Former World Bank economist in China, Yukon Huang, says that the primary reason for China's unbalanced growth is not financial repression but a broadly successful urbanisation cum industrialisation process. For China, consumption as a share of GDP has declined steadily over the past decade to 35% while its investment share rose to above 45%. However, these imbalances come from the impact of urbanisation on labor's share of GDP as workers move from rural to urban-based activities. Misinterpreting the reasons why China's growth is unbalanced in terms of macro-aggregates leads to the wrong policy prescriptions, including the argument that China needs a more consumption-led growth model, says Huang. However, China does face major economic problems brought on by declining productivity and surging debt levels. The challenge, Huang admits, is to escape the middle-income trap by implementing structural reforms so that the economy can grow at a sustainable 7% hereon. (VIEW LINK)
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