China’s state-led growth model is unsustainable and does not provide a blueprint for the future development of emerging economies in central Asia or beyond, regional politicians and academics have warned.
While China’s rapid economic growth and swift rebound from the financial crisis has made it tempting for governments in emerging economies such as Kazakhstan to seek to emulate its growth model, it won’t work for Kazakhstan, Karyrat Kelimbetoc, the country’s trade and economic development minister said.
Speaking at a seminar at the EBRD’s annual meeting in Astana in response to a question from Emerging Markets, he said: “At the beginning of the crisis, there was a really big temptation to manage the whole economy in Kazakhstan by the government, in line with the Chinese model.
“How the Chinese [manage their economy] is a separate political issue, and whether it’s wrong or not is not business, but in Kazakhstan it will not work. We should support private sector development, otherwise we will fail.”
A leading developmental academic warned that China’s initial, stimulus-fuelled success in rebounding from the global financial crisis - in contrast to the sharp slowdown in the west - should not lead economists and policymakers in other parts of the world to view the China model as a workable future growth model.
“Just because he has a heart attack, I’m stronger? – that’s faulty logic,” Bernard Yeung, dean of the National University of Singapore, told Emerging Markets.
“China solved the financial crisis by asking banks to pump up credit overnight ... [but look at] all the problems they are now having to deal with related to inflation, cost of living, housing, are the consequence. So China is heading towards a lot of problems and its growth model needs fixing.”
He added that unless there were widespread market reforms in China the country would face widespread internal dissatisfaction and the prospect of a significant growth slowdown, with profound implications for the global economy,
“The Communist party has built its legitimacy based on the general economic growth, and they have not been able to move their mindset away from that by nurturing market development,” he said.
“Unless they do this, they can have a few more years of growth, but then there will be major fiscal problems, regional governance problems, energy problems, social problems all within the next decade and I want to see how China deals with it,” he said.
Sergei Guriev, rector of the New Economic School in Moscow, agreed that the Chinese model did not hold the answer for the region’s economic development.
But he point out that the government in Russia had used the financial crisis and the apparent success of state-led responses as an excuse to maintain or extend its influence over the economy.
“The crisis was just a pretext by an unchecked government that wants to grab more and more assets because the more assets you control, the more rents you can collect,” he said.