3. The slower the reforms, the bigger the debt

China's Crisis of Success—3

'What the Chinese have effectively chosen is much slower reform in order to keep the economic growth rate up around 6.7%.'

Bill Overholt says, 'When they started to implement the China 2030 reforms, first, the leadership had a choice:

  • 'Rapid reform, which would mean much slower economic growth', or 
  • 'High economic growth, which would mean accumulating a lot of debt and slowing the reform process.'                                   

'What the Chinese have effectively chosen is much slower reform in order to keep the economic growth rate up around 6.7%.'

  • 'So, they've acquired a substantial problem of debt as they're trying to keep this engine moving really fast.'

How this works. 'Fast reform would, for instance, involve very rapid reduction of over capacity. Now, the Chinese are reducing over capacity, but not as fast as they might.'

  • 'These inefficient concrete and aluminum factories, and other things, accumulate more debt as they wait the reform process.'
  • 'Also, and very important politically, local governments have become incredibly indebted, and you can crack down on that quickly, or you can not allow them to work at all for a considerable period of time.'
  • 'It's all happening more slowly than it might have otherwise.' 

'The other political decision that has slowed reform is that in effect politics has been given priority over a lot of economic reform.'

  • For example, 'The government talks about putting these big State Owned Enterprises on a level playing field with others. It talks about putting them on completely market basis.'
  • 'Then they say, "we're going to strengthen the role of the party committee inside these enterprises." They make sure the party committee has control over corporate strategy.'
  • 'Well, is it really on a market basis if the party controls the strategy has been strengthened?'

Another example. 'We're going to have the rule of law. It's going to be one of the major things of reform.'

  • 'But we're going to strengthen the role of the party commission that oversees the courts’ decisions.'
  • 'Well, is it really rule of law if a political commission is ultimately making the decisions?'

'There's a whole series of such things I talk about in China's Crisis of Success as the "Ten Key Contradictions"' (page 248).

'Reform is going forward, but it's going forward at a considerably slower pace than it might have, and with much higher priority for political considerations than was expected when China 2030 was drafted.'

TOP