China's Growth Plan Makes Sense

China is about to try something few other Asian nations have attempted in recent memory. It is going for growth by increasing domestic demand rather than relying on exports. With the economy sinking, prices falling, and competitiveness failing (thanks to the devaluation of currencies throughout the Pacific Rim), Beijing has decided to expand from within. It is a daring strategy fraught with danger. But should it succeed, it could reform a weak banking system, transform a shaky state sector, downsize a bloated bureaucracy, deflate a real estate bubble, and ease trade tensions with the U.S. Prime Minister and economics czar Zhu Rongji deserves credit for his vision. He surprised the world by cutting China's inflation rate from 22% to 2%. Now, he has embarked on nothing less than completing the task of transforming all of China into a market economy.

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