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Political paralysis afflicts China's economic story

China's Communist Party appears so distracted by its politically tangled once-a-decade leadership transition that it is unwilling or unable to pursue the more ambitious agenda that many economists say is necessary to head off a far more serious crisis in the future.

world Updated: Sep 28, 2012 01:30 IST

Even as China's vaunted export manufacturing juggernaut loses force and the Shanghai stock market remains in a slump, the Communist Party appears so distracted by its politically tangled once-a-decade leadership transition that it is unwilling or unable to pursue the more ambitious agenda that many economists say is necessary to head off a far more serious crisis in the future.

Although the departing government has tried in recent months to address decelerating growth by easing bank loan restrictions, increasing pensions and offering tax breaks to small businesses, a lack of consensus among the top stewards of the economy has stymied a more muscular response, insiders say.

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Similarly, many analysts question whether the incoming leadership has the political will to overcome the resistance of the so-called princelings and other well-connected families that have prospered under the current system.

China's standard economic formula, they say, is losing its potency: Overzealous government investment and lagging consumer spending are creating serious imbalances that are expected to lead to a much more painful reckoning, perhaps not long after the raft of younger leaders assumes power in early 2013.

"There are tough choices to make, but the central government appears to be so paralysed they are just sitting on their hands," said Ho-Fung Hung, a political economist at Johns Hopkins University in Baltimore. "The situation is looking increasingly dire."

The economic data is indeed glum. Direct foreign investment has fallen for nine months out of the past 10, and industrial output is rising at the slowest rate in three years. Last week, Frederick W Smith, the chief executive of FedEx Corp, the global airfreight titan, warned of more trouble to come, saying that China's faltering exports pointed to a weakening global economy in the coming year.

Since the death of Deng Xiaoping, the wily leader who steamrollered his conservative opponents to introduce market reforms in the 1980s and '90s, China's political system has increasingly operated through consensus. The horse-trading, involving a dozen or so men who negotiate in secrecy, has dimmed the prospect of significant political or economic change.

To be sure, China's developing economy enjoys many advantages over those of most other major industrial nations. But unrest is increasing, as riots at a big Foxconn electronics factory on Sunday demonstrated, and there is much uncertainty surrounding economic policy.