Chinese leaders must slow their country's growth and transform how their economy functions.
Chinese officials attend the inauguration ceremony of a new thousand-foot skyscraper tower in Huaxi / Reuters
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How many countries with nearly two decades of double-digit growth under their belt would look in the mirror and say, "hey, it's just not working anymore?"
I daresay, not many.
But that is precisely what some Chinese leaders appear to be doing.
Last summer, I wrote a lot for this blog about a report from Eurasia Group called China's Great Rebalancing Act. I wrote the report with my colleagues Nicholas Consonery, Damien Ma, Michal Meidan, and Henry Hoyle, and our punchline was simple: China's growth model is no longer sustainable and the country's savvy leaders know it. And, we argued, they are committed in principle to rebalancing China's economy because their capital-intensive, export-oriented approach is delivering diminishing returns and threatens to become a major political vulnerability for the government.
But, we continued, making these changes will be incredibly difficult. To do so, China's leaders will have to make serious and deep reforms to many elements of their country's political economy. They will have to overcome inertia and "reform fatigue," fight through the opposition of powerful constituencies among state-owned enterprises and entrenched financial interests, introduce a more market-based approach to energy policy, roll back subsidies (for example on land and energy), reform financial markets to free up capital for entrepreneurs and private business, boost domestic consumption, and so on. In short, they will have to alter the underlying structure of China's political economy.