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Old 05-27-2012, 12:59 AM   #1
BreeveKambmak

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Default China's economic model: Just how weak is it?
Thomas Mucha | May 25, 2012 15:20 Global Post

Here's one of the more colorful sayings attributed to China's new material girls, most notoriously on a Chinese television
dating show:

"I'd rather cry in the back of your BMW than laugh on the back of your bicycle."


Funny, yes.

But the remark also reveals the aspirational urge across China to leave behind symbols of the past and to race headlong —
wallets open and arms outstretched — into a more prosperous future.



As the Economist points out, the bicycle has long been a useful analogy for thinking about China's remarkable and complex
economy: everything's fine as long as you keep peddling. Here's how writer Simon Cox puts it:

"Bikes—especially when heavily laden—are stable only as long as they keep moving. The same is
sometimes said about China’s economy. If it loses momentum, it will crash. And since growth
is the only source of legitimacy for the ruling party, the economy would not be the only thing
to wobble."


But as the Economist report also makes clear, that metaphor may be outdated. And that begs the following questions:
what's changing, and what does that change mean for the rest of us?

In the short term, China is having problems pretty much everywhere you look: industrial production is lower, house building
is down, demand is slowing for iron ore, semiconductors and other goods, while exports and imports are falling sharply.

Moreover, the Chinese economy is famously inefficient. It is bogged down by the heavy hand of state-owned industries. The
country's legal institutions remain weak. The banking industry has big problems.

And hovering above all of this uncertainty is an ongoing and uneasy political transition in Beijing, the biggest in a decade.

But as the Economist argues, China still has a lot going for it as the rest of the world frets over the economic wreckage in
Europe, rising economic troubles in India and other problems across the global economy:

"China relies very little on foreign borrowing. Its growth is financed from resources
extracted from its own population, not from fickle foreigners free to flee, as happened
in South-East Asia (and is happening again in parts of the euro zone). China’s saving
rate, at 51% of GDP, is even higher than its investment rate. And the repressive
state-dominated financial system those savings are kept in is actually well placed to deal
with repayment delays and defaults."


Plus, China's government doesn't hold all that much debt — just about 25 percent of its GDP, versus the US where the number
is closer to 100 percent. Those low debt levels give Beijing more breathing room to stimulate growth as needed.

Taken together, these postive factors should make the Chinese economy more resilient to outside shocks, such as the worsening
euro crisis.

We hope!
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