Question

The growth of China’s economy may not be sustainable due to imbalances in China’s economy, according to Lardy what are the major imbalances China faces?

Kroeber believes this problem is overstated. Why?

According to Lardy, and Kroeber, does a low level of social welfare spending contribute to these imbalances?

Answer 1

According to N.R Lardy the major imbalances in china start from the fact that its focus is more on the exports rather than on its domestic consumption which has over the years led to a lengthy period of sluggish growth . in his book “Sustaining China’s Economic Growth After the Global Financial Crisis,”he mentioned about the reasons of Chinese policies hampering the development of private companies and the service sector and focussing solely on exports.

most pf China's imbalances include its low private consumption expenditure as we will see. due to low interest rates the people of the economy saved more , which was already higher due to lack of social security schemes and retirement benefits . so all this increased the saving rates and hence the consumption by households reduced even furthur.

then another reason is high share of investment in GDP .All of this created imbalances even when the growth rates were high because growth mostly depended on the fact that there was rising investment demand.

also a huge share in manufacturing sector and a small service sector . the huge manufacturing sector meant a high production for exports pf goods.

According to Lardy, China needs to pursue liberalization policies so that the market will play a greater role in setting the value of the Chinese currency and interest rates which is essentail for removal of imbalance also the government should facilitate building a stronger social safety net to encourage household spending , should provide hethcare and various retiremnet benefits so that the private consumption increases and not just the savings.

ON the other hand in Kroeber’s new book, "China’s Economy: What Everyone Needs to Know.", he writes about how investemnent was a major factor of what China is now , how China rose in the 1980s to the fastest developing country in the world. he believed that domestic savings played an important part in the economy.

he believed that infrastructure was not just limited to buildings pr workplace construction but also to housing which in a way is for the private consumption.

according to Lardy , social wlefare was necessary was removing these imbalances because more the benefits towards healthcare , less would be the savings for thses purposes by the government which would lead to reduction of thses imbalances.