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Some issues of China's economy

Comments on Peter Drysdale "Has China’s transition to ‘new normal’ growth stalled?" 7/07/2015

There is, arguably a measurement issue of total factor productivity in terms of inputs, particularly capital (investment). Some investment, for example, does not become capital immediately at the time of investment. Then there is a capital utilisation issue. Given Chinese government's structural adjustment/transition, some capital has been made idle or obsolete that should probably no longer be included as capital.

While clearly China has probably seen a limit on its labour supply, I remember that Professor Meng Xin mentioned at last year's China Update that there was still large amount of un-utilised labour in China, that cast some doubt on the argument of China has already at or past the Lewis point. If Professor Meng was correct, then one needs to look at the labour market in China differently and there is an issue for government policy to release idle or un-utilised labour into more productive use.

The more rapid increases in wage may be as much as the so called short supply in labour force as the Chinese government policy to force wage to rise more rapidly to ensure social stability.

Another point regarding the structural adjustment, there may, arguably, be a dynamic optimisation issue and whether the Chinese government's policies such forced closure of many plants of higher energy use or low efficiency ones, have been optimal or not is a question. For example, an alternative would be to more rapidly accelerate the service sector more as opposed to force a reduction in manufacturing activities.

But in China, the government is all powerful and much more powerful than most western countries' in terms of its relationship with the other agents in the economy.

Another point is the interpretation of the meaning of the "new normal" by the Chinese leadership. The simplest may be that it means a growth from high to "medium high" or "medium to high". Whether other adjustments are part of the "now normal" or not is a question, because one may interpret those adjustments as reforms under the "new normal" meant by the Chinese leadership.

Perhaps another way to put the dynamic optimisation in a more abstract form in terms of proportions is as the following:
when there is a structural imbalance: one adjustment is to reduce the excesses components to have the structure more balanced. Alternatively, another adjustment would be achieved through expanding the components that are in shortage, so the structure is moving towards to more balanced.

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