China's Economy

China’s economy has grown at over 10 percent a year for over 15 years, faster than any Asian tiger. Many analysts predict that China’s economy, even if its growth trajectory gradually slows, will be larger than the U.S. economy before the middle of the 21st century. This has profound implications for trade and investment patterns, climate change, and the global distribution of power. A serious disruption of China’s growth would likewise have a significant impact on the international system.

Albert Keidel moderated the second of Carnegie’s China debates, in which two of the world’s preeminent Chinese economic scholars debated whether Chinese growth could continue without significantly accelerated reforms. Barry J. Naughton is So Kwanlok Chair of Chinese international affairs at the University of California – San Diego. Wing Thye Woo is a senior fellow at the Brookings Institution.

The CCP’s new commitments
In its recent Central Committee declaration, the Chinese Communist Party (CCP) set a goal to achieve a “harmonious society” by 2020, the key elements of which are democracy, rule of law, equality, and environmental stewardship. Woo noted that this declaration represented a significant break from the CCP’s former exclusive focus on economic growth.

This focus on social and political development has come in response to two recent trends: an explosion in unrest over the past decade due to growing inequality and expansion of the middle class. As a larger proportion of the population reaps the benefits of economic growth, expectations have shifted to a strong desire for political reform.

But the CCP may not be able to meet these commitments while continuing to sustain rapid economic growth, Woo argued, and in an open democratic system, the Party may lose power.

Stay the course
Naughton disagreed with Woo’s assessment that comprehensive reform is required to stave off the social unrest threatening economic growth. For 25 years, the CCP has dealt with urgent problems only when forced to act. Rather than taking proactive measures, the CCP will likely delay policy changes until circumstances demand them.

In fact, as long as the central leadership does not get in the way, growth will continue apace, driven by the tremendous macroeconomic and demographic forces at play in China. After 2015, growth will slow as a massive rural-urban migration slows and the labor force bulge of the One Child policy dissipates, but China will continue to grow much faster than the U.S.   

More challenges ahead
Both participants agreed that China’s ability to transition from import-substitution industrialization to export-led growth augurs well for the future. Woo suggested, however, that betting on the CCP’s ability to react is not sufficient to sustain growth because the political, social, and environmental problems that the CCP faces today are qualitatively different from the challenges of the past 25 years.