Books: Questions that haunt China

Many look in awe on the rising Asian monolith, but Will Hutton thinks it could all go wrong - and explains why. Howard Davies finds his prognosis persuasive.

by Howard Davies

It has become a cliche to say so, but the China growth story of the past quarter-century has been astonishing. Since the dramatic Deng Xiaoping-led policy volte-face at the end of the 1970s, China has grown by about 10% a year, with little sign of a slowdown. Massive trade surpluses have accumulated, especially with the US, and China's share of world manufacturing continues to rise. In his recent pre-budget speech, Gordon Brown, who visited China last year, noted - apropos of nothing very obvious - that 75% of the toys bought last Christmas in Britain were made in China.

The big question now debated wherever two or three economists or globalisation wonks are gathered is: can this rapid growth continue? The world has come to depend on it. Quite apart from the gloomy effect on children if Santa's sack turned out to be only 25% full, China's low labour costs and cheap production have held down inflation everywhere and allowed developed countries to grow rapidly without price pressures emerging.

Optimists point to the absence of any clear signs of a forthcoming slowdown. They cite China's enormous savings rate (about 45% of GDP) as a sign of confidence and of a build-up of capacity for future expansion. They note the political and social stability created by China's - shall we say - disciplined approach to politics and labour relations, and highlight the skill of its political leaders and economic managers, such as governor Zhou Xiaochuan of the People's Bank.

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