Looking inward for transformative growth

- A numerical model of the Chinese economy is constructed with oligopoly behaviour.
- “Inward” sources of transformative growth are analysed.
- Underexploited sources of “transformative” growth have considerable potential.
- Professional labour supply and openness of services to FDI are of first importance.
- Privatisation, oligopoly pricing surveillance and regulation also offer large gains.

Export led growth has been very effective in modernising China's economy and establishing a large high-saving middle class. Notwithstanding political opposition from trading partners, this growth strategy has also offered the rest of the world improved terms of trade in both product and financial markets, in the form of cheaper light manufactures and cheaper credit. Yet slowing demand in export destinations has forced a transition to inward-sourced growth. This paper uses a numerical model of the Chinese economy with oligopoly behaviour to examine the available “inward” sources of transformative growth along with the policies needed to exploit them. The potential for further “transformative” growth is shown to be considerable though it will require accelerated skilled labour supply growth and the politically difficult extension of industry policy reform to heavy manufacturing and services.