Jing Daily: Predictions for China in 2010
I’m visiting the U.S. this week, giving talks at Harvard, MIT, Wharton, and some DC think tanks, and meeting with hedge funds. It’s my first time back in America in nearly a year, and unfortunately my travel schedule has left me with little time to add to this blog — something I hope to start redressing this weekend. I have a big backlog of topics — China’s proposed property tax, how Chinese monetary policy actually works (you may be surprised), the prospect of inflation in China (and whether that’s a good or bad thing), the final installment of my “visit to North Korea” series, and a brand new series on my experiences in Pakistan’s tribal territories — all of which I’ve been giving a lot of thought to and want to explore in the weeks ahead. So good stuff coming, I promise.
In the meantime, as a bit of a teaser, I figured I’d share my part in a piece that appeared in Jing Daily earlier this week, called “10 for 10” — ten (actually eleven) experts weighing in on what they see as the key trends to watch in China this year. It’s an interesting range of opinions, and you can check them out in Part 1 and Part 2 here. Here’s my contribution:
The greatest challenge facing China in 2010 is to adapt to the new reality created by its own economic success. For the past 30 years, China has relied on exports to turbo-charge growth, a strategy that was entirely appropriate for a rising economy. But last year, China emerged as the world’s top exporter, and is now poised to become the world’s second largest economy. The old model is no longer sustainable, and China needs to transition to a new one driven by rising standards of living at home.
Not only will this require China to embrace bold new policies – such as more flexible exchange rates and market-driven interest rates – it requires a change in the 30-year mindset that defines exports as “good” and imports as “bad,” foreign investment as “good” and capital outflows as “bad.”
Japan’s failure to make precisely this transition, when the time came, resulted in a bubble economy followed by a “lost decade” of stagnation. China cannot afford to make the same mistake.
Nothing dramatically new here, but it does neatly capture a set of concerns that have been crystalizing for me as I talk with people about what I see happening in China, and lays a foundation for some of my upcoming blog posts.
It’s been a public holiday this entire week in China, so most of the other sources of news and interesting tidbits I like to share have been pretty quiet. But I’m sure things will pick up again next week as the Year of the Tiger gets underway.