Arthur Kroeber

Is China moving ahead or stalling in economic reforms? That question is often asked by Western observers of the country, and a profoundly wrong one, says leading economist Arthur Kroeber, author of China’s Economy: What Everyone Needs to Know® at the Asia Society. He blames his fellow economists for wishful thinking that is not helping to understand China.

The Asia Society:

So I think the position of [Chinese President] Xi Jinping is that reform is a game that the Chinese don’t really have to play. The current balance in China has as much to do with optimizing the performance of the state sector than it does optimize the performance of the market.

I think there was a lot of wishful thinking in the West that the universal laws of economics would inevitably force the Chinese state to liberalize the economy because otherwise, they wouldn’t be able to forge economic growth. But China has shown that it’s perfectly able to achieve six to seven percent growth annually with large state sector involvement, and as long as that keeps happening they won’t be forced to do anything.

The grand strategy for the U.S. and the West over the past three decades has been to integrate China into the global economy. Given the recent struggles of working-class people in the West, was this strategy, in retrospect, a mistake?

Absolutely not. I think that this was absolutely the correct strategy. Having China as a constructive player in the global economy, with their interests aligned with peace and stability and not with stirring the pot, is a gigantic achievement. Only people who were willfully ignorant of the problems that existed before and willfully blind to the enormous benefits could make that kind of statement.

However, bringing China into the global economy — which involved moving hundreds of millions of low-wage, poorly-educated workers into the manufacturing sector — was a huge shock and one of the things that contributed to the reduction of manufacturing employment and wage reduction in the U.S.

To my mind, that’s an understandable and practical cost of bringing China into the global economy, which was a massive achievement. But the U.S. has done a terrible, terrible job of helping people adjust to that trauma. The failure wasn’t in the China policy. It was in the domestic policy. There could have been a lot more investment in education and infrastructure.

More at the Asia Society.

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