Monday, October 13, 2014

China is still planned, but what's next?

Looking back at our discussion from Day 3, we summarized that Wolf and Stiglitz have two different perceptions on the reasons behind China's success. Wolf, with his push for unfettered, liberal globalization, argues that China's economic growth has stemmed from its movement towards more liberal policies, ultimately fostering more growth. Stiglitz, who advocates for a more highly regulated globalization process, would agree that China has opened its economy, but it has done so slowly, and is still classified as a highly planned economy. Alon et. al's piece reminded me of this distinction between previous authors. This Economic Letter acknowledges China's increased foreign investment with the goal of accessing resources (natural), technology and capital inputs. China's growth, along with this pattern, according these authors, suggests that the country will continue to expand in hopes of continuing their growth spurt. This piece also mentions, on several occasions, the state's involvement in investments. On the one hand, between the 1960-2008, China accumulated financial wealth and relaxed restrictions on outflow. Alon et. al writes, "Nevertheless, despite Chinese reforms over the last decade that removed bans on foreign direct investment by the country’s private sector, most outward direct investment during this period was conducted by state-owned or quasi-state-owned firms." Ending here, one could argue that it backs Stiglitz's argument: that although China has liberalized in some aspects, the economy is still largely state-owned, contributing to its expansion. Reading on, the article names 2 motivations that Chinese banks have for seeking a broader international role, both of which deal with the banks looking for ways to develop and escape strict controls ("China’s strict controls on international capital flows and foreign exchange transactions have prompted Chinese banks to look for ways to get around these restrictions"). So, the question remains: what has had a larger impact on China's economic growth? Further, will the state continue to control outward investment, or will Chinese banks push for a more liberalized process?

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