China's Imagination Deficit

As a diehard China optimist for most of the past 25 years, I haven't come to this conclusion lightly. Viewing these concerns more as challenges than risks, I remained convinced that China would ultimately rebalance its economy. A year ago, I threw in the proverbial towel; in "A China Optimist's Lament," I argued that the government's newfound fixation on national security would further diminish China's potential for economic dynamism. Surprisingly, the Chinese have been more open to debate, especially over the possibility that the Next China is starting to look more like the Next Japan. With China now drawing more support from low-productivity state-owned enterprises, and with the higher-productivity private sector remaining under intense regulatory pressure, the prospects for an acceleration of productivity growth appear dim. My last three visits to China have led me to a similar conclusion. Without a more imaginative approach to economic stewardship, China could remain stuck, unable to muster the courage that its reformers drew on so successfully in the past.