China Look to Korea and Notice It Collapsed Before Recovering

Korean conglomerates wanted to be world beaters, but they relied on cheap credit and government support, churning out junk products at low prices. How did they reform?

Bloomberg: To Fix China, Look to Korea
The key was breaking the triangle between government, banking and corporations. During the high-growth period in Korea, the close networks among the nation’s top policymakers, chaebol chiefs and major bankers propelled stellar growth rates by funneling credit to favored industries, thus creating the conditions for high investment. But by the 1990s, that system had begun to work against the economy. Gorged with easy money, chaebols never had to become truly competitive. Managers, free from oversight by bankers or the demands of profitability, wasted funds on uneconomic projects while starving potentially more productive and innovative parts of the economy of resources.

The 1997-98 Asian financial crisis undid those cozy networks. At the time, Koreans saw the experience as a national humiliation, which forced them into a painful International Monetary Fund bailout. But today, it's considered a necessary evil, which set the stage for Korea’s leap into the ranks of truly advanced economies.
China has more debt than Korea and foreign nations will throw up protectionist barriers against Chinese firms.
Nevertheless, Beijing’s plans don’t even come close to what Korea has already achieved.
Reform will be forced upon China via crisis.

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