Businessweek Archives

China's Growth Plan Makes Sense (Int'l Edition)


International -- Editorials

CHINA'S GROWTH PLAN MAKES SENSE (int'l edition)

China is about to try something few other Asian nations have attempted in recent memory. It is going for growth by increasing domestic demand rather than relying on exports. With the economy sinking, prices falling, and competitiveness failing (thanks to the devaluation of currencies throughout the Pacific Rim), Beijing has decided to expand from within. It is a daring strategy fraught with danger. But should it succeed, it could reform a weak banking system, transform a shaky state sector, downsize a bloated bureaucracy, deflate a real estate bubble, and ease trade tensions with the U.S. Prime Minister and economics czar Zhu Rongji deserves credit for his vision. He surprised the world by cutting China's inflation rate from 22% to 2%. Now, he has embarked on nothing less than completing the task of transforming all of China into a market economy (page 22).

Zhu could surprise even himself. If he succeeds, he may achieve nothing less than the end of party control over China. Reforming the banks means ending the profligate state patronage that now defines them. Loan criteria are currently based not on hardheaded business data but connections between local and regional party bosses and their business buddies (including foreign investors). This kind of crony capitalism is similar to that in Thailand and Korea, and the same overcapacity in real estate and manufacturing found there exists all over China. End access to cheap credit to reform banking, and Communist Party power erodes as well. Reforming state industries will have the same result. End access to jobs in state industries, and party power erodes further.

Zhu is known as "the boss." He gets things done. We hope he succeeds.


Tim Cook's Reboot
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus