M-RCBG Associate Working Paper No. 201
China's Coming Era of Slow Growth
William H. Overholt
2023
Abstract
The best way to understand China’s present and future is that the Chinese reform era emulated the “Little Dragons,” South Korea, Taiwan, and (to a lesser degree) Singapore. The little dragons were initially run by ruthless hierarchical politics and highly centralized economic management, guided by Marxist-Leninist ideas. Mobilized by fear of imminent national catastrophe, they focused on economic growth, informed by egalitarian efforts to ensure the broadest social support. They typically experienced a generation of growth at nearly a 10 percent annual rate, then a crisis of success brought on by emerging social complexity, bursting of economic bubbles, exhaustion of the early drivers of growth, and a financial squeeze of the government and government-associated companies. They responded to social complexity by moving to more market-oriented economics and politics, at the cost of the old hierarchical, centralized institutions. The generation of 10 percent growth gave way to a period of 7 percent growth and then declined to a relatively stable 3 percent. Through this process they achieved high incomes, high technology and high domestic stability.
Emulating the little dragons, China has had its generation of 10 percent growth and is now in the era of crisis of success with lower growth. By 2030 or before its potential growth will have declined to around 3 percent. However, instead of accommodating social complexity by moving to more market-dominated economics and politics, China is fighting the complexity revolution. Instead of sacrificing the interests of Party and state-affiliated firms to the pressures of a more complex society, China is prioritizing Party over society. This entails security policies that hamper economic growth, create a chronic fear of instability, and likely jeopardize its goal to become the world’s leading economy and geopolitical power.