Some aspects of China’s development model

China’s rapid development over the last few decades has been the source of much debate among economists, who often claim China as the model par excellence of market liberalisation and the superiority of private sector driven growth. Others equally argue that China’s model is one of planning and state intervention.

- BY SHIRAN ILLANPERUMA

On 28 March, I was invited by Nexus Research to deliver a presentation on China’s development model alongside former Ambassador to China Dr Palitha Kohona. Unfortunately, the captions of this presentation have been misprinted in an article in the Island published on 1 April (Dr Kohona: developing countries should covet China model). The article claimed that my presentation touched on “low cost labour, foreign direct investment and global trade agreements”. In fact, such simplistic tropes were precisely what I had intended to counter.

China’s development model challenges many of the axioms of neoclassical economics. If low cost labour was the be-all and end-all for take-off, then investment should be pouring into Indonesia’s cheaper labour markets in sub-Saharan Africa. On the contrary, rising wages in China have not led to the outflow of capital one would expect under such a model. This is because the advantages China offers is a healthy and skilled workforce (relative to price) and an infrastructural system that keeps non-wage operating costs (such as transport and energy) low. This, combined with a domestic value chain, is China’s main strength and why economic growth has been combined with rising wages and standards of living.