Preface: Why This Book?

This book is an effort to explain how China’s economy got to where it is today, where it might be headed in the coming years, and what China’s rise means for the rest of the world. It is intended to be useful to the general reader, who has an intelligent interest in China and its global impact but not necessarily a specialized background in either China or economics.

An economy is a complicated organism, which does not easily lend itself to description by narrative, as one might tell the story of a person’s life. It is more like a jigsaw puzzle—to be precise, a three-dimensional jigsaw puzzle, in which the shapes of the pieces keep changing. Rather than a fixed structure like a molecule, a skyscraper, or a mathematical equation, an economy is a set of fairly solid institutions and fairly fluid arrangements created by people to enable them to get the goods and services that they want. The nature of these institutions and arrangements is largely determined by the political bargains made among the important groups in a society. As the composition, relative power, and interests of these groups change over time, so do the economic arrangements. In other words, considerations of political practicality usually trump those of economic efficiency. For economic policymakers, this means that they must make do with second- or third-best versions of their ideal recipes. For analysts, it means that describing an economy is more of a historical art than a natural science. To the extent it is a science, it is more physiology than physics.

China is also a complicated organism. It is arguably the oldest state in the world, whose geographic core has been governed almost continuously by a rationalist bureaucracy since the late sixty century c.e., when the famous examination system was established. The centuries of accumulated knowledge about the craft of running an enormous, nominally centralized but practically quite fragmented polity doubtless continue to play an important role in the country’s political and economic governance. Just how is hard to describe or quantify, but any outside observer should start with a measure of respect for the durability and resourcefulness of this governing ethos. At the same time, the nation of China as we know it today is quite young, dating from the establishment of Communist Party rule in 1949, and both its political organization and economic development strategy were based on extensive borrowings from abroad. Knowledge of the parallels and precedents of Soviet Russia and the neighboring “developmental states” in East Asia are essential to understanding how China got to where it is.

Proceeding from these biases, I have organized this book to touch on all of the major topics needed to gain a comprehensive understanding of how China’s economy works and why it is built the way it is. At the same time I will sketch out the main currents of its evolution since 1979, when Deng Xiaoping inaugurated the period of what he called gaige kaifang (reform and opening), and what I and most other analysts loosely refer to as the “reform era.”

The opening chapter sets the context by laying out China’s general political economy arrangements. Chapters 2 through 4 describe the sectors of economic activity—agriculture, industry, and the construction of cities and infrastructure—that were successively most crucial to China’s economic development story between 1980 and 2010. Chapters 5 through 8 analyze what one might call the “nervous system” of the economy: the organization of business enterprises and the fiscal, financial, and energy systems. Chapters 9 through 11 attempt to bring the discussion down to a more human level, and present what are most likely to be the most pressing issues of the coming decade: changes in demographics and the labor market; the emerging consumer economy; and the social problems most likely to upset the central political bargains, namely inequality and corruption.

The last two chapters return to the stratosphere and take on the two large questions that dominate current public debates about China. Chapter 12 examines China’s chances of making a successful transition—from the “resource mobilization” type of growth it has enjoyed since 1979 to the “resource efficiency” type of growth that is now required. The final chapter assesses what China’s rise to economic power means for the rest of the world.

To fit all this material into the confines of a book succinct enough to enlighten the reader without burying her under a hail of data and qualifications, I have naturally had to simplify a great deal, although I hope not in a way that will cause specialists to cringe at every page. A particular peril of this sort of work is that it can leave the impression that China’s economic development has been the working-out of a master plan designed in advance and supervised at every point by wise officials with an exact knowledge of the consequences of all their actions. This is of course absurd: China’s economic story, like every other country’s, was created by fierce battles between rival groups, decisions taken under emergency conditions with imperfect information, the belated and partial rectification of past errors, and the constant swirl of a billion people seeking personal advantage. Readers hungry for this sort of detail should consult the suggestions for further reading at the end of the book. In public, Chinese officials like to describe the economic reform process as “crossing the river by feeling for the stones.” The metaphor is accurate, but overly pastoral. In private, an official once admitted that economic reform was more like “walking a tightrope over a bottomless pit—and the rope behind you is on fire.” It is worth bearing that picture in mind as you read ahead.