If you're going to read one thing about China (and it's not even really about China) you should read a paper written in 1994 by Paul Krugman called "The Myth of Asia's Miracle" originally published in Foreign Affairs.
Krugman describes several examples of state-led economies throughout time (The Soviet Union and the "Asian Tigers") that experienced rapid growth for many years due to increasing factor inputs - things like the amount of capital equipment employed by each worker. As these countries continued to grow rapidly year after year, many analysts and commentators suggested that these types of economic models were better at creating growth than more laissez faire western economies.
Unlike most western economies, however, where economic growth is mostly driven by increases in efficiency, these countries experiences little or no efficiency growth, they simply increased the levels of factors of production employed. As Krugman points out, and is obvious in hindsight, this type of economic growth is unsustainable over the long-term and generally ends in crisis. Having a computer will dramatically increase the productivity of an office worker. Having 10 computers won't lead to any increase in productivity, it will actually be a distraction and decrease productivity. And it will be a huge waste of money.
The dynamics that Krugman describes in the Soviet Union and Southeast Asia are exactly the same as what is happening in China today. People today are in awe of China's growth and its economic development model. But China's growth is driven completely by increasing factor inputs. China's efficiency growth is very low and it might actually have negative efficiency growth.
Future posts will present much more data and analysis on this subject.
