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For its broader reform project to succeed, China needs a new “federalism” -- a realignment of central and local government power -- that can adapt to the conditions of a rapidly changing economy.
In its recent round of reforms, China replaced the word "basic" with "decisive" to describe the role of markets in China's economy. Although this is a substantial breakthrough, it would be a mistake to think that it is conclusive: to make the market decisive, the state must also retreat.
China is facing a shortage of workers, which will make governing and encouraging economic development considerably more challenging. The country will have to adapt slower growth, its entrepreneurs and tax collectors will have to get used to less income, and multinational corporations will have to learn to live with more expensive labor.
Beijing can start to solve its environmental and economic troubles by ending one of the most stubborn legacies of the planned economy: highly regulated energy prices. If recent reports are any indication, that is exactly what it plans to do.
Most observers are gloomy about the prospects for serious economic reform in China. But they ignore a central lesson of recent Chinese history: reform is possible when the right mix of conditions comes together at the right time. And the very circumstances that facilitated the last major burst of economic reform in the 1990s are largely present today.
Although China's economy has grown robustly in the past ten years, the presidency of Hu Jintao was not without its failures. The gap between the rich and poor has widened, the environment has suffered, and tensions have risen in the Pacific. The next Chinese president would be well served to learn from Hu's errors.
Managing Editor Jonathan Tepperman interviews Eurasia Group analyst Damien Ma on China's political transition, economic slowdown, and social inequality.
In the last few decades, China has become the world's top producer of rare earths, a group of elements key to manufacturing high-tech products. Now Beijing has started to institute price controls and export quotas to drive up prices, but that plan will likely backfire.