China's Crisis of Success

Bill Overholt and I recently had a discussion about the points he makes in his new book, China's Crisis of Success. Here are five key points, each corresponding to a section below.

Bill Overholt's The Rise of China: How Economic Reform Is Creating a New Superpower, published in 1993, was called 'nonsense' and 'too optimistic.' How did that work out for the reviewers? 

Now, almost three decades after The Rise of China, Bill believes that China's future has become 'much more uncertain.' And, he addresses his concerns in a new book, China's Crisis of Success.

Bill outlined some the key points from his book recently in an interview with me. And, I have conveyed these below. As you will see, I have let Bill speak for himself. 

Bill was right in 1993. 

1. Fear and simplicity.

A 'sense of terrible crisis [was] a prerequisite for an Asian economic take off,' Bill says. 

  • Fear. Following the events that befell Asian countries - such as, the Korean War and the Chinese civil war - each nation faced the real possibility that it might not recover. This made leaders more willing to take great risks and their peoples more willing to accept them.
  • Simplicity. 'These countries' economies, when they're getting started, are basically agriculture, infrastructure, and some very primitive manufacturing.' This makes the plan simple: 'stimulate growth, build infrastructure, and open and marketize the economy.'

2. Simplicity to complexity - and new crisis. 

With success comes more complex economies, politics, and societies. 'And, then you gradually get to a point of complexity, where there is an economic and political crisis of some kind.' Time for a transformation.

  • China's leaders realized this and reached consensus about the need for reform during Hu Jintao's 'lost decade,' 2002 to 2012.
  • The guide for reform: China 2030, jointly prepared by the World Bank and China and adopted by the Third Plenum in 2013.

3. Slower reform, bigger debt. 

The decision for leadership: quick reform and lower GDP, or slow reform, maintaining higher GDP but accumulating debt in support of inefficient industries.

  • China chose slower reform, higher GDP, and increasing debt.

4. China's leadership

China's leadership wanted Xi to centralize power. We often hear criticism that Xi Jinping is power hungry. But, in fact, Xi's centralizing of power was part of the consensus leadership plan, what they saw as the only way to push reforms through. 

5. But,

'Xi Jinping may have gone well beyond what the consensus originally intended, and the politicization of the reform may not be exactly what some of the designers of the reform intended.' 

You will find each of Bill's points developed below. Let me know what you think.