The Global Economy in Turbulent Times

CHAPTER 140 China: Multiple Policy Dilemmas¹

Last November 2013, China endorsed a long list of bold reforms at its much-awaited “Third Plenum.” I commented on them in Chapter 139, “China: The Third Plenum Reforms Are Well Received, but the New Deal Flashes Danger Signals.” Reform is exactly what China needs to do to overcome the “middle-income trap”—failing to make the jump from an early stage of growth based on cheap labor and brute accumulation of capital, to the more sophisticated stage on the back of a well-educated workforce, innovation, and improvements in productivity. But no economy—not even one as determined to succeed as China, can move in lockstep from one growth model to another. Implementation is often a process of gradual diffusion—not abrupt transition. Besides, the policy environment and ecosystem have to be right.

Often, dilemmas (i.e., the risk of incoherence) arise as multiple policies are put into place; so trade-offs become inevitable: between long-term strategic focus and short-term tactical aims; between sustainable growth objectives and quantitative growth targets; between the role of market forces in determining the allocation of resources and the role of state-owned enterprises (SOEs); and so on. China’s traditional emphasis on long-term strategic imperatives must continue to enable it to navigate these dilemmas (road bumps).

Outlook Still Dismal

The International Monetary Fund (IMF), World Bank, and Paris-based Organisation for Economic Co-operation ...