A lot of bad habits have gotten hardwired into Chinese life

From IMF: China Isn’t Ten Feet Tall by Walter Russell Mead. He is highlighting that with which I have been concerned for the past ten years. The development of China has been a blessing in the past thirty years, one of, if not the greatest, improvements in human well-being ever. And yet it is not sustainable. All countries go through cycles of political and economic development - if we are lucky they are in synch and reinforcing. Mead highlights four key transitions. Number three in particular has a resonance in the US.

First, as the IMF report suggests, China faces a dynamic of inexorably mounting complexity: as the Chinese economy grows, the economy and Chinese society become more complicated and harder to manage. There are more domestic interests that need to be consulted, more economic issues to manage, more complicated interactions between financial markets and the real economy to watch, to regulate and to manage. Even in the absence of formal democratic structures, the Chinese government is accountable to powerful domestic interest groups and public opinion. As society grows more complex and new actors become more empowered, it is harder and harder for the government to deliver “pure” technocratic solutions.

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Second, China’s development model will not work forever. Every other country that has developed on the basis of an export-oriented manufacturing strategy did spectacularly well for a long time before hitting a wall when lower, slower growth became inevitable. Look at Japan.

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Third, over a long period of nearly unbroken prosperity, a lot of bad habits have gotten hardwired into Chinese life. Banks have made speculative loans to party officials, shady developers and to their own brothers-in-law and over time, with ten percent growth, most of these loans have worked out pretty well. Prudence and transparency have long been hooted out of town: there has been no interest in being careful for a very long time. When the music stops, a lot of loans are going, very suddenly, to look terrible.

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Fourth, there is the global situation. China can’t control the global economy and can’t even influence it very much. But the mess in Europe, the slow growth in the US and problems like the impact of a US-Iran crisis on world oil prices can all serve as the matches that could ignite a conflagration in China.