Harmony, Crisis, and the Fading of the Lewis Model in China

Amiya Kumar Bagchi and Anthony P. D’Costa

in Transformation and Development

Published in print November 2012 | ISBN: 9780198082286
Published online January 2013 | e-ISBN: 9780199082377 | DOI:
Harmony, Crisis, and the Fading of the Lewis Model in China

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This chapter discusses how the 2008 global economic crisis affected China's economy. First, there was the attempt to rebalance the economic structure by reducing dependence on massive investment rates and exports, raising consumption demand relative to GDP, and thus reversing the non-egalitarian nature of Chinese growth. Second, there was the financial crisis itself, and the move to counter it via massive expansion of investment and credit. Finally, there was the impending exhaustion of the large fund of surplus labour whose absorption into industry has been a prime enabler of China's rapid growth for three decades. It is argued that the tension between the stimulus programme and the rebalancing objective made the outcome uncertain, but rising labour shortage and wages may make it easier for the centre to rebalance. As the Lewis model of unlimited labour is exhausted, development is expected to shift to the lower-cost interior.

Keywords: global economic crisis; global financial crisis; Chinese economic policy; Indian economic reforms; non-egalitarian Chinese growth; Chinese investments; Chinese stimulus programme; Chinese credit; the Lewis model; labour supply; labour shortage

Chapter.  6901 words.  Illustrated.

Subjects: Comparative Politics

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