Strategic observation

The Great Fall from Grace: Is China’s Rise Over?

2014-11-14 16:17:53 (Beijing Time)



Perhaps most striking, inefficient state-owned enterprises are intended to cooperate more with private firms. What is badly needed is exactly the opposite: far more open and fair competition between the state and private sectors.

The much-touted Shanghai Free Trade Zone, symbol of financial transformation, reached its one-year anniversary, accomplishing little beyond drawing speculators. Labor reforms have been offered but are slow and partial, when daring is required in light of China’s rapid aging. Last month, the 2014 edition of the Party plenary meeting was caught up in internal political issues and barely discussed the economy.

The middle-income trap occurs when the policies that help raise countries out of poverty cease to work, but governments refuse for political reasons to adopt different ones. Very few countries ever escape to become rich. For a decade, China slowly ensnared itself in the middle-income trap. After Xi Jinping’s first two years, it remains tightly bound.

Beijing controls the publication of all economic numbers and can continue to insist everything is fine. But if Xi does not quickly move beyond talk to profound pro-market reform, China will not slow or struggle—it will just stop.

Derek M. Scissors is a resident scholar at the American Enterprise Institute (AEI), where he studies Asian economic issues and trends. In particular, he focuses on the Chinese and Indian economies and US economic relations with China and India.

Image: Flickr/yakobusan Jacob Montrasio/CC by 2.0