January 2006

Chinese economic liberalization largely stopped at the gates of the financial sector. Investment funds are channeled through state-owned banks to state-owned enterprises (SOEs), there are few investment alternatives, stock markets are dominated by SOEs, interest rates are set primarily by government fiat, the capital account is closed, and the exchange rate is tightly managed. The consequences of China’s financial repression are easy to see: a sea of nonperforming loans; misallocation of capital, with over-investment in the state sector and underinvestment in the private sector; politicization of investment decisions and widespread corruption; poor performance of stock markets even though economic growth has been robust; an undervalued real exchange rate; and stop-go monetary policy. Making the transition to capital freedom in China would greatly increase economic and personal freedom and help bring about political reform.

Like most countries around the world, productivity (including economic and all other development indicators) in China is very strongly linked to the health of its people. The ability to achieve the Government of China’s overall goal of “xiaokang,” or “well-off” society, depends to a large degree on its ability to meet the health needs of this vast nation. Injuries and violence now cause more deaths and disabilities than communicable diseases and nutritional disorders combined. There are many challenges to reducing injury in China and although few studies have been done, evidence shows that prevention is cost-effective. Addressing injury and violence in a more concerted manner would prevent countless deaths and long-term disabilities. It would save families the huge associated economic costs and the impact or burden of losing loved ones to injury and violence.