| Review of: | How China grows: investment, finance and reform by James Riedel, Jing Jin, Jian Gao |
|---|---|
| Reviewed By: | Marc Lanteigne |
| Reviewed in: | International Affairs |
| Date accepted online: | 10/04/2008 |
| Published in print: | Volume 83, Issue 06, Pages 1193-1234 |
Book Reviews: Asia and Pacific
This compact volume shines a light on the contributions made by domestic and international investment to China's economic reform and rapid growth. Since the Dengist reforms in the late 1970s, which sought to dismantle the non-competitive command economy under Mao, Beijing has undertaken economic modernization via a conservative and experimental approach. Yet decades after, debate continues among economists over whether these methods were the best options to bring the country out of poverty and chaos, and more importantly whether Chinese growth can be sustained in the long-term.
Rather than seeking to examine the entirety of the Chinese economic reform process, the authors focus on specific areas related to investment patterns in seeking to explain how China's overdrive economy has sustained itself. These issues include savings rates by both individuals and the Chinese government, important in light of attempts by Beijing to foster greater consumption rates and consumerism. There is also the question of reforming the country's banking sector, which the Chinese government has been seeking to modernize in the hope of creating globally competitive institutions. However, the legacy of the 1997-8 financial crisis, commonly attributed in part to faulty bank regulation in South-East Asian economies, weighs understandably heavily on current Chinese banking policy. The work sees contradictions between banking reform, the cumbersome size and inefficiencies of the Chinese banking system itself, and the government's attempts to maintain strong oversight. Finally, there is the country's evolving bond and stock markets which, despite their rocky beginnings, are also beginning to establish a global presence. While acknowledging advances in all these areas, however, the book warns that the country's still-underdeveloped financial infrastructure, now being asked to do more and more in light of China's internationalized economy, may not be able to withstand future pressures.
Some parts of this work, especially the equation-heavy chapter on savings processes and investment rates, are best appreciated by those with solid economics backgrounds, but even non-experts interested in China's growth will appreciate the arguments made here. Noteworthy are the overviews of the country's stock markets, currently operating in Shanghai and Shenzhen, which are beginning to attract international attention despite their growing pains. The authors argue that the overwhelming state presence in these markets has served as an unfortunate restraint on reforming the competitiveness and proficiency of China's enterprises. The question of China's foreign exchange policies, a sensitive topic between China and the United States in recent years, is also significant. The authors express scepticism about some of the arguments levied by foreign governments that Beijing's
In short, the book suggests that excessive manipulation of financial institutions by Beijing is inevitably creating more harm than good and may adversely affect future growth and development. The conclusion highlights financial weaknesses as well as the country's looming pension crisis, a result of a growing number of retirees coupled with a decaying state welfare system. However, other potential crises such as labour unrest, the fraying 'household responsibility' system which no longer significantly limits mass mobilization of workers from rural to urban areas, as well as the problem of growing income inequalities, might also have been given wider treatment in this work. Nevertheless, this work provides a balanced view of China's financial actors and how they may sustain, or abrade, China's economic miracle. These are not trivial questions, it is argued, as 'financial development is crucial for sustaining growth in the future, whereas it was less so in the past, precisely because of this fundamental transformation in China's economy' (p. 17).