Yukon Huang Debunking Myths About Chinas Economy | People Are Lying About Chinese Economy It's Going Down

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There’s no question, of course, that China’s slowdown is both real and important for the global economy. But news events like this year’s stock-market plunge and the yuan’s devaluation versus the dollar reinforce the refrain, among a chorus of China watchers, that the country’s long flirtation with disaster has finally ended, as predicted, in tears. Meanwhile, Chinese officials, worried about political blowback, are said to ignore advice from outside experts on heading off further turmoil and to be paranoid about criticism.

My experience working and living in China for the past three decades suggests that this one-dimensional view is far from reality. Doubts about China’s future regularly ebb and flow. In what follows, I challenge five common assumptions.

A key tenet of the China-meltdown thesis is that the country has simply not established the basis for a sustainable economy. It is said to lack a competitive, dynamic private-enterprise structure and to have captured most of the value possible from cheap labor and heavy foreign investment already.

Clearly, China lacks some elements of a modern market economy—for example, the legal system falls short of the support for property rights in advanced countries.2 Nonetheless, as China-economy scholar Nicholas Lardy recently pointed out, the private sector is vibrant and tracing an upward trend line. The share of state-owned enterprises in industrial output continues to drop steadily, from 78 percent in 1978 to 26 percent in 2011.3 Private industry far outstrips the value added in the state sector, and lending to private players is growing rapidly.

In fact, much of China’s development model mirrors that of other industrializing and urbanizing economies in Asia and elsewhere. The high savings rate, initial investments in heavy industries and manufacturing, and efforts to guide and stabilize a rapidly industrializing and urbanizing economy, for example, resemble the policies that Japan, South Korea, and Taiwan followed at a similar stage of their development. This investment-led model can lead to its own problems, as Japan’s experience over the past 20 years indicates. Still, a willingness to intervene pragmatically in the market doesn’t imply backwardness or economic management that’s heedless of its impact on neighboring economies and global partners.

Furthermore, China’s reform initiatives4 since 2013 are direct responses to the structural changes in the economy. The new policies aim to spur higher-value exports, to target vibrant emerging markets, to open many sectors for private investors, and to promote consumption-led growth rooted in rising middle-class incomes. Today, consumption continues to go up faster than GDP, and investors have recently piled into sectors from water treatment to e-commerce. These reforms are continuing at the same time China is stepping up its anticorruption drive, and the government hasn’t resorted to massive investment spending (as it did in 2008). That shows just how important the reforms are.