Count on economics, the dismal science, to claim that the one economy not crippled in 2012, is in peril.
Change it must, argues political scientist Victor Shih of Northwestern University in Financial Times, because its net exports to GDP is falling rapidly. Since its trade surplus, the cheap engine of its financial machine, has shrunk, they must consider
drastically reducing the level of state-led investment, as well as subsidies to the state sector. Because many subsidies to the state sector ultimately come from households, including an inflation tax, low bank rates, and land seizures, the diminution of such subsidies will decrease the burden on households.
Well, that isn't easy. While America has recently gravitated toward more of a China model, historically the culture is one of private investment - Americans still consider America a capitalist country despite the fact that over 50% of money is controlled by the government. For China to suddenly switch to more private investors, when the playing field for anyone outside the government hierarchy so clearly has the odds against them, would require a true cultural shift that isn't as easy as economist can claim. No one wants to get into a business where the government controls how much you can charge and how much profits you can make.
China needs to change its economic model by Victor Shih, Financial Times
