There is a fierce debate within economists regarding the nature of recovery of the Chinese economy from the financial crisis. Vineet Kohli contributes to this debate in the attached article.
I liked the article by Vineet Kohli. It was extremely informative and analytical. I think the article should be carefully read by those who argue that China has gone the capitalist way, and abandoned socialist policies. It is important to note that China has tried to design polcies for the globalised era on its own terms and not allowed speculation or finance to take over production in any significant way. The fact that industrial production remains the central feature of Chinese economy is also notable, compared to countries like India.
Indeed, the Chinese Communist Party has recognised the growth of inequalities (regional- and class-based) in the last 30 years. In this context, its efforts to ensure food security and other social security nets, as in health insurance, after 2004-05 are also now bearing fruit.
The experience of China can not be looked at from a mechanical perspective of what capitalism implies in the present era. It needs to be analysed from the perspective of a country, with its own developmental challenges and political challenges. We in India need to watch China more closely, with an open mind.
the china enthusiast who has posted this comment has perhaps not read this part of vineet kohli's paper, which talks about the disturbing trend of large amounts of hot money capital flowing into the Chinese economy. "China added an unprecedented $178 bn to its forex reserves in the second quarter of 2009. Reportedly, China’s trade surplus and FDI in second quarter of 2009 were $34.8 bn and $21.2 bn respectively8. This means that bulk of reserve accumulation in the second quarter of 2009 has been on account of speculative inflows. This huge increase in hot money capital has found its way into the Chinese stock markets. Since the beginning of the year, Shanghai Composite Index has risen by more than 50% (fig 6). There are two ways in which this boom (and, perhaps, also the much talked about real estate
bubble) can harm the real recovery in China going forward. Firstly, sooner or later, this boom will burst and the accompanying financial dislocation will definitely harm real economy to some extent. For example, given China’s fixed exchange rate regime, capital outflow may lead to contraction of credit and put a spanner in the works of recovery led by debt financed investment. Secondly, hot money inflows are aggravating China’s long standing problem of unduly large forex reserves. Despite the reduction in trade imbalances, the reserves have grown and so has the expected loss due to fall in the value of dollar. Chinese government will therefore need to consider some curbs on inflow of speculative
capital into its economy."
going by the reports emanating from china, there seems to be a big housing price bubble building up there. see this:
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