The subtitle is Why Xi’s China
is in Jeopardy and the author is George Magnus (2018).
In the broad landscape of literature where analysts and economists
opine in hyperbolic extremes about the future of China, Magnus tries to offer a
balanced (tilting pessimistic) view of the country’s path forward. And in erring to the negatives, his focus is primarily
on the state-driven nature of the economy, which has led to feckless credit
creation and rising credit intensity, weak institutions, and a risk-averse
nature when it comes to truly disruptive experimentation that can trigger failure.
In looking at the meteoric economic rise of China over the past twenty
or thirty years, Magnus points out that much of that growth stemmed from events
that can only be booked once: joining the WTO, moving people from
low-productivity rural life to high-productivity urban manufacturing, the massive
real estate boom, the wave of globalization in the 1990s and 2000s, and
enrolling all children in secondary schools.
All of those events are highly transformative, but not repeatable.
In addition, Magnus notes that much of that exponential advancement
came under the relatively progressive and reformist leadership of Deng
Xiaoping. By contrast, the current leader,
Xi Jinping, has shown a more autocratic and dictatorial tendency which hearkens
back to Mao, where rules and processes become far less predictable. Contributing to that, because it seemed that China
was performing relatively well while the West struggled through the 2008 financial crisis, the
continuing emphasis on reform was substituted with a misguided belief in the
power and superiority of the Communist Party. Thus, with more decisions and edicts made from
up high, the underlying features which helped China to grow have become stifled. None of which is promising as it tries to navigate
its debt trap and still increase productivity.
And p.s., add to all of that, China is ageing more rapidly than any
other large economy.
Still, in going through these realities, Magnus
admits that the final story has not yet been written. But, if we are honest, if China does manage
to thread the needle and deal with these myriad issues in a way that avoids significant
pain, their case study would be the first of its kind. To be continued.
