At Foreign Affairs three scholars, Zongyuan Zoe Liu, Michael Pettis, and Adam Posen, weigh in on what has produced the Chinese economy’s present situation. All three are worth reading but my views align most closely with Mr. Pettis’s:
The problems facing the Chinese economy are not the consequence of recent policy shifts; they are the almost inevitable result of deep imbalances that date back nearly two decades and were obvious to many economists well over a decade ago. They are also the problems faced by every country that has followed a similar growth model
In particular China has depended, like the Soviet Union before it, on moving relatively unproductive labor from agriculture to manufacturing. Unlike the Soviet Union it did so without reducing agricultural production, a notable triumph.
But that has run out and it won’t produce the additional growth it needs to transform China into a high income country through malinvestments. And malinvestments are inevitable in a planned economy, particularly with incentives that local officials have.
Twenty years ago I believed that China could transform itself adequately. Now I’m not so sure.
