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Friday, 07/07/2017 4:24:30 PM

Friday, July 07, 2017 4:24:30 PM

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For China, though, it may end up in the Catch 22 situation where it cannot afford the cost of its environmental clean-up, but if it doesn’t find the money, its “economic growth miracle” will come to an end.

The miracle isn’t a miracle at all, however, as it has can be easily explained by the laws of economics:

Surplus rural labour, and a rising working-age population, gave China several decades of what economist Sir Arthur Lewis characterises as a “free ride”, which is typical for any developing country: The easy economic growth of providing cheap exports for the developed world.

What further supported the Chinese miracle was its membership of the World Trade Organisation from 2001, and strong demand for its exports from the West because the West was in the midst of its Economic Supercycle.

Further boosting the competitiveness of Chinese exports was a willingness to allow lax environmental standards. The West benefited here as, it in effect, outsourced its pollution to China, in return for which it also gained very cheap imports.

Now, though. the Chinese workforce is shrinking as its population ages. It therefore has to escape the “middle income” trap described by Lewis. This involves moving up the manufacturing and services value chains in order to economically justify rapidly rising wage costs in its more-developed provinces.

Meanwhile, it can no longer expect the same kind of help from the West, because of the end of the Economic Supercycle.

China must, as a result, retain the educated, middle class people capable of creating higher-value goods and services, whilst also attracting highly-qualified overseas Chinese back home.

But the Chinese government recognises that it cannot do this unless it creates a more liveable environment. Many middle class young couples, particularly those young children, want to leave China because of poor air, water and soil quality.

Equally, there is an opportunity here that China is doing its best to seize through huge government investments in green industries – for example, in renewable power generation and electric batteries for automobiles. These are exactly the type of higher-value goods and services that China needs to escape its middle-income, and to clean-up its environment in order to retain talent.

The good news for China is that the global competitive playing field in green technologies has suddeny become less crowded as a result of the US decision to withdraw from the Paris climate agreement

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