Page 71 - kpi18886

63

investment- and export-driven model. In order to sustain growth, it is
now faced with complex and interrelated economic and political
challenges. A fundamental economic challenge is the rapid and
extensive increase in debt-funded unproductive investment that has
fuelled recent growth. These investments have been made primarily by
governments at various levels -- by state-owned enterprises (SOE), and
local government-linked agencies, financed by state–linked banks -- at
the expense of households and small- and medium-scale enterprises
(SME). Addressing the problem of increasing unproductive debt requires
reallocation of economic power from SOEs and local governments, to
households to increase consumption, and to SMEs for more efficient if
smaller investments. This is really a political challenge. It means taking
power away from entrenched vested interests that benefit from the
existing economic development model. As noted, this is not an easy
12
task in an authoritarian political system, and not at all clear how it will
unfold in China. Therefore the critical constraint on China’s needed
economic rebalancing is political.

South Korea presents a very different example of the evolution of
economics and politics in East Asia. It has been able to realize long-
term economic growth and development every bit as remarkable as
China’s, but coupled with political transition from authoritarian
developmentalism to sustained liberal democracy. Following the East
Asian investment- and export-driven growth model, it has achieved intra-
sector upgrading, or moving into higher value segments in the same
sector or industry – for example in electronics; and inter-sector
upgrading, or moving into new, higher value added industries, such as
mobile smart phones. Politically, South Korea also evolved, from an
authoritarian developmental model to a robust liberal democracy.

Thailand is an example of the present challenge to Southeast
Asian economies of reconciling the need for long-term structural

12 See Michael Pettis, 2017. “Chinese politics and financial sector reform” Monthly
Report, published by China Financial Markets (Peking) and Global Source Partners
(New York), June 8.

ปาฐกถานำ