This should be included in a China Economic Roundup, which AsiaPundit hopes to resume soon, but the Economist article noted by Mark Thoma very much relates to the incident in Taishi and is worth reading now for context.:

China’s leaders may finally be readying themselves for a change in the mercantilist, growth-at-any-cost model that has prevailed for decades. The Communist Party leaders’ annual meeting on economic policy ended on Tuesday with word of a strategic shift: from now on, there will be more emphasis on redressing the inequality and social disruption that market reforms have left in their wake. The most immediate worry for China’s leaders is social unrest. Last year, the government documented more than 70,000 demonstrations, attended by some 3m protesters. … It needs the export sector to continue booming, in order to absorb surplus labour from the countryside and moribund state-owned companies. But it is aware that the rapid growth of recent years has opened fractures that could grow even wider.

… details are sketchy, it seems improbable that China’s move towards more balanced economic growth will be anything like the kind of radical leap that foreign observers would like. There are some brands of wealth redistribution that would make foreign investors very jittery, such as higher taxes. Hu Jintao, China’s president, is still consolidating power; even if he had a radical vision of a China less dependent on the cravings of the American consumer, it would have to wait until his command of the party was firmer. More importantly, it would have to wait until Chinese consumers became sufficiently confident in the social safety-net and the provision of affordable health care and education that they were willing to save less and spend more. … And though the rising tide of China’s economy undoubtedly has the power to lift all boats, there are worrying rigidities in the system, caused by the under-development of its financial system and the fact that economic reform has not been accompanied by political reform. Officials rightly fret that further economic changes could undermine the stability of the party’s rule. Amid all the talk of addressing the wealth gap, the party’s plenum reiterated a commitment to rapid growth by restating a goal of raising China’s GDP to double its 2000 level by 2010…

While China could use a more egalitarian system of wealth distribution to support a consumer culture and domestic demand, AsiaPundit is concerned that Hu Jintao’s attempts to bring this about will be through a tightening of central planning rather than a loosening.

One of the reasons China is suffering from unequal wealth distribution is because the state still holds far too many of the economic levers (i.e., 66% of domestically listed companies are state-held and private ownership of land does not exist). Part of the reason wealth is not distributed equally is because, as in many third-world countries, power is held by a political elite and not a meritocracy.

This has been changing, especially in coastal cities such as my home in Shanghai, but when you move outward and inland the disparities worsen. I cannot think of any way the problem can be easily solved. A punitive ‘wealth’ tax that upsets the newly ‘rich’ would possibly be more politically risky than allowing the dissatisfaction among the rural poor to fester. An angry and over-taxed Shanghai or Hangzhou could be far more attention grabbing than the beating of any peasant activist.

The Jiang Zimen/Zhu Rongji tag-team wasn’t perfect, not by a long-shot, but I’m concerned that the Hu/Wen Jiabao team may be damaging for China. This is not a comment on politics - neither Jiang/Zhu nor Hu/Wen are or were democratic reformers - but the former, in terms of both rhetoric and action, seems a less-interventionist and more-reformist team economically.

Private wealth and a relatively more-equal system of wealth distribution exists in the cities because it has been allowed to. There is no government policy enforcing it. In the villages and towns, wealth is often concentrated because it is not permitted to be distributed beyond those who head the CPC ’s fiefdoms in those areas.

I have some hope that central government figures realize this. Some government people I have met have been more market oriented than many US Republicans I have encountered (though the latter are running double deficits and sponsoring protectionist bills in Congress, so that shouldn’t be surprising).

While I would testify that the central bank is far more market-oriented than the NDRC, factions in ministries are easier to spot than the thoughts of those at the top. I’m not really sure where Hu’s economic influences lie.

A while back, on the basis of an unsourced item, I expressed some hope that Hu would reverse a mistake of Jiang. Today, I’m worried that he will make it worse.

As the economist said, “it seems improbable that China’s move towards more balanced economic growth will be anything like the kind of radical leap that foreign observers would like.”

AsiaPundit, a foreign observer, awaits the next five-year plan.

Technorati Tags: asia, china, east asia, northeast asia, economy, puppy

Technorati Tags: asia, china, east asia, economy, northeast asia, puppy