Growth Model

China’s growth over the last 35 years is unprecedented. It has created more wealth and lifted more people out of poverty in a shorter time than any other country in history. In this chapter, we explore the economic system that made this possible. This is a necessary prerequisite for analyzing the financial system for three reasons. First, the financial system evolved to support the economic system that brought this growth, and it is impossible to understand the financial system without understanding the system it was designed to support. Second, we need to understand why such a successful system needs to be reformed and, by extension, why the financial system needs to change to accommodate that reform. Finally, financial reforms will undermine the existing drivers of economic growth and replace them with new drivers. This transformation will be difficult and risky, and the challenges and dangers will need to be understood in advance and incorporated into the reform plans.