To give an example, it's the difference between a few large horse and buggy manufacturers versus the private capital markets that can finance a Ford, and whether the markets will reallocate away from the buggies to the Fords. If the Buggy Makers are powerful SOEs, this is hard.
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Now China is not facing the same pressures because it can copy whatever trendy thing is happening elsewhere and because there are lots of slack resources. China can today fund massive AI and solar because the West is buzzing about it and there are lots of slack resources.
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But at some point, funding X will require defunding Y, especially an older, established, government owned Y. At that point, political allocation of resources starts to hurt efficiency, especially when key party leaders have personal stakes in Y.
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IMO you need competitive capital markets to get top tier GDP/capita. But if China becomes dominant on a GDP scale, allowing for strong influence in aid and military, will the CCP give up the power to allocate capital and risk their own fortunes to obtain a high GDP/capita?
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So I am optimistic about China becoming a "great power" -- even a leading power -- due to its enormous population, but I am pessimistic about China achieving western style GDP/capita as long the CCP is in charge.
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thread! I will also chime in. IMO, The key question is how China, once urbanization benefits fade, can efficiently allocate capital. The managed competition model of creating several SOEs to compete with each won't allow for efficient allocation w/out real capital markets..