Rating: 8.3/10.
Book describing all aspects of China’s economy; unlike the previous book (“China Emerging“), this book was written by a Western author, and presents a balanced view of the situation. Since the economic reforms in 1978, the country has gotten a lot better, but the growth is uneven, with high levels of inequality. Still, most Chinese citizens are happy with the country’s direction, because despite the much higher inequality, even the median quality of life has gotten dramatically better (only 1% of people in extreme poverty now, compared to 90% of the population in 1980).
In the early stages of economic reform, the priority was to mobilize the country’s enormous workforce, so some inefficiency and corruption was tolerated. China focused on labor-intensive light industry, like clothing and consumer appliances, rather than capital-intensive heavy industry. Recently, as wages rise, cheap labor is less abundant, so you need to increase economic efficiency for further growth. However, China struggles to produce quality, more advanced technology like cars, aircraft, and electronics (lots of phones are made in China but only the final assembly stage), and mostly produces cheap items of medium quality.
Industrialization brought many people into the cities, and now about 2/3 of the population is urban, but there is a lot of inequality between migrant workers and those with urban hukou. Only people with hukou has access to social services and healthcare; it’s a delicate balance between providing social equality and letting too many people into the top-tier cities. The one-child policy (1979-2015) tried to lower population growth, but it was unnecessary because urbanization naturally leads to birth rate decline. The declining birth rate will cause demographic problems in 30 years as the age distribution will be comparable to Japan today, with not enough working-age people to support the elderly.
Real estate was essentially a large transfer of wealth, as the government sold urban property at very low prices around 2003, and real estate prices have skyrocketed since then. Moreover, local government forcefully bought rural land at below market rates, exacerbating the urban-rural inequality. Chinese like to invest in real estate because they believe it will always go up (as it had for the last 20 years), and also because the banking / market system is not as developed, and it is difficult to move capital out of the country. There is now an oversupply of housing in many areas. Real estate is unlikely to be a bubble though: unlike North America, real estate is bought mostly with savings, not mortgage debt.
The Chinese Communist Party (CCP) is very large, comprising about 5% of the whole population, but also quite decentralized, with local and provincial governments loosely coupled to the nation-level government. The largest companies are state-owned enterprises (SOEs), including heavy industry, banks, telecom, natural resources, but these SOEs are less efficient than the private sector.
China will be the world’s largest economy in a decade or so, although this doesn’t mean much after accounting for population size. Despite its economy, it has limited political influence, and has no strong allied countries, even in East Asia. It also struggles to become a technological leader: most of its tech companies only have a domestic market, and don’t gain traction outside the country. It’s clear that China has vastly different values from Western countries: they don’t value elections and democracy, rather the government is good as long as it keeps the economy running; these ideologies will need to learn to coexist in the future.
