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Oxford Analytica critiques the OECD’s second China survey, which comes five years after the publication of its first and largely does not reflect on China’s handling of the global recession.

The OECD acknowledges major achievements. At the same time, it recognises weaknesses, many that have long been known but which come in the evolving context of China’s development into a major global economic power. These include imbalances, for example, between savings and investment; China also has capacity issues; environmental problems have come with rapid industrialisation.

…the immediate problem is how to maintain real growth in the economy while damping down the problem of asset price inflation and risk of bubbles in the property and stock markets.

  • If China is to get its long-run finances in order, and balance better the way in which it funds long-term investment and growth, it needs a well functioning stock market.
  • Housing policy may have scope to influence the evolution of a functioning market through planning laws, land release and the mortgage finance system.

Both these issues are extremely difficult to manage, even with the type of direct monetary controls still available in China, where the credit ‘tap’ can be adjusted relatively precisely to generate economic growth. In the short-term, in the absence of other rapid solutions, this mechanism will have to be used — and currently is being turned down to withdraw excess liquidity from the economy.

The global recovery might create enough external growth for Beijing safely to cool its asset prices. If not, instability in China will risk derailing not only its own plans, but also those of many other emerging economies that look to it as both a market for exports and an example of how to achieve sustainable high growth.