The Difference Between What State-Capitalist China Can and Will Do

Over at the Financial Times, Michael Pettis writes (July 28th), quite reasonably, that China can rebalance from a debt-fueled, state-capitalist economy to a more sustainable one:

China’s GDP, in other words, does not need to grow at 7 per cent or even 6 per cent a year in order to maintain social stability. This is a myth that should be discarded. What matters for social stability is that ordinary Chinese continue to improve their lives at the rate to which they are accustomed, and that the Chinese economy is restructured in a way that allows it to tackle its credit bubble.

But Pettis sees, too, how hard it is for a system like China’s to evolve, as he writes (July 25th) in the New York Times:

China, on the other hand, faces tremendous challenges that will determine how successful its 30 years of economic reform will have been. This is not to say that China cannot meet the challenges, but it does mean that the jury is still out.

Strange as it may seem, many years of miracle growth are always the “easy” part for a poor country. The tough part is usually the subsequent adjustment needed to accommodate the changes generated over the miracle years. Few countries have done so successfully. As someone who loves living in China I hope that the country is able to open up its society, create the kinds of institutional reforms that encourage innovation and creativity, and allow the necessary cultural and intellectual space for its people, but for now I worry that unless Europe recovers its elan the days of a truly multipolar world are still far away.

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