

He sees stagnation as a result of the government’s reluctance to expose the state sector to greater competition and from a lack of political will to address the sector’s debt problems.

More in the Australian Financial Review.

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