I recently picked up a copy of this book. It details how China is at the turning point of its development where its near double-digit growth is now threatened by challenges that the waking dragon has to overcome or risk being “caught in the middle-income trap and be unable to become a modern country”.
There are essentially 3 classes of failure within China that could lead it to be trapped in this “middle-income” category:
1) Hardware failure, where one of the key economic mechanisms break down. For e.g. a banking crisis that dislocates production economy-wide. This is possible given the inflation that is taking place and the possibility of defaults could trigger off a domino string of problems one after another leading to an economy collapse. The government is watching this closely like a hawk.
2) Software failure, referring to a governance flaw that leads to periodic social disorders disrupting the production process and discouraging private investment.
3) Power supply failure, referring to either a natural limit (like global climate change) or an externally-imposed limit (like a trade war).
Fortunately, China is able to manage its short-term demand to be consistent with its growth, and has the ability to reform its political institution to accelerate this growth in the middle term. That being said, for the long term, it has to sustain the “power supply” that drives the hardware and the software. These 3 sets of measures will create the economic synergy much needed to take China to where it longs to be – a fully developed high-income country.
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