Thinking Through the China Hype: After 2030, China's potential growth will be similar to that of the United States. Its graying problem? Worse than Japan's.

• Author: Overholt, William H.

China's economic aspirations have evolved rapidly. What has remained constant for centuries is a determination to return to the domestic wealth and international power that most Chinese view as the only acceptable norm for a civilization that long led the global economy. Under Deng Xiaoping and Jiang Zemin (1978-2003), the leadership's model of how to achieve that evolved rapidly in the direction of market-oriented reform and international opening to trade and investment, along with political and administrative institutionalization and meritocracy. Under Hu Jintao (2003-2013), reform, opening, and institutionalization as thus understood largely stagnated; that administration's achievements focused on elimination of some unfair treatment of farmers, spreading the economic miracle to China's interior, and surviving the 2008 global financial crisis. Hu's legacy included these achievements, but also worsened problems of coordinating parts of the central government, dissonance between the central and local governments, and a spectacular increase in the visible scale of corruption.

CHINA'S CHANGING VIEW OF THE WESTERN MODEL

Until the mid-2000s, China looked up to Western economies and Western polities. That absolutely did not mean that they intended to copy them in detail, but they saw them as models of how both mature economies and mature polities work. They took most World Bank advice. They imported Hong Kong officials wholesale in the belief that Hong Kong's market-friendly structure provided a primary economic model for China. At the turn of the century, the Central Party School was working on three models for democratization, including one modeled on Japan and one on Taiwan. At a RAND Corporation conference in November 2001, during a debate about Taiwan, the political leader of a Central Party School delegation surprised the Americans by declaring, "We hate everything [then-President] Lee Teng-hui is doing in cross-Straits relations, but we admire the way he has taken Taiwan politics to a new level." The Carter Center and the International Republican Institute were advising on village elections. There was even high-level discussion of whether someday Taiwan's Guomindang Party might be allowed to compete and win in China's Fujian Province.

Two things changed that reverence for supposedly more mature Western models. The global financial crisis of 2008 shocked and damaged China and convinced officials there that greater government control of the economy was essential to prevent crises and recover from them. The emergence of Donald Trump and Boris Johnson reduced to absurdity, in their view, any argument that Western democracy would ensure governance in the interest of the people.

This puts us in a situation analogous to the 1920s and 1930s. On one side was visionary socialism charging forward with attractive social arguments, but implemented by institutions that severely damaged human dignity. On the other side was laissez-faire democratic capitalism that produced advanced technology but also catastrophic business cycles, wanton ecological destruction exemplified by the Dust Bowl, unsafe food, and a combination of tycoons and heartlessly exploited workers that was morally indefensible. Subsequently, the totalitarian socialist side proved unable to adapt and self-destructed. The democratic capitalist side learned to moderate its business cycles through novel fiscal and monetary policies and it borrowed socialist and socialist-like ideas such as social security, government medical insurance, strong unions, support for farmers, food safety regulation, suffrage for women and Native Americans, and the like. This...