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China's Crisis of Success

February 16, 2018
Bill Overholt
AsiaStrat

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.

The Rise of China: How Economic Reform Is Creating a New Superpower by Bill Overholt, 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.

Bill Overholt

Bill Overholt

Senior Fellow at Harvard Asia Center
AsiaStrat
  • 21 years' experience running Asia research teams for Nomura, Bank Boston, and Bankers Trust
  • Former Asia Policy Distinguished Research Chair and Director of the Asia Policy Center at RAND

Channels

AsiaStrat
Granite Peak Advisory
Track Research
Trivium China
Gao Feng
Real Estate Foresight
China Beige Book

All Analyses by

AsiaStrat

5. Has Xi gone too far?

5. Has Xi gone too far?

China's Crisis of Success—5

Bill Overholt believes '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.

4. Enter Xi Jinping. The reformer?

4. Enter Xi Jinping. The reformer?

China's Crisis of Success—4

'Second, they realized that these reforms are painful, and so there's going to be a lot of pushback from all the important power groups of Chinese society. So, they used the Anti-Corruption Campaign as a hammer to push aside these groups who were resisting reform.

3. The slower the reforms, the bigger the debt

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%.'

2. China 2030: 'It's hard to find a more impressive economic plan anywhere else in economic history.'

2. China 2030: 'It's hard to find a more impressive economic plan anywhere else in economic history.'

China's Crisis of Success—2

'Simple economies and politics have been replaced with immensely complex ones. And you gradually get to a point of complexity, where there is an economic and political crisis of some kind.'

1. 'A sense of terrible crisis was a prerequisite for an Asian economic take off'

1. 'A sense of terrible crisis was a prerequisite for an Asian economic take off'

China's Crisis of Success—1

'Why is this sense of terrible crisis a prerequisite for an Asian economic take off? Because it creates a certain political environment.'...'The counterpart, on the economic side, is an economic simplicity.' says Bill Overholt.

China's Crisis of Success

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.

The Rise of China: How Economic Reform Is Creating a New Superpower by Bill Overholt, 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. 

Is The U.S. Ceding Global Leadership To China?

Is The U.S. Ceding Global Leadership To China?

Hard on President Trump's 'American First' inaugural address, Xi Jinping gave a rousing paean to globalism at the World Economic Forum. And, immediately the hot question became: 'Is the U.S. ceding global leadership to China?'

Yes and no, says Bill Overholt of the Harvard Asia Center. Yes, the U.S. is ceding global leadership. No, China won’t replace the U.S.

What will replace the U.S. is ‘G-Zero’, a world with no single global leader. Not China, not the U.S.

So, can his critics lay this outcome at President Trump’s feet?

Why A Trump–Kim Jeong Eun Summit Could Work

Why A Trump–Kim Jeong Eun Summit Could Work

'What President Trump has done is to signal we are willing to move away from this formula that the North Koreans have to give up everything in their nuclear program before negotiations - only then we'll talk with them. I admire our U.S. negotiators, but that formula is simply absurd.'

Bill Overholt

Bill Overholt

Senior Fellow at Harvard Asia Center
AsiaStrat
  • 21 years' experience running Asia research teams for Nomura, Bank Boston, and Bankers Trust
  • Former Asia Policy Distinguished Research Chair and Director of the Asia Policy Center at RAND
AsiaStrat

AsiaStrat

Channels

AsiaStrat
Granite Peak Advisory
Track Research
Trivium China
Gao Feng
Real Estate Foresight
China Beige Book
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