How Amplify Growth Risks for World Economies in China's Planned Economy
Abstract
This paper examines the sustainability of China’s distinct globalization model, characterized by state-driven economic policies, strategic trade practices, and assertive global investments. Although this approach has fueled impressive economic growth over recent decades, it has also exposed structural vulnerabilities that could undermine long-term stability. The analysis employs a modified Cobb-Douglas production function, integrating critical factors such as tariff dynamics, trade spillovers, and inefficiency feedback loops. This framework bridges the theoretical foundations of the Cobb-Douglas model with insights from the Solow growth model, enabling a comprehensive evaluation of China's economic trajectory.
The model suggests that China’s heavy dependence on state intervention and export-driven growth risks creating inefficiencies that could lead to diminishing returns over time. High tariffs imposed by trade partners, particularly the US, exacerbate these inefficiencies by increasing production costs and reducing access to global markets. Furthermore, excessive reliance on Belt and Road Initiative (BRI) investments and state-owned enterprises (SOEs) amplifies the risks of resource misallocation and geopolitical backlash.
The paper identifies critical tipping points where inefficiency feedback loops outweigh productivity gains, potentially leading to economic stagnation or collapse. Trade spillovers, once a significant driver of innovation and growth, may dwindle as global partners diversify supply chains to reduce dependence on Chinese imports.
To ensure sustainable growth, the paper recommends a strategic pivot toward market-oriented reforms and addressing inefficiency feedback by reforming SOEs and streamlining regulatory frameworks. Additionally, capping overreliance on state-led globalization strategies and adopting a more balanced trade approach can mitigate external vulnerabilities. These policy measures are essential for China to transition from a high-growth phase to a more stable, long-term economic trajectory.
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