Dissecting the China Puzzle: Asymmetric Liberalization and Cost Distortion

15 Pages Posted: 3 Jan 2011

See all articles by Yiping Huang

Yiping Huang

Peking University, National School of Development

Date Written: November 25, 2010

Abstract

We attempt to explain the China Puzzle, the coexistence of accelerating economic growth, and a worsening growth outlook. The root cause lies in China's unique liberalization approach, that is, the combination of a complete liberalization of product markets and continued distortions in factor markets. Repressed costs of labor, capital, land, and resources artificially raise the profits of production, increase the returns to investment, and improve the international competitiveness of Chinese products. The asymmetric liberalization approach not only promoted economic growth, but also caused structural risks. It also contributed to global imbalances as well as regional integration. Therefore, future reform policies should focus on the liberalization of the factor markets and the elimination of cost distortions.

Keywords: asymmetric market liberalization, China puzzle, cost distortion, imbalance

JEL Classification: E010, E250, E510

Suggested Citation

Huang, Yiping, Dissecting the China Puzzle: Asymmetric Liberalization and Cost Distortion (November 25, 2010). Asian Economic Policy Review, Vol. 5, Issue 2, pp. 281-295, 2010, Available at SSRN: https://ssrn.com/abstract=1734192 or http://dx.doi.org/10.1111/j.1748-3131.2010.01172.x

Yiping Huang (Contact Author)

Peking University, National School of Development ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

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