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Is China Over?

Yes, says US journalist, who sees corruption and an authoritarian culture stifling progress
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The Wall Street Journal‘s Bob Davis, leaving China after a four-year stint covering its economy, sees signs that the global giant’s economy is in decline. Excerpt:

My own reporting suggests that we are witnessing the end of the Chinese economic miracle. We are seeing just how much of China’s success depended on a debt-powered housing bubble and corruption-laced spending. The construction crane isn’t necessarily a symbol of economic vitality; it can also be a symbol of an economy run amok.

Most of the Chinese cities I visited are ringed by vast, empty apartment complexes whose outlines are visible at night only by the blinking lights on their top floors. I was particularly aware of this on trips to the so-called third- and fourth-tier cities—the 200 or so cities with populations ranging from 500,000 to several million, which Westerners rarely visit but which account for 70% of China’s residential property sales.

From my hotel window in the northeastern Chinese city of Yingkou, for example, I could see empty apartment buildings stretching for miles, with just a handful of cars driving by. It made me think of the aftermath of a neutron-bomb detonation—the structures left standing but no people in sight.

That’s a fascinating bit of journalistic sleuthing: looking at newly built housing projects by night, and seeing that they are in fact Potemkin villages. More:

China followed Japan and South Korea in using exports to pull itself out of poverty. But China’s immense scale has now become a limitation. As the world’s largest exporter, how much more growth can it count on from trade with the U.S. and especially Europe? Shift the economy toward innovation? That is the mantra of every advanced economy, but China’s rivals have a big advantage: Their societies encourage free thought and idiosyncratic beliefs.

When I talked to Chinese college students, I would ask them about their plans. Why, I wondered, in an economy with seemingly limitless potential, did so few choose to become entrepreneurs? According to researchers in the U.S. and China, engineering students at Stanford were seven times as likely as those at the most elite Chinese universities to join startups.

One interview with an environmental engineering student at Tsinghua University stuck with me. His parents grew wealthy by building companies that made shoes and water pumps. But he had no desire to follow in their footsteps—and they didn’t want him to either. Better that he work for the state, they told him: The work was more secure, and perhaps he could wind up in a government position that could help the family business.

That is significant. It reveals a parasitic mentality: the people who ought to be the producer class encouraging their children to work for the state, in part to help the family business. That can’t be good, for China or any society. That said, for 30 years or so, I have heard that China was bound to democratize, because you can’t have successful capitalism without liberal institutions (= a free press, free speech, democracy, rule of law). China has proved Western critics massively wrong.

Read the whole thing. It’s short, and important.

UPDATE: Good comment from Anand:

Some strong points made in the article. However, as with a lot of journalism I feel that there’s too much focus on the short term. A few snapshots:

1. My daughter is currently about 5 months into a two year term teaching rural China with an organization called Teach for China (loosely affiliated with Teach for America with a similar philosophy). What’s clear from her experience thus far is that the Chinese system has a long way to go in educating everybody to the level of being able to perform in a modern economy.

But the thing is, the Chinese are genuinely trying to make efforts in that direction. They are actively trying to upgrade their rural education system and improve their universities. They are asking questions about what they can do better. From what I’ve seen there’s a definite contrast between China and India in this regard.

2. A colleague of mine has a visiting appointment at a Chinese university. China is starting to bring in foreign scholars and establish the equivalent of the Max-Planck Institutes in Germany. This is something that Japan, Korea and India are not doing, and it offers China the potential of leapfrogging these countries scientifically. Some of the better students coming out of US universities are going back to China to work and teach there. I’ve personally seen a steady increase in the quality of papers coming out of China in recent years.

3 I had lunch a few weeks ago with a former undergrad who moved back to China to help run a family business. Again I was really impressed not only by what she’s trying to do, but by her love for her country motivating her to do it.

What all of these stories have in common is that China is trying to build up and invest in its people, and to some extent it is succeeding in growing and attracting talent. The question is whether the broader trends exemplified here are sustainable over decades. They may not be. But the Chinese do have leaders who are thinking on these scales, while our politicians try to win the next news cycle.

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