China

Rand's Charles Wolf Jr. wrote the following in the Asian Wall Street Journal (http://www.rand.org/commentary/070704AWSJ.html). This is a sobering reality check for the China bulls out there.

Among the major economic problems confronting China, two are particularly difficult.

The problem that has lately received most attention and concern is actually the less difficult of the two. The second is not only more difficult, but also has been largely ignored in public discussion.

The easier problem is the so-called "overheated" Chinese economy, and the worry that the "bubble" may burst with serious consequences for Asia and the world economy.

The problem that is more difficult to resolve springs from a dilemma presented by two economic objectives both of which are of crucial importance for China's future: sustaining a high rate of economic growth and also generating ample job opportunities for large numbers of unemployed and underemployed workers. For political and social as well as economic reasons achieving a high rate of job creation is no less important than is sustaining a high rate of GDP growth.

Although the two objectives are usually viewed as compatible and even mutually reinforcing, there is a fundamental tension between them. This tension arises because of the two-sided effects of rising labor productivity ...

.. while China's economy was growing at the highest annual growth rate, 7.8%, of any of the world's principal economies, its increase in employment was only 1% annually.