A key difference between AEs and EMEs is that capital is cheap and labour is expensive in the AEs while the opposite is usually true in the EMEs. In order to accumulate capital rapidly, the cost of capital has to either fall, or be intentionally distorted. In the earlier stage of China’s growth strategy, monetary policy was designed to dramatically lower the cost of capital. During this phase, it was the state players that were the tip of the spear even though the private sector grew rapidly. SOEs, state banks, and modern, state-directed industrial policy were all an integral part of China’s
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