Pursuant to our take on Zakaria’s Newsweek piece, we turn our attention to one of the “it” countries of today: China. Martin Wolf has a timely article on the FT arguing for China to “risk bolder trials” in order to sustain the explosive rate of growth in the next few decades.
While we agree with Wolf’s dissection of China’s economic strategy that features “gradualism”, we are not entirely convinced of his rally for bolder steps. China is already vastly more open to trade than Japan or Korea, two more established economic powers in Asia, according to a World Bank report, although China’s reliance on foreign direct investment is more pronounced with private and foreign-owned enterprises generate 52 per cent of GDP, estimated by McKinsey Global Institute. To reduce the dependency on FDI, fnancial sector reforms are much needed to improve efficiency in the credit market. However, ill-devised rush to accelerate reforms could precipitate economic and political upheaval. In other words, bolder steps may not offer the best recipe for higher domestic consumption and more efficient investment.