China’s Economy: What Everyone Needs to Know by Arthur R. Kroeber
My rating: 4 of 5 stars

China’s economic miracle has been the source of much admiration from outsiders for several years now. Ever since Deng Xiaoping promoted an opening up of China’s economy to foreign investment, the country’s economy has expanded at unprecedented rates to today become the biggest threat to USA’s sole superpower status.

The fascination with China’s growth has been accompanied by deep misconceptions about the Chinese economy and Kroeber’s book does an excellent job of dispelling these myths. For instance, China’s reputation as a centralized, authoritarian regime clashes with the fact that it is much more decentralized than any other developed nation with provincial bureaucrats having significant policy leeway. Kroeber also provides strong arguments to counter accusations of China as a currency manipulator or a trade rules breaker.

An analysis of a nation’s economy would not be complete without an analysis of its political system, and in only 336 pages, Kroeber covers an extensive range of issues such as rural-urban divide, environmental protection, demography, income & wealth inequality, the transition from industry to services, the policy differences between Hu Jintao & Ji Xinping, China’s role in the world, China’s relationship with South East and Central Asian nations, the prospects of China as THE leading global power and so on.

A simplistic summary of Kroeber’s analysis is that China has exhausted the economic growth gains that an economy with a large labour force but little capital will realize as it increases the rate of capital to labour. He argues that China needs to now squeeze growth out of efficiency gains which Ji Xinping is doing through a crackdown on corruption. He believes these reforms are especially crucial as China’s population gradually ages.

Perhaps the most important point to take from this book is that China’s growth miracle has depended on a unique mix of factors – demography, demographic dividend, Hong Kong, the state of global trade at the time of opening – which cannot simply be replicated without contextual analysis. And perhaps rather than forming absolute opinions, such as saying democracy is the only political system that allows economic innovation, we should study real world events as much as possible to understand what works and why.

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