Some speculate that China is heading for a financial crisis. I spent a big chunk of my college and law school education studying China’s economy and legal infrastructure and I believe a financial crisis is almost certain if the CCP doesn’t adjust its economic policy. The McKinsey report on “Capturing China’s $5 Trillion Productivity Opportunity” presents the most compelling solution I’ve seen–namely shifting from an investment economy to a productivity-led economy.
Sounds like a great solution right? But this article doesn’t touch on what shifting to a productivity-led economy would entail. Coincidentally, if I combine my college thesis (written in 2002) which was a prescription for Chinese economic policy reform and my law school dissertation (written in 2005) on the legal implications of economic policy reform in China we can piece together a very general picture of what preventing a financial crisis in China would entail.
It would entail a complete overhaul of China’s legal infrastructure in order to:
1. Unravel state-owned entities, letting them fail and focus on the private sector;
2. Increase transparency in the capital markets and change listing and reporting requirements etc. to allow the capital markets self-adjust in the wake;
3. Procedure in the court systems would have to be changed in order to allow for fair and unbiased dispute resolutions;
4. Abolish the Hukou system which controls where people are allowed to live in order to allow individuals to migrate to areas where jobs are created;
5. Lift of censorship to embrace digital technologies for efficiency and scale and allow for education and innovation; and
6. So much more that I can’t even begin to delve into.
Due to the sheer size and magnitude of China’s population, globalization and the digitization of our world, every shift in China’s economic policy will have a reverberating impact on our global economy. This is why no investor, business or brand can ignore China–it impacts us all.