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Growth, Competition and Political Stability in China

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Abstract

A highly successful investment- and export-led growth strategy has positioned China as the second largest economy and as the largest exporter in the world. Households' consumption has played a minor role in its growth strategy, which is reflected in its unique and very high saving rates. In this paper we argue that the low weight of consumption in total expenditure is the result of the pervasiveness of the state in the economy, which aimed at impairing the growth of middle classes and,therefore, at preserving political stability. Nonetheless, an increase in purchasing power and the cultural individualisation of vast portions of the population is leading to an increase in popular mobilisation and social unrest. This indicates that, contrary to common pessimist analyses, prospects for democratization are perhaps stronger than usually presumed.

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  • Fernando Alexandre & Carmen Mendes, 2011. "Growth, Competition and Political Stability in China," NIPE Working Papers 28/2011, NIPE - Universidade do Minho.
  • Handle: RePEc:nip:nipewp:28/2011
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    1. Franco Modigliani & Shi Larry Cao, 2004. "The Chinese Saving Puzzle and the Life-Cycle Hypothesis," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 145-170, March.
    2. Marcos D. Chamon & Eswar S. Prasad, 2010. "Why Are Saving Rates of Urban Households in China Rising?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 93-130, January.
    3. Raghuram G. Rajan, 2010. "Fault Lines: How Hidden Fractures Still Threaten the World Economy," Economics Books, Princeton University Press, edition 1, number 9111, June.
    4. Qi, Li & Prime, Penelope B., 2009. "Market reforms and consumption puzzles in China," China Economic Review, Elsevier, vol. 20(3), pages 388-401, September.
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    Keywords

    China; growth; savings; financial markets; political stability;

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