The biggest economic threat from China isn't its dominance of manufacturing or its artificially pegged currency. It's that the world's soon-to-be third-largest economy is being fueled by financial markets that remain essentially--and dangerously--lawless.
The spectacular run-up in equity prices in China in the past two years has created a classic asset bubble. The likelihood that the stock market will crash in the not-too-distant future has recently increased because of rising inflation at home and a global economic slow-down. The Chinese stock market has already begun to correct – the main stock indexes have fallen 15 per cent from their highs. However, with Chinese equity price levels disturbingly close to those of Japan’s Nikkei in 1989 prior to its meltdown, the Chinese market will have to fall much further to reach reasonable valuations.
China’s growth and inflation risks are not trade-related but are instead driven by domestic forces.
Carnegie's William Chandler argues that reforming China’s financial sector can curb China’s greenhouse gas emissions even as work continues on an international treaty. China’s impressive national policies to promote clean and renewable energy have been undermined by unnecessary financial hurdles and bureaucratic struggles that increase financial risks and costs for potential investors.
Director of China Program Minxin Pei presented his latest policy brief Corruption Threatens China's Future in a seminar hosted by Carnegie Endowment on November 20, 2007
In a little-noticed mid-summer announcement, the Asian Development Bank presented official survey results indicating China's economy is smaller and poorer than established estimates say. The announcement cited the first authoritative measure of China's size using purchasing power parity methods. The results tell us that when the World Bank announces its expected PPP data revisions later this year, China's economy will turn out to be 40 per cent smaller than previously stated.
For a rapidly growing economy like China's, with major income and consumption increases in all regions, inequality can serve to provide incentives for labor to move voluntarily to locations and occupations where it is more productive and hence better able to earn a higher standard of living.
Asia’s resurgence is revolutionary; Asia will contribute 43% of world GDP by 2020, is the second global hub of innovation, and has amassed a tremendous amount of military power. But the resurgence is also incomplete. Large swaths remain outside of Asia’s economic “miracle,” political systems remain at various stages of development, and Asian nations face many religious and ideological challenges.