China's Economic Crossroads
Kevin Rudd and Daniel Rosen
The following in an excerpt of ASPI President Kevin Rudd's and Rhodium Group Founding Partner Daniel Rosen's op-ed originally published in Project Syndicate.
Back in 2013, the Chinese government laid out a policy agenda that promised real reforms to an economy laden with debt and distorted by the influence of the country’s large state-owned enterprise (SOE) sector. But instead of seeing that agenda through, China chose to dodge the risks entailed by marketization, and has since reverted to what it knows best: state control over the economy and the semblance of stability that comes with it.
Since 2017, The China Dashboard, a joint project of the Asia Society Policy Institute and the Rhodium Group, has been tracking China’s economic policies. Having analyzed objective data across ten critical spheres of the country’s economy, we find that China’s reforms have been tepid to nonexistent over the past three years.
The Chinese government’s failure to deliver on its promise of a more open economy has undermined its credibility, and fueled the growing global backlash that it is experiencing today. Even before COVID-19 arrived, the lack of reform had sapped China’s economic performance and made it persistently over-reliant on debt, leaving its domestic private sector increasingly disheartened.
Now, China is at a crossroads. The COVID-19 crisis sent its economy plunging by a reported 6.8% in the first three months of this year – its first (acknowledged) quarterly contraction on record. For the first time in more than 25 years, China is not publishing a growth target.
The coming months will be crucial. If China wants to prove that its reform intentions are serious this time, it could privatize or break up some SOEs. It could abolish the remaining joint-venture requirements. It could relax foreign equity limits, thereby opening up a wider range of industries to foreign direct investment. In fact, the European Union is already pressing China for some of these changes in ongoing negotiations for a comprehensive bilateral investment agreement. We should know in the second half of the year whether China is prepared to assume the risks of genuine reform.