A wonderfully perceptive article, China’s New Economic Model, from Joseph Stiglitz, Nobel laureate in economics, should be required reading for anyone interested in China’s new economy.

In a few broad brush strokes, Stiglitz neatly summarised the challenges facing China as it seeks to evolve from the traditional economic model that has served it so well in the recent past but is now
being questioned — and not just by hawkish politicians in the west.

China knows that it must change if it is to have sustainable growth. At every level, there is a consciousness of environmental limits and the realisation that the resource-intensive consumption patterns now accepted in the US would be a disaster for China – and for the world.”

In order to restructure China’s economy away from exports and resource-intensive goods, China must stimulate domestic consumption.

Away from the shopping malls of Shanghai and Beijing, there are countless millions in China’s remote regions who are too poor to register on the PowerPoint slides of western consumer good companies as what little disposable income they have is hoarded as savings.

Stiglitz visited one such village in in the mountains of Quizho, one of China’s poorest provinces, miles away from the nearest paved road. He was impressed that the villagers now took for granted such recent innovations as electricity, TV and the internet.

stiglitz.jpgIncomes had risen as well, thanks to remittances from migrant workers in the
coastal cities, but also because of progressive government policies to support farmers by selling high-grade seeds with a guaranteed rate of germination.

Providing better social services would reduce the need for Chinese to save so much and help reduce the huge trade surplus. More access to finance for small and medium-sized businesses would help, too. Stiglitz is also in favour of “green taxes” – such as carbon emissions – to shift consumption patterns and discourage energy-intensive exports.

His most controversial proposal is in the area of intellectual property. As China moves away from export-led growth, it must create its own “dynamic innovation system” to reduce its dependence on western markets and know-how. Stiglitz argues that the only way China can do that is by resisting pressure by western governments to adopt “unbalanced intellectual property laws” that favour western firms and “stifle innovation”.

He says China needs to adopt a different approach to IP if it is to develop own solutions to its own problems posed by its rapid development. It needs to making advances in knowledge more widely used and less on restrictive IP regimes that seek to monopolise knowledge.

This issue of IP couldn’t be more topical, of course. Earlier this week, China sought to demonstrate its determination to stop commercial piracy by releasing an IP “action plan” comprising 14 laws on IPRs. That does not go far enough for some western hawks who say China is not doing enough to protect predominantly western IPRs, particularly in areas like film and music — the industries mentioned in the two complaints that the US has presented to the World Trade Organisation.

China, meanwhile, seems to be increasingly exasperated at the hard line being taken by the US over the piracy dispute and says it could harm relations between the two giants. More in this Reuters story.

You may not agree with everything that Stiglitz writes and many readers in the west will accuse him of being too soft on China and falling for its politicians’ rhetoric. For example, despite China’s
professed concern for sustainable development, it has postponed indefinitely an “action plan” for the environment — see this story yesterday for more.

Nevertheless, the article is a cut above the countless newspaper oped columns that pontificate on China’s economic ills.

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