China Progress and Problems

President Bush is off to a visit in China. Should review the points made by R. Glenn Hubbard in the Wall Street Journal Market Comrades (subscription required)

· “China's GDP has more than quintupled in the past 25 years”
· “Per capita income of China -- less than that of Ghana or Nigeria 25 years ago -- is now comparable to that of the Philippines”
· “The real question for China is how to promote efficient saving and investment”
· “China's national saving rate is extraordinary; estimated at more than 40% of GDP”
· “Chinese financial system [has] poorly developed markets for consumer finance, home mortgages and insurance”
· “At about 50% of GDP, China's fixed investment is almost certainly well above its efficient level”
· “Its government-dominated banking system allocates credit poorly, and bank dominance combined with gaps in investor protection have impeded the growth of domestic capital markets”
· “Many Western economists believe that the Chinese banking system as a whole is insolvent, with nonperforming loans possibly as large as 40% of GDP”
· “Need to grow sufficiently rapidly to absorb tens of millions of underemployed rural workers”
· He “suggests constructive avenues of engagement -- encouraging market liberalization, capital-market reform, cleanup of the banking system, and improved corporate governance -- as well as discussions of exchange-rate policy.”
· “focus on the [yuan against the U.S. dollar ] exchange rate muddies the waters”