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The Economist’s Survey of China

This week’s issue of The Economist includes a Survey of China that covers key issues such the urban-rural divide, and the (politically) challenging, but economically useful, role of rural land reform. It notes that

While rural taxes have been removed, it is noted that new funding sources have not been put in place for public services, so some pressing problems have merely been shuffled rather than solved. In addition, where farmers are compensated for loss of land, it is at the “agricultural value”, which may be only 10 percent of its real market value (and the farmer may only get some it it anyway).

The paper is not always friendly towards China’s government, but it does recognize that the Chinese Communist Party (CPC) “has shown that it will take big risks if economic development demands them”. The experience of state-owned enterprise (SOE) reform is a good example. This may point to a positive outcome for the management of the rural question.

Other issues covered include comment on issues to watch over the next 20 years, such as:

  • An uncertain development path – a positive political and economic force on the world stage, or a trend towards negative nationalism and social upheaval?
  • China’s contribution to global economic growth – which has been greater than the US since 2000 – in terms of purchasing power parity (PPP); the growing holding of US Treasury bonds, and the resulting impact on US interest rates; The low-cost manufacturing base it provides, and the increased buying power that gives western consumers; and its thirst for energy.
  • Reform of the banking system, which is suffering under the pressure of bad loans, but which is taking in strategic foreign investment.
  • Continued state-owned enterprise reform, and the introduction of a new bankruptcy law (perhaps this year).
  • Demographic shifts – the dependency ratio will rise from 2010 as the population ages quickly and the labour force shrinks (as a result of better life expectancy, and the one-child policy from the 1970s).
  • Reform of the social security and pensions systems.
  • Environmental issues
  • All of these issues are large in scale and will have an impact internationally, as well as in China. Businesses need to understand the risks, as well as the opportunities, that lie ahead – and keep one eye on the medium and long-term while the other is busy being focused on today’s blinding growth.

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