- Hardcover: 288 pages
- Publisher: Oxford University Press; 1 edition (July 21, 2017)
- Language: English
- ISBN-10: 0190630035
- ISBN-13: 978-0190630034
- Product Dimensions: 9.4 x 0.8 x 6.4 inches
- Shipping Weight: 1.6 pounds (View shipping rates and policies)
- Average Customer Review: 5 customer reviews
- Amazon Best Sellers Rank: #50,614 in Books (See Top 100 in Books)
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Cracking the China Conundrum: Why Conventional Economic Wisdom Is Wrong 1st Edition
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"In spite of repeated warning by many well-known economists of coming collapse of Chinese economy, China has maintained dynamic growth in the past four decades and contributed yearly more than 30 percent to world growth since the global financial crisis erupted in 2008. Huang's book provides an insightful analysis about the secrets of China's success. This is a must read for anyone who wants to know about the future of China and the world."
-- Justin Yifu Lin, Director, Center for New Structural Economics, Peking University and Former Chief Economist, the World Bank
"Yukon Huang has written a most perceptive volume on the dynamics of China's economic transformation and their global implications. Accessible, authoritative, and timely, this is a must-read book for our time."
-- Dali L. Yang, William C. Reavis Professor of Political Science, The University of Chicago
"For years, foreign analysts have underestimated China's economic potential and its ability to conquer problems that have stunted growth in other developing countries. Yukon Huang's excellent book helps us understand why. Cracking the China Conundrum is essential reading for anyone who wants to understand how China has got this far, and what its chances are for evading the middle-income trap."
-- Arthur R. Kroeber, Author of China's Economy: What Everyone Needs to Know
"Cracking the China Conundrum is a much-needed work: it takes the conventional wisdom regarding the world's second biggest economy and subjects it to a clear and rigorous analysis that forces us to rethink what China's role means for world trade, and the way that it will address issues such as debt. Yukon Huang's analysis is clear and powerful. This is an essential read on a topic that nobody on earth can now afford to ignore."
-- Rana Mitter, Director, University of Oxford China Centre
"Yukon Huang's Cracking the China Conundrum achieves balance in age of imbalance, arguing that: China has substantial room for growth with efficiency-promoting reforms; political change not entirely conforming to western expectations will occur; Beijing will seek to maintain features of the post-War order that spurred its success while seeking to modify others; and, America needs to adapt to this growing power, while maintaining strategic balance. This is wise analysis."
-- David M. Lampton, Professor and Director, China Studies, Johns Hopkins-SAIS
About the Author
Yukon Huang is a Senior Fellow in the Asia Program at Carnegie Endowment for International Peace, Washington, DC. He has formerly been the World Bank Director for China and Russia, Advisor to the World Bank and Asian Development Bank, a featured commentator on China for the Financial Times, as well as a former U.S. Treasury official and Economics Professor.
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China's exceptional economic performance is the result of a series of pragmatic reforms that encouraged more competition, made use of the country's advantages, and were sequenced to reflect evolving institutional capabilities and market opportunity. Its economy underwent three major transformations during these reforms - from an agrarian to an industrial and services-driven economy, from a close economy to a relatively open one, and from a totally state-dominated economy to one of mixed ownership. Reforms were pursued in a gradual, experimental way - providing incentives for local authorities. These reforms made China's firms globally competitive without the need to embrace the mass privatization initiatives that took place in the Soviet Union. China also grew rapidly because it was partially insulated from swings in global economic cycles due to capital controls and command over investment decisions.
In response to the Great Recession in 2008, China's policies to counter the crisis appeared to be a major success in keeping growth going at home. But subsequent cycles of credit expansion generated rapid debt buildup and excessive property construction, raising widespread concerns China would succumb to its own financial crisis. This combination of mounting debt coupled with maturation of its economy has led to a prolonged slowdown which, as of early 2017, had yet to bottom out.
This contraction has generated worldwide concerns, because China still accounts for about 25% of the increase in global output, down from 50% during the 2008 crisis. The consequences have disproportionately impacted metal and energy prices; commodity-exporting countries have felt this especially keenly. Many point to China's recent problems as evidence of a flawed growth model or a precursor to a debt-driven collapse. Yet, common sense tells us that no economy can grow at 10%/year forever. China's GDP growth rate of 6.7% in 2016 hit a 25-year low, yet was still higher than any other economy but India's. It's growth rate of about 8% (2010-2014) compares quite favorably with the global average of 3.4%.
Most observers now see increasing household consumption as the solution for inadequate demand caused by depressed global trade and falling investment needs at home. Huang contends that, given the nature of China's economic system, the problem can only be solved by increased government expenditures largely in the form of social services. He also believes that President Xi Jinping's campaign against corruption, if successful, will lead to slower growth.
The doubling of equity prices from 2014 to 2015, followed by a 40% collapse, have added to worries. However, most of China's debt is public, not private, and sourced domestically rather than externally. China also did not have a significant private property market a decade ago - most of the recent surge in property prices is the result of market forces establishing appropriate values for land - whose value was previously hidden in a socialist system.
China is now investing more in the U.S. than the U.S. is investing in China. China is also elevating its regional presence and gaining more friends by strengthening links with Europe through its 'One Road, One Belt' initiative - while the U.S. 'pivot to Asia' is an attempt to reassert itself in the region. (No European country, with the possible exception of Germany, sees itself as competing to be a global power, but many feel the need at times to distance themselves from American-led initiatives.)
The Middle East tends to be favorably disposed toward China, though Turkey, with its historical links to the Uighur community in Xinjiang, stands as an outlier.
Deng Ziaoping established at the outset that his priority was economic liberalization and that political change was an issue for the future. He was pragmatic in not letting ideology about equity restrict policy choices. A regionally decentralized competitive system with local authorities motivated by growth objectives but also subject to competitive pressures kept the usual inefficiencies of central planning within tolerable limits. First came liberalizing agriculture through the 'household responsibility system' which allowed peasants to produce and sell freely without threatening the interests of urban consumers. Then industrializing through township village enterprises (TVE) - convenient partnerships that co-opted local authorities to work with private entrepreneurs, and then thirdly establishing special economic zones (SEZs) that allowed market forces to erode the rationale for controls that benefited local authorities and reoriented production towards expanding trade. During all three phases, Deng encouraged 'private' non-state interests to begin driving growth, while avoiding resistance from Party ideologues by not formally abandoning socialist principles. He deliberately promoted a regionally unbalanced growth process targeted to the coastal provinces (not the interior where the bulk of the population lived) and a shift in macroeconomic aggregates which is reflected today in China's unusually low share of consumption to GDP and high investment share - contrary to Mao-era principles of supremacy of 'balanced regional development' and equity before wealth creation. Today's headlines about China's debt problems and property bubbles also have their roots in the approach taken decades ago by Deng to fund the country's investment priorities from bank loans rather than through the budget. China has managed to avoid any major financial crisis and never come close to falling into recession; regional disparities have moderated in response to natural economic evolution and regionally targeted investment policies.
Another guiding principle was Krugman's 'new economic geography' - that concentration of labor and economic activities in urban areas/regions could generate 'agglomeration economies' from specialization and economies of scale that lead to rapid trade expansion. China has been spending over 5% of GDP/year over the past several decades on transport infrastructure.
Two elements incentivized behaviors - the promotion process within the system and having a tax base linked to production and rising land values, which local officials have substantial power to influence. Rapid expansion in urban employment opportunities reduced pressures from rural interests. Eliminating barriers isolating China led to remarkable change in the openness of the economy - trade was 10% of GDP in 1978, 65% in the mid-2000s, then about 40% by 2015.
Premier Zhu closed or privatized hundreds of SOEs and put pressure for improved performance on those retained ('Grasp the large and release the small.') This dual-track approach was a way to deal with vested interests dominating the industrial sector, and the political sensitivity of concerns that the state's role was being eroded. Private initiatives gradually dominated activities seen as not strategically important. That Premier Zhu was able to deal with the social costs of shedding some 30 million workers without being derailed by mass protests seen in other countries. Both private and state firm profitability benefitted. Privatization of housing was initiated in the late 1990s, and allowed households to buy their homes at concessional prices with the option of eventually selling them. This created a market for private housing and explosive growth in construction. The wealth effect spurred consumption.
Huang cracks the 'corruption conundrum'–how a country can be both corrupt, solvent and socially progressive–cleanly, clearly and logically.
Ditto the 'debt conundrum' and many others.
The book not only demythologizes China's economy, it clarifies and explains it simply and graphically in charts so good that I have reproduced one here..
He gigantic contribution is being able to see further into this complexity than most other authorities because for him the System is just that, a form of organization with a unique structure. There was, in the days of the cold war a field of study, Comparative Economic System that was ideology free in essence; it was the results and the problems that needed explaining. Huang must have known it.
A country he left as a student during and after World War II was an interesting area to return to much later working for the International Monetary Fund as a scholar.
Trained at Princeton and Yale in Economics he carries the intellectual baggage of that trade but he observed that many leading authorities predictions, such as Harvard’s Kenneth Rogoff,* that China's unbalanced heavily indebted system would some collapse did not ring true.
This publication is drawn from his years of publications to be found in the WSJ, Foreign Affairs, Financial Times and such. His foot notes reference the enormous research available from the World Bank, I.M.F. that is available on the Chinese Economy; they treat the data usable; Huang believes the growth rate is often understated for reasons given.
The pleasure of this work, if you are somewhat familiar with the story, is how clearly he explains the interaction of all the parts and how regional and central controls support and resist one another. His analysis a pleasure to read and convincing. For Economist a must.
(If the subject is one you wish to master you may want to add another ideological free study that takes the parts of the System apart –A German research project edited by Sebastian Heilmann, China’s Political System, for fine details.)
*Economics’ quest for scientific predictability can leads to public policies with deviating effects.
Such as the key study by Carmen Reinhart and Kenneth Rogoff, empirics which were used to make the case for the necessity of austerity adapted as policy by the E.U. and later found defective when a graduate student redid the study.
For another enjoyable economic work see: Austerity: The History of a Dangerous Idea by Mark Blyth.