China’s leaders agree with the consensus view of outside observers: achieving sustainable growth will require redirecting the country’s economy toward consumption and away from exports and investment. That goal is reflected in China’s latest five-year plan (2011–15), as it was in the previous plan. But Lardy, one of the foremost foreign scholars of the Chinese economy, laments how little progress China has actually made toward that objective. China’s government, he argues, must raise domestic interest rates, allow its currency to appreciate, raise energy prices (which are still partially controlled) so that they are closer to global market levels, and finance its impressive, ongoing expansion of the social safety net by directing its profitable state-owned enterprises to pay higher dividends. None of these recommendations is new, but Lardy places them in a coherent and persuasive framework. He speculates that China has yet to take the necessary steps because powerful interest groups benefit from current policies and have strongly and so far successfully resisted significant change. If there is a constructive role for a dominating Communist Party in contemporary China, it is to place the public interest above special interests and push through vital reforms.
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