China has an impressive plan for advancing its economy to the next level, but the unwillingness of its leaders to make tough decisions is getting in the way of its successful implementation, according to a top American researcher.
China’s economy had evolved from being very simple to being very complex, so that it could no longer be managed the same way, Dr William H. Overholt, a senior research fellow at Harvard University’s Asia Centre and its Kennedy School of Government, said in an interview on Thursday.
Unless the country’s economic management evolved, there was a risk of stagnation, Overholt said, describing the thesis in his new book China’s Crisis of Success.
All the “miracle” Asian economies – South Korea, Taiwan, Singapore – had gone through this process, but not without a certain amount of political and economic pain, he said.
When a country reached a certain point in its economic and political evolution, three things happened, Overholt said.
First, big companies find themselves in a squeeze. “In China, we find that state-owned enterprises can’t earn back their cost of capital,” he said.
Second, the whole economy finds itself over-leveraged. China “is over-leveraged and the government is trying to reduce the leverage”.
Third, all those complicated economic sectors were also interest groups, and the people in those groups were educated, had money, had leadership, he said. And as powerful interest groups pushed on policy, so politics was also transformed.
To overcome such problems, a country needed both an economic plan and a political plan, Overholt said.
China had “a brilliant economic plan, but it was only being partially implemented” because of politics, he said.
The plan would subject state-owned enterprises to market-based reforms, but this “steps on the toes of every…