China Deserves its Economic Success
China Deserves its Economic Success
Nov 30, 2018ZHANG JUN
<https://www.project-syndicate.org/columnist/zhang-jun>
https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11
In 1995, the late economist Gustav Ranis wrote that, “If there is one
key to developmental success, it is avoiding the encrustation of ideas,”
which is achieved through policymakers' “ever-increasing reliance on the
responsiveness of large numbers of dispersed decision-makers.” That
description suits China perfectly.
SHANGHAI – In the 1940s, the British historian Arnold J.
Toynbeepredicted
<https://archive.org/stream/in.ernet.dli.2015.530306/2015.530306.civilization-on_djvu.txt>that
the United States and the Soviet Union would remain the world’s only two
great powers. Not even China and India – with their “ancient
civilizations” and “vast populations, territories, and resources” –
would be able to “exert their latent strength” in the ensuing
decades.<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
MAKING CLIMATE CHANGE MATTER
<https://www.project-syndicate.org/onpoint/making-climate-change-matter-by-laurence-tubiana-2018-12>
Dec 14, 2018LAURENCE TUBIANA
<https://www.project-syndicate.org/columnist/laurence-tubiana>calls for
smarter, more psychologically nuanced messaging to build public support
for decarbonization.
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Toynbee was right about the ensuing decades, but wrong about two places:
the Soviet Union collapsed, and now China has become the world’s
second-largest economy and a leading global player. But, at a time of
powerful economic headwinds and a new cold war with the US, will China
continue its rise, or go the way of the Soviet
Union?<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
To answer that question, it is first worth noting that China is not an
enemy of the US, and the new Sino-American cold war is not rooted in a
military standoff, much less ideological conflict. Rather, it reflects
US President Donald Trump’s rejection of China’s economic rise and, more
generally, of open
policies.<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
But it is not just Trump, with his populist “America First” agenda, who
opposes globalization and advocates protectionism, particularly against
China. Some liberal and highly respected economists, includingLarry
Summers
<https://www.project-syndicate.org/columnist/lawrence-h--summers>, also
worry about the outcome of globalization, even if they disagree with
Trump’s approach. This points to rising anxiety about the US economy’s
ability to weather the challenges ahead. Predictions that China could
replace the US as the dominant global economy, likeone made
<https://piie.com/publications/chapters_preview/6062/iie6062.pdf>byArvind
Subramanian
<https://www.project-syndicate.org/columnist/arvind-subramanian>in 2011,
have no doubt fueled American
angst.<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
To be sure, China faces plenty of challenges of its own, owing partly to
a growth model that produced significant imbalances. But, contrary to
the Trump administration’s narrative, those imbalances – particular the
trade surplus/vis-à-vis/the US – were not intentionally created through
exchange-rate controls and distortionary policies. After all, such
tactics would be most damaging to China
itself.<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
The reality is that, despite its imbalances, China’s economic rise over
the last 40 years has been extraordinary, and was achieved by its
successful policy of committed structural reform. The country’s economy
has been much more open than most others during the same period, and its
astounding trade success – exports now account for about60% of GDP
growth
<https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/a-truer-picture-of-chinas-export-machine>–
therefore deserves respect, not reproach. Critics should care about not
only China’s exports/minus/imports, but also about its
exports/plus/imports.<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
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Moreover, there are serious flaws in comparisons between China today and
the Soviet Union during the Cold War. Back then, the Soviet Union’s vast
natural resources, industrial and military expansion, and
state-controlled economy caused many economists to overestimate its
leaders’ ability to manage
risks.<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
In reality, the Soviet Union lacked key sources of dynamism, such as
financial incentives for economic risk-taking, market competition, free
trade with developed economies, and decentralized governance systems –
all features of China’s economy today. Similarly, whereas an
ever-expanding bureaucracy encumbered the Soviet economy, China’s
economy benefits from the decentralization of considerable economic
authority to local
governments.<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
Given these important differences, China seems unlikely to face anything
like the Soviet Union’s fate. But that is not the only negative
comparison that has been made. Some also suggest that China’s economy
could follow in Japan’s footsteps, facing a “lost decade” (or two) of
negligible
growth.<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
Again, however, the prediction ignores important differences between the
two economies in question. Before Japan fell into stagnation, it had
reached advanced-economy status, with a/per capita/GDP of $26,000 (in
purchasing-power-parity terms) in 1990 – only slightly below the US
level of $31,000. China, by contrast, still has a long way to go before
catching up with the advanced
economies.<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
There is little reason to believe that, as long as China continues to
pursue market opening and structural reforms, its average annual growth
rate over the next 15 years will fall below 5%, as some have predicted.
Subramanian’s own projected average/per capita/growth rate of 5.5% for
the 2010-2030 period is already conservative, as it is more than 40%
slower, overall, than growth over the previous 20
years.<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
To provide some context, Subramanian looked at how other countries had
fared when they had reached China’s level of development today
(one-quarter of the standard of living in the US during its post-war
economic heyday). He found that, while some countries suffered long
periods of decline, others were able to sustain rapid growth. In
Subramanian’s words, “a lot will have to go wrong” for China to find
itself in the former
category.<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
In 1995, the late Yale University economist Gustav Ranisemphasized
<https://www.jstor.org/stable/3989852?seq=1#page_scan_tab_contents>that
the East Asian economies’ success in sustaining long-term growth owed
much to the “flexibility of policymakers” who consistently responded to
changing demands. “Each decade had its challenges,” Ranis wrote, and the
government’s policy responses consistently accommodated, rather than
obstructed, the needed
changes.<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
Ranis concluded that, “If there is one key to developmental success, it
is avoiding the encrustation of ideas.” That is achieved through
policymakers’ “ever-increasing reliance on the responsiveness of large
numbers of dispersed decision-makers.” This description perfectly suits
China.<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
The response to the global economic crisis is a case in point. When
advanced economies implemented unprecedented monetary stimulus, Chinese
leaders deepened their commitment to shifting from an export-led to a
domestic-consumption-driven growth model, even if it meant enduring a
difficult period of structural adjustment, which explains the country’s
slowing growth over the past five
years.<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
We should not underestimate China’s capacity to handle both longstanding
and new challenges, including the trade war that Trump has initiated. In
fact, given their past record, it seems likely that China’s leaders will
only become more determined to continue calibrating the country’s growth
model, opening up the economy , and implementing further structural
reforms, all in the service of their ultimate goal: a China that takes
its place among the world’s advanced
economies.<https://www.project-syndicate.org/commentary/china-bright-economic-future-despite-trump-by-zhang-jun-2018-11##>
Zhang Jun <https://www.project-syndicate.org/columnist/zhang-jun>
ZHANG JUN <https://www.project-syndicate.org/columnist/zhang-jun>
Writing for PS since*2005*
*35*Commentaries
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Zhang Jun is Dean of the School of Economics at Fudan University and
Director of the China Center for Economic Studies, a Shanghai-based
think-tank.
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