Bill Gates recently pronounced that China had created “a brand-new form of capitalism” with consumers at its centre. Unless he meant foreign consumers, it is a curious claim, given that China's consumption/gross domestic product ratio has been steadily declining. It is a sign that China's growth is increasingly driven by investments, which many economists and officials in China have warned is an unsustainable trend.
Mr Gates' remark was also a reminder of how western observers typically gloss over the institutional shortcomings in China's system, even while the Chinese themselves are increasingly voicing their complaints about the issues and obstacles to doing business in China. Even China's beleaguered banks have their fans in the west. In a new report, McKinsey, the management consultants, tout the superiority ofChina's financial system over India's. This is a remarkable judgment. Chinese analysts have long pronounced China's banking system “technically insolvent” and, in implicit agreement, the Chinese government has injected more than $60bn (£33bn) to recapitalise the banking system. Every year for the past five years, India's stock market has outperformed China's, and China's non-performing loan (NPL) ratio is several multiples of India's. India has also consistently outperformed China in corporate governance rankings.
