Opinion / Op-Ed Contributors

10 reasons why China is different

By Stephen S. Roach (China Daily) Updated: 2011-06-03 08:01

China doubters are back in force. They seem to come in waves - every few years, or so. Yet, year in and year out, China has defied the naysayers and stayed the course, perpetuating the most spectacular development miracle of modern times. That seems likely to continue.

Today's feverish hand-wringing reflects a confluence of worries - especially concerns about inflation, excess investment, soaring wages and bad bank loans. Prominent academics warn that China could fall victim to the dreaded "middle-income trap," which has derailed many a developing nation.

There is a kernel of truth to many of the concerns cited above, especially with respect to the current inflation problem. But they stem largely from misplaced generalizations. Here are 10 reasons why it doesn't pay to diagnose the Chinese economy by drawing inferences from the experiences of others:

Strategy: Since 1953, China has framed its macro objectives in the context of five-year plans, with clearly defined targets and policy initiatives designed to hit those targets. The recently enacted 12th Five-Year Plan (2011-2-15) could well be a strategic turning point - ushering in a shift from the highly successful producer model of the past 30 years to a flourishing consumer society.

Commitment: Seared by memories of turmoil, reinforced by the "cultural revolution" (1966-76), China's leadership places the highest priority on stability. Such a commitment served China extremely well in avoiding collateral damage from the crisis of 2008-2009. It stands to play an equally important role in driving the fight against inflation, asset bubbles and deteriorating loan quality.

The "China model" is very different - especially its emphasis on strategy, commitment to stability, and its wherewithal to deliver.

Wherewithal to deliver: China's commitment to stability has teeth. More than 30 years of reform have unlocked its economic dynamism. Enterprise and financial-market reforms have been key, and many more reforms are coming. Moreover, China has shown itself to be a good learner from past crises, and shifts course when necessary.

Savings: A domestic savings rate in excess of 50 percent has served China well. It funded the investment imperatives of economic development and boosted the cushion of foreign-exchange reserves that has shielded China from external shocks. China now stands ready to absorb some of that surplus savings to promote a shift toward internal demand.

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