ABSTRACT

China has enjoyed high annual GDP growth rates of about 10 percent in the last twenty-five years. Exports and investment were the two driving forces (section 11.1). Developing property rights is an important aspect in transforming a communist society (section 11.2). Structural issues such as the state-owned firms and the loss-making of the banking industry have to be solved (section 11.3). Monetary policy is complicated by the accumulation of reserves; China pegs its renmimbi to a currency basket of its main trading partners (section 11.4). Major policy issues in the future include the institutional deficit, especially the rule of law and the lack of democracy (section 11.5). An economic crisis in China would have a severe impact on the world economy (section 11.6). India follows a different policy approach (section 11.7). In the context of the transformation experience of other ex-communist countries, China has not seen the valley of tears as the Central and Eastern European economies (sections 11.8 and 11. 9), including disintegration as of the Soviet Union (section 11.10).