Global Crisis Spurs Long-Needed Change in China

On YaleGlobal Online, an aptly named economist, David Dollar, argues that China’s route out of the global economic free fall may be to the services industry:

As the global economy sinks deeper into recession, political leaders look to any country with hefty surpluses and a strong manufacturing sector, such as China, to restore growth. But China’s economy is lagging, too, and World Bank economist David Dollar points out that a decline in imports, particularly parts and materials, as well as declines in steel and electricity sectors signal no quick end to a global slowdown. Like other nations, China must adjust to the slowdown caused by so many imbalances in a way that’s not too disruptive. Government stimulus spending and investment can provide temporary relief, but Dollar demonstrates that increasing consumption even by hefty percentages provides minimal overall growth. One strategy would be developing China’s services sector. China has already taken steps in this area, but there’s still plenty of room for improvement, growth and competition. By expanding services, China could gradually adjust some imbalances in its own economy, both creating jobs and alleviating concerns among its own citizens, while contributing to a reversal in global economic misfortune.

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