China’s Economic Model Unsustainable: World Bank

Was talking to a colleague who just joined the company and had just left Greece.  He was telling us about how the Greeks are lining up at the banks to withdraw their money and the cashier ladies were sitting with loads of cash giving out.  As he put it “Greek banks are just just buildings now, there is nothing left in them.”

As we speak, somehow the pain of Europe (and the world) is being pushed away somehow.  Ironically the more it is pushes into future the worse it will become.

If Greece goes countries which lent money to its banks will also go into deep red.  Like this guy said, there is one town – small one – in Greece, which had the highest number of Porsches bought per capita anywhere in Europe.  All those are now being repossessed and shipped to Germany for Seconds sale, as no one can afford them in Greece.

While Europe tethers precariously on the brink, we have now World Bank warning China to “scale back its vast and powerful state-owned enterprises and breaking up monopolies in strategic sectors”.  World Bank President Robert Zoellick said at the launch of the “China: 2030” study – that the current economic model of China (Export and investment driven) was no longer sustainable anymore.  The 30 years growth rate of 10% was probably now in peril.

“The country’s current growth model is unsustainable. This is not the time just for muddling through — it’s time to get ahead of events and to adapt to major changes in the world and national economies.”

It is projected that the growth rate will decrease to 5-6% for the next 20 years.

For a country for which its exports and investments from outside and doles from Government are directly related, a slowdown is really unsustainable.  In normal world, such a model is called a “Ponzi scheme”.  Because the country which is converting investments to exports (input to output) is really earning a loss on the investments.  With sale prices often so low that they may not even meet the cost price but kept at that level with the sole purpose of garnering the market share.  Such Investment to Export conversion at a loss model is really unsustainable.