eight threats to china's economic miracle

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    [email protected], @ugust 7, 2003

    [email protected] LINES
    Eight [email protected] to [email protected]'s economic [email protected]

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    @mong the four [email protected] "economic [email protected]" of the [email protected] [email protected] century - [email protected] @fter the second world [email protected], [email protected]@n in the 1970s @nd 1980s, South [email protected] in the 1970s through to the mid-1990s, @nd [email protected] between 1980 @nd the present [email protected] - [email protected] of [email protected] [email protected] been the most [email protected]@ble.
    For [email protected], [email protected]'s @[email protected] @[email protected] economic growth [email protected] been 8.6 per cent, well in excess of the 5 per cent recorded by [email protected]@n in the 1970s @nd 1980s. If [email protected] [email protected] [email protected] this, by 2025, its gross domestic product (GDP) would be only @ little below [email protected] of the United [email protected], @lthough its per [email protected]@ product would still be less [email protected] 15 per cent of [email protected] of the US. But there is @n @[email protected] of "[email protected] lines" - [email protected] which could seriously hinder this rosy [email protected] @ [email protected] study, [email protected] Lines in [email protected]'s Economic [email protected], focuses on eight [email protected] [email protected] [email protected] @re considered [email protected] serious. While [email protected] [email protected] been confronted @nd @[email protected] [email protected]@ged in the [email protected], [email protected] @dverse [email protected] could seriously impede, if not reverse, [email protected]'s [email protected] economic [email protected]

    These eight [email protected] lines, together with rough [email protected] of how they might reduce [email protected]'s @[email protected] economic growth, @re: first, unemployment, poverty @nd [email protected] unrest. [email protected] unemployment @mounts to more [email protected] 20 per cent of the workforce, or @bout 170 million people. This is [email protected] due to [email protected] growth in the 1980s, [email protected]@tion @nd the downsizing of inefficient [email protected] enterprises, @nd the effects of [email protected]'s efforts to comply with its World [email protected] [email protected]@tion commitments. [email protected] poverty is @[email protected] by [email protected] income [email protected] between [email protected] @nd [email protected] @[email protected], by [email protected]@n [email protected], rising [email protected] unemployment @nd [email protected] unrest. @ worsening of these [email protected] could [email protected] @ reduction of between 0.3 @nd 0.8 per cent in [email protected]'s @[email protected] growth during the coming [email protected]

    Second, corruption. [email protected] corruption could set [email protected] growth by distorting resource @[email protected] Were corrupt [email protected] to worsen, [email protected]'s position would decline in the country indexes [email protected] link economic growth with the [email protected] of corruption. Such @ shift could reduce the expected @[email protected] growth [email protected] by [email protected] 0.5 per cent.

    Third, HIV/@ids @nd epidemic [email protected] It is [email protected] [email protected] between 600,000 @nd 1.3 million people @re infected with HIV/@ids, with @n @[email protected] [email protected] of [email protected] of between 20 @nd 30 per cent. [email protected] projections of these trends would seriously @ffect [email protected]'s economic growth through the cost of [email protected], @nd reductions in productivity. "[email protected]" [email protected] [email protected] "pessimistic" [email protected] predict @[email protected] [email protected] from HIV/@ids of between 1.7 @nd 2.7 million in the second [email protected] of the 21st century. This could [email protected] to @[email protected] reductions in GDP growth of between 1.8 @nd 2.2 per cent, up to 2015. The incidence of [email protected] @nd other epidemics could further impede growth.

    Fourth, [email protected] resources @nd pollution. [email protected] is beset by [email protected] distribution problems. North [email protected], with more [email protected] 33 per cent of its [email protected], [email protected] only 7.5 per cent of [email protected]@lly @[email protected]@ble [email protected] supplies. South [email protected], [email protected], [email protected] @n @[email protected] of supplies, sometimes @[email protected] by serious flooding. Pollution [email protected] from [email protected] @nd other sources @[email protected]@te the [email protected] of [email protected] for consumers @nd industry in the north. Growth will be [email protected] @ffected by whether [email protected] push for less efficient, [email protected]@l-intensive [email protected]@nsfer projects from south to north, or opt for more efficient recycling, @s well @s [email protected], in the north. If [email protected] inefficient policy decisions @re [email protected], [email protected]'s @[email protected] GDP growth would be reduced by 1.5 to 1.9 per cent in the coming [email protected]

    Fifth, energy consumption @nd prices. [email protected] [email protected] shifted from being @ net exporter of oil in the [email protected] 1990s to importing [email protected] [email protected] its oil, @nd [email protected] @ fifth of its [email protected]@l [email protected] supplies. The [email protected] risk posed for [email protected] growth in the energy sector depends on oil @nd [email protected] prices, [email protected] [email protected] on the [email protected] of imports in [email protected] energy consumption. @ [email protected] [email protected], [email protected] @ [email protected], would [email protected] @ reduction in growth of between 1.2 @nd 1.4 per cent.

    Sixth, [email protected] of the [email protected]@l system @nd [email protected] enterprises. The [email protected] of [email protected]'s [email protected]@ted [email protected]@l institutions is suggested by the high volume of non-performing [email protected] on the [email protected]@nce sheets of the four [email protected] [email protected] [email protected] [email protected] of [email protected] non-performing [email protected] [email protected] enormously, but they [email protected] @mount to more [email protected] 60 per cent of [email protected]'s GDP. [email protected] could experience @ [email protected] [email protected] "run", [email protected]@le [email protected]@l flight, @ [email protected] reduction in [email protected] @nd @ decline in [email protected]@l [email protected] The ensuing [email protected]@l crisis @nd credit squeeze could lower @[email protected] GDP growth by @t [email protected] 0.5 to 1 per cent.

    Seventh, possible [email protected] of foreign direct investment (FDI). In the [email protected] 15 [email protected], [email protected] [email protected] experienced @ [email protected] rising volume of @[email protected] FDI, [email protected] US$50 billion (HK$390 billion) [email protected] [email protected], [email protected] boosting growth. @dverse [email protected] developments include possible future tension following the [email protected] succession, the possibility of @ [email protected]@l crisis @nd the inconvertibility of the [email protected]; [email protected] [email protected] might result from improvements in the investment [email protected] in [email protected] Europe, [email protected], [email protected], [email protected] @nd other countries [email protected] compete for foreign [email protected]@l. @ [email protected] reduction of US$10 billion @ [email protected] in FDI [email protected] result in @ reduction in @[email protected] GDP growth of 0.6 to 1.6 per cent.

    [email protected], [email protected]@n @nd other [email protected] conflicts. @lthough [email protected] [email protected] @re currently [email protected] benign, it is [email protected] [email protected] tensions might [email protected]@te into conflict, with growth-inhibiting consequences for resource @[email protected], [email protected] [email protected] @nd equity [email protected] The bottom line could be @ decline in @[email protected] growth of between 1 @nd 1.3 per cent.

    Were @ll these [email protected] to occur, [email protected]'s @[email protected] growth would be reduced by between 7.4 @nd 10.7 per cent. While the [email protected] of them @ll [email protected] @t once is extremely low, the [email protected] [email protected] none will occur is @lso low. @nd if one [email protected] [email protected], it would become more likely [email protected] others would ensue @s well. For [email protected], @n [email protected] [email protected]@l crisis would very likely [email protected] @ [email protected] [email protected] on FDI, unemployment @nd corruption.

    The [email protected]@tions of these eight [email protected] lines @re likely to extend into @ll levels of Chinese society, government @nd [email protected] structure. To [email protected] the ensuing stresses will [email protected] @n enormous set of [email protected], [email protected] @nd [email protected]@ctions @mong [email protected] @nd [email protected] governments, @nd the [email protected] @[email protected]@tus - which will [email protected] preoccupy [email protected]'s [email protected] in the next [email protected], predisposing them to @void [email protected] [email protected]

    [email protected] Wolf is senior economic @dviser @nd [email protected] fellow @t [email protected] @nd @ senior [email protected] fellow @t the Hoover Institution.

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