WHEN the Nobel Prize-winning economist Kenneth Arrow was asked recently which countries had the best-managed economy recently, he nominated China, Taiwan and South Korea. This viewpoint is consistent with the widely shared belief that China is the latest successful instalment of the "East Asian model" of authoritarian development.
That is certainly what Beijing would like to think but looks can be deceiving. The nature, purpose and extent of the role of the state in China's economy and society set it apart from successful East Asian neighbours. In fact, the differences are significant enough to call into question whether China will taste the fruits of successful modernisation enjoyed by such Asian economies as Taiwan.
The key to success in South Korea, Taiwan and Japan was the creation of the conditions conducive to vibrant organisations, competition and private enterprise. Even though it was within a context of state-guided capitalism and mistakes were made, these governments ultimately offered a "helping hand" to lay the foundations for future private enterprise and capitalist activity -- in particular, widespread and open access to economic opportunity, rule of law, property rights, and social and political stability.
Most Western commentators focus on the spectacular success of China's export sector and the emergence of China as the world's factory. But the greater contributor to Chinese growth is actually domestically funded fixed investment, which constituted over 50 per cent of gross domestic product last year and more than 40 per cent of that year's growth.
