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Dissecting the China Puzzle: Asymmetric Liberalization and Cost Distortion
Author(s) -
HUANG Yiping
Publication year - 2010
Publication title -
asian economic policy review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.58
H-Index - 20
eISSN - 1748-3131
pISSN - 1832-8105
DOI - 10.1111/j.1748-3131.2010.01172.x
Subject(s) - economics , liberalization , china , distortion (music) , international economics , investment (military) , factor market , economic liberalization , capital (architecture) , free trade , product (mathematics) , monetary economics , international trade , market economy , geometry , mathematics , archaeology , cmos , electronic engineering , politics , history , engineering , amplifier , political science , law
We attempt to explain the China Puzzle, the coexistence of accelerating economic growth, and a worsening growth outlook. The root cause lies in China's unique liberalization approach, that is, the combination of a complete liberalization of product markets and continued distortions in factor markets. Repressed costs of labor, capital, land, and resources artificially raise the profits of production, increase the returns to investment, and improve the international competitiveness of Chinese products. The asymmetric liberalization approach not only promoted economic growth, but also caused structural risks. It also contributed to global imbalances as well as regional integration. Therefore, future reform policies should focus on the liberalization of the factor markets and the elimination of cost distortions.