China's Version of its Economic Policy

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The Financial Times gives us China's Premier's report on its economic policies. It contains lots of information about its current economy and the direction in which it is headed. American's may take note of the fact that its trade surplus now only accounts for 3% of its GDP. China's focus is on expanding domestic consumption.

Some may be interested in exploring the details of this report. What strikes me about the report is not the details as much as the report itself. China's government has some broad goals and directions for its economy. Included among them is more reliance on markets and building an infrastructure intended to increase well being, while keeping an eye on ecological issues, and solutions, that would otherwise limit its ability to reduce poverty. I cannot even begin to imagine anything like this coming from our government officials who spend most of their time planning the next election campaign. I can imagine, however, adverse reactions to China's plan. Some would say that it is industrial planning, and therefore, it must be bad. We let our banks allocate capital to their most productive uses and that is a better system. We can see how that has worked recently. We had the dot com boom in which any IPO was a good IPO since it was good for bank revenues and good for venture capitalists. Then we moved to over-investment in real estate because it seemed to be good for the banking industry, at great cost to the rest of the economy. It appears that bankers are more focused on the best ways of making quick money than they are on the best allocation of capital.