China’s Changing Development Pattern

Consequently China’s rising interest rates in 2013 and 2014, increasing the cost of company and government borrowing, and in June and December 2013 creating interest rate spikes in interbank lending, reflected this. It is therefore a major challenge to rebuild China’s savings rate to finance the high levels of investment needed to upgrade its development path.

This also affects issues such as environmental protection. Greater environmental protection, to eliminate smog for example, requires high investment given that non-polluting power stations, factories etc. are more expensive than polluting ones.

In only a decade China, by international classifications, will become a high-income economy whose growth is more dependent on investment in innovation, both technological and management, than on low wages. China came more successfully through the international financial crisis than any other major economy. But China continues to face for a significant period a “Great Stagnation” in the advanced economies. Its development priorities need to reflect this.