China’s Princelings Build the Wrong Kind of Capitalism – Bloomberg 12-27-12

Salient to Investors:

Just 3 of the Immortals’ 103 direct descendants and their spouses led or still run state-owned companies with combined assets of $1.6 trillion in 2011, the equivalent of more than a fifth of China’s GDP. At least 18 own or run entities linked to companies registered offshore, many in jurisdictions that offer secrecy.

Inequality of opportunity is also rising. The current generation of princelings has run amok.  China increasingly isn’t egalitarian, and hasn’t officially issued a Gini coefficient of income inequality since 2000. One recent study put it at 0.61, a warning sign of potential unrest. In contrast, Japan reduced its Gini coefficient from 0.45 in the 1960s to 0.34 in 1982, its high-growth years.

Yasheng Huang at MIT and other researchers have shown China’s rural- focused policies during the 1980s reduced poverty and inequality much more than the urban- and state-focused policies in the decades since. Huang says private ownership, property rights, financial liberalization and deregulation are critical to ensuring that the welfare of the population improves as GDP grows.

Read the full article at http://www.bloomberg.com/news/2012-12-28/china-s-princelings-build-the-wrong-kind-of-capitalism.html.

Click here to receive free email alerts of articles as soon as they are posted.