Chinese PresidentXi Jinping, chairman of the ChineseCommunist Party, hears what he wants to hear and is told by his underlings what they think he wants to hear.
China needs dramatic economic reforms today. Its economy is weighed down by a model which no longer works. The real estate bubble has burst. The banking sector is arguably bankrupt. Its demographic trajectory is disastrous and likely cannot be changed.
The Chinese people are not optimistic about their future. They save because there is no social security safety net. Couples do not have children because the education system is expensive and rigged against the typical household. The economy is in long-term decline because the CCP’s economic model has failed.
Put simply, China must change course immediately and dramatically.
The CCP just held its Third Plenum, a gathering of elites to discuss economic reforms. But this Third Plenum did not focus on reform, it focused on failure.
Xi believes that Marxism is superior to capitalism. He is wrong. But Xi is a dictator and an old man with absolute power. He believes that he is omniscient.
The CCP will continue to push the State Owned Enterprises model of economic growth. The data is clear. SOEs generate dramatically lower economic returns than the private sector. SOEs command more resources and are expanding while they destroy capital.
The private sector is more efficient. The private sector does more with less. But Xi demands absolute obedience.
Xi is distrustful of the private sector which answers to the market, not the CCP.
Xi believes China can grow through exports. He is wrong. Already both the United States and the European Union are defending their domestic vehicle industries against Chinese imports. The U.S. and the EU will no longer tolerate dumping of subsidized excess production.
A global trade war is looming. Former President Donald Trump is the strong favorite to be elected president in November. Trump is committed to raising tax revenues through tariffs on all imports. Such a tariff policy would hit China hard. China’s policy of generating growth through exports will fail.
To escape the middle-income trap, China must reform its economy by focusing on domestic consumption, encouraging households to consume more and save less. But Chinese households are not cooperating. Consumption is stagnant. The Chinese people see a steep climb for themselves and the economy. China’s efforts to stimulate consumption are failing.
Top line: China’s people are not confident in their future.
True, China is correctly focusing on technology as a path to national prosperity. The problem? Xi’s paranoia about domestic security hamstrings the technology sector. Entrepreneurship is fading. Innovators are afraid of the knock on the door at midnight.
The best and brightest are fleeing China. After many years of strong foreign direct investment, international capital is turning away from China. Investing in China is a good way to lose money.
Artificial intelligence offers an opportunity to jumpstart moribund productivity growth. A second Biden or Trump administration would put the power of the federal government behind AI.
In China, it is different. China could be a leader in AI, but domestic security concerns are throttling China’s efforts to deploy and advance AI innovation requires an open society. All-powerful Xi rejects openness and creative destruction. He chooses stability and an all-powerful CCP over a growing economy with shared prosperity for all.
But his extreme authoritarianism is a dead end.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily noteon the markets, politics, and society.
An elderly Chinese man in a file photo. Image: Agencies
In discussions about China’s economy, the issue of demographics comes up quite a lot. In 2022, China’s population began to decrease (and coincidentally, India’s population surpassed China’s). The country’s fertility rate, which had already fallen below replacement levels decades earlier, fell again recently, to just 1.09 — one of the lowest rates in the world, and even lower than Japan.
This is prompting a lot of hand-wringing about the future of China’s economy, both from people within China and from foreign observers. For example, here’s a quote in the WSJ:
“As the population peaks, China is showing signs of Japanification,” Yin Jianfeng, deputy director of the National Institution for Finance and Development, a state-backed think tank, wrote in an article published in June. Yin urged the Chinese government to spend more on child rearing and education to avoid the fate of Japan, which experienced decades of stagnation.
China’s economy risks shrinking, too, as a result. With an enormous burden of care on the horizon, the government senses an impending disaster…China is getting old before it gets rich. In 2008, when Japan’s population started to fall, its GDP per person was already about $47,500 in today’s dollars. China’s is just $21,000. As more of that money is spent on protecting ageing citizens, less of it will be available for the working generation to consume or invest.
And here’s the most dire post I could find, from The Conversation:
Population shifts can lead to a “doom loop”…As lower productivity begins to affect production in particular sectors, China may be compelled to increase imports to satisfy demand in those industries…This could significantly affect innovation and entrepreneurship which in turn can further diminish productivity. New ideas…drive economic growth. The size of the workforce affects innovation because as the number of employed individuals shrinks, the pool of new ideas becomes narrower…If population growth becomes negative or falls to zero, then the knowledge behind those ideas stagnates.
In addition, there is evidence that the peak of a person’s innovative activities and scientific output comes at around 30 and 40 years of age…Current demographic trends are therefore likely to stifle technological advances and innovation in China…At the same time, studies suggest that entrepreneurship can be negatively affected by the ageing of the population as the percentage of young people is positively linked to entrepreneurial activities. This hampers the dynamism of the economy and contributes to slower economic growth.
Now, I absolutely do think this is a problem for China in the long term. In fact, China is far from unique in this regard — every developed country is aging rapidly, and most developing countries aren’t far behind.
And there really are negative consequences to population aging. I wrote about those problems in this post.
In fact, the shrinking of the population isn’t actually the problem — it’s the aging. Rising old-age dependency ratios do put a huge economic burden on working people, and an aging workforce probably does reduce innovation and productivity growth. This is true despite automation. A world top-heavy with old people will be a world where young people have to toil harder and harder, all over the globe.
But in the short term, I think the catastrophizing over China’s demographics is overdone. Americans searching desperately for a reason to dismiss China’s competitive threat might be tempted to seize on the country’s low fertility. But China’s economic might is not going to go “poof” and disappear from population aging; in fact, as I’ll explain, it probably won’t suffer significant problems from aging until the second half of this century.
Meanwhile, there’s an even greater danger that China’s leaders will panic over the country’s demographics and do something very rash. My former Bloomberg colleague Hal Brands has argued that China may start a war in Asia in the next few years out of fear that if it waits any longer, its power will decline — similar to how Germany rushed to war in 1914 because its leaders believed their window was vanishing. That worry is unfounded, as I’ll show. But it wouldn’t be the first rash blunder that Xi Jinping has made.
So it would be good for both Americans and Chinese people to understand the non-urgency of China’s demographic situation.
China has a baby bulge in the pipeline
The first and most important reason that China’s demographics are non-catastrophic is that they’ve got a large generation of young people, currently aged 5 to 15, that will relieve demographic pressure in the coming years.
Wikipedia has a good animated population pyramid for China, with data taken from UN forecasts. Here’s what the pyramid looks like for 2024. I’ve annotated the graph with generation labels, roughly corresponding to the similar generations in the United States:
As you can see, China’s current young working generation — the Zoomers — are a small generation. But the generation younger than that — the Alphas, currently aged 5 to 15 — are a bigger generation than the Zoomers.
China’s Alphas are not a true “baby boom” in the classic sense — there was no surge in fertility rates 5 to 15 years ago. Instead, the Alphas are a demographic echo of the large Millennial generation, which is itself an echo of China’s extremely large Baby Boom generation. The US had a fertility rate of 3.5 during its Baby Boom; China’s was over 6. China has a lot of Alphas only because it had a truly enormous amount of Boomers back then.
Anyway, as the Alphas reach working age over the next decade, they will stabilize China’s demographics. China’s working-age population is actually projected to increase over the next few years, before beginning a slow decline:
As Charlie Robertson has shown, this will stabilize China’s dependency ratio at a very favorable level through the end of the decade:
China’s dependency ratio in 2030 will still be as good as Japan’s at the height of its economic miracle. Only by mid-century will China’s ratio deteriorate to the level of Japan’s in 2020.
So aging basically won’t be a problem for China’s workforce until mid-century. Around 2050, things start to look worse. China’s big Millennial generation will begin to age out of the workforce, and no large young cohort will be coming up to replace them:
This forecast assumes, of course, that the post-pandemic plunge in Chinese fertility rates doesn’t bounce back within the next decade. That remains to be seen. But whatever happens, China’s demographic structure is unlikely to have major problems for a quarter century.
China can compensate for aging in the short term?
Even though China’s demographics don’t get severe until 2050 or so, it will still experience gentle aging over the next 26 years. Its median age is projected to rise from 39.5 to 50.7:
After 2027 or so, China’s working-age population will start to decline, and its dependency ratio will start to worsen.
None of this spells catastrophe, for reasons laid out in the previous section. But it does present a challenge. Fortunately for China, there are a couple of fairly easy policies it can use to compensate for the short-term burden of aging.
First, and most importantly, it can raise the retirement age.The country currently has the world’s lowest retirement age — just 60 for men and 50-55 for women. Simply changing this to 65 will decrease the dependency ratio significantly, and reduce the burden on working people. In fact, China reportedly plans to do this:
Jin Weigang, president of the Chinese Academy of Labor and Social Security Sciences, said China was eyeing a “progressive, flexible and differentiated path to raising the retirement age”, meaning that it would be delayed initially by a few months, which would be subsequently increased.
“People nearing retirement age will only have to delay retirement for several months,” the Global Times said, citing Jin. Young people may have to work a few years longer but will have a long adaptation and transition period, he said.
The second policy lever is something China has already done — increase the college enrollment rate. In 2010, only 26.5% of college-aged Chinese people were enrolled in postsecondary education; by 2023 that increased to 60.2%.
As every labor economist knows, a better-educated workforce is a more productive workforce. The Chinese workers that will retire over the next quarter century — the Gen Xers and older Millennials — are not very highly educated. The workers that will replace them — the Alphas — are very highly educated. That will compensate for much of the loss of the working-age population.
Between welcoming a big youth cohort, raising the retirement age, and sending a lot more kids to college, China should experience few problems from the gentle demographic headwinds of the next two and a half decades.1 Its leaders still need to worry about the long-term demographic challenge after 2050, but most of its rivals are in even worse shape.
All in all, the narrative that demographics will tip the balance of economic and geopolitical power away from China in the next few decades seems overblown and unrealistic. That means more competition for the rest of the world to worry about. But it also means that China’s window of opportunity to act on the world stage won’t close anytime soon.
Footnote:
1 A lot of people will say that China can also A) use automation to compensate for loss of human labor, and B) move more people from the countryside to the cities. I’m skeptical of both of these. Regarding the first of these, the finding that aging decreases productivity holds true despite significant automation over the last few decades.
So automation helps, but it doesn’t fully plug the gap yet (though perhaps with better AI it will). As for moving more workers to cities, official statistics claim that China’s urbanization rate lags that of other developed countries, but satellite evidence shows that China is already more densely urbanized than Germany.
So I don’t see much upside there. But in any case, I don’t think China needs these factors to offset aging over the next 25 years — increased education and a higher retirement age should be enough to take care of it.
This article was first published on Noah Smith’s Noahpinion Substack and is republished with kind permission. Read the original here and become a Noahopinion subscriber here.
Economist Richard Koo adds up why ‘the Chinese situation is far more serious’
With China’s never-before-seen levels of economic upheaval, Koo warns ‘the consequences could be dire’ if a so-called balance-sheet recession takes hold
Koo’s theories influenced Western policy after the global financial crisis, and now he has strong advice for Chinese policymakers and disillusioned young people
Richard Koo, chief economist at the Nomura Research Institute, has advised several Japanese prime ministers on economic issues. He is known for elaborating on the notion of a “balance-sheet recession” and explaining how it led to Japan’s so-called Great Recession. This interview first appeared inSCMP Plus. For other interviews in the Open Questions series, clickhere.
Whereas a typical recession is considered to be a natural result of fluctuations in the business cycle, a balance-sheet recession is characterised by high levels of private-sector debt that lead to increased saving, which in turn results in an economic slowdown – because of reduced household consumption and declining business investment.
While much of the developed world is tackling elevated inflation, China’s consumer prices have been rising by less that 1 per cent every month for more than a year as consumers save their money and as many businesses wait to see if the government will introduce major stimulus measures before expanding investment.
Ahead of any such moves, Koo spoke with reporter Frank Chen about the Chinese economy, troubles it faces, lessons that can be gleaned from Japan’s missteps, and how Beijing should formulate its response and policy mix.
Mr Koo, in the midst of economic uncertainties fuelled by high levels of indebtedness and a real estate crisis – two potential causes of what you deem a balance-sheet recession – what are the risks that China might be facing such a predicament?
I have been invited to speak on numerous occasions [in mainland China] and have participated in some policy debates. A lot of economists worry that China may slip into a balance-sheet recession, but there are also other views out there.
Even though China’s first-quarter GDP growth came out to 5.3 per cent, many people remain depressed, not knowing whether manufacturing-led growth [can be sustained] when trade tensions remain so high.
Some say [the economic problems are about] structural reforms, nothing to do with balance sheets. They argue that if we just do a little bit of monetary and fiscal stimulus, everything will be fine.
Those were the typical arguments we heard in Japan 30 years ago when [its troubles began]. The country constantly tried all types of structural-reform policies, but it took 20 years to come out of that mess.
The United States, on the other hand, had those [arguments] too during the onset [of the recession following the 2008 financial crisis], but within the first two years, [former Federal Reserve chair] Ben Bernanke read my book and realised that it was a balance-sheet recession. Once he realised it, he started pushing for fiscal stimulus [with the famous phrase “fiscal cliff”], which went against his original judgment that monetary policy alone could solve all these problems. So, the US came out of that [recession] relatively quickly.
Top European policymakers did not buy the balance-sheet recession theory at all. So, they kept on pushing for structural reforms and wasted years. Europe took almost twice as long as the US to come out of the same balance-sheet recession.
So, if you put the right policies in place, you come out of the recession relatively quickly. But if not, you could be stuck in there for a very long time.
So, your advice is that Chinese policymakers should look at how to reduce the risks ofa balance-sheet recession and commit to acting on related measures now?
Yes.
On the size of the fiscal stimulus, I say when you’re going to make a mistake, make sure you make the mistake of having the stimulus be too big instead of too small. It has to be big, because a balance-sheet recession can kill the economy very quickly.
If [the stimulus] is too small and the economy starts weakening quickly – and only at that moment do you decide [to implement] a bigger one – the cost will be much larger than had you started with the right amount in the first place.
If you allow the Chinese economy to suffer a very bad affliction, and then you try to help it recover, the consequences could be dire, given its sheer size and the weight it carries globally.
The response I get from those sceptical about the balance-sheet recession in China is: we tried a big stimulus in 2008, and that created all sorts of problems a few years later, so we don’t want to repeat the same mistake. This seems to be the main consideration nowadays.
Here is my counterargument: when the Chinese government announced the 4 trillion yuan package [in November 2008] to maintain 8 per cent growth, economists around the world were laughing. They asked how China could maintain such growth with a great dependency on exports when the whole global economy was collapsing and Chinese stocks by then were already down 70 per cent from the peak.
But one year later, China recorded 11.9 per cent growth in Q1 2010, and nobody was laughing. That growth helped restore confidence in no small way, because people had thought that China would go down just like the US, Europe and Japan. And more confidence helped increase consumption and investments and got the economy moving again.
The 4 trillion yuan package, of course, was a bit too big down the road, with too much debt and overinvestment.
So, the lesson is that you put a big stimulus in first, to win back confidence that the government can maintain growth. And then, once you get the economy moving again, you start reducing your stimulus. [In the 2008 experience,] China recorded much higher growth the following year, so China should have started cutting the package.
I think this is also what we need today: a big package, and the package should be for a long term to assure people. When people feel confident, some may actually increase consumption and investment, then we get out of this thing faster.
So, you put in a very assuring package, let’s say for five years. And if, in the second year, the economy is already recovering, you start trimming it so that the economy won’t become overheated.
Beijing should do whatever it takes to complete all unfinished homes
Richard Koo
So, you are now calling for the kind of decisiveness and resolve demonstrated by China in 2008? And if there is a stimulus today, how big should it be?
Given that the Chinese economy is so much bigger now, you would need more than 4 trillion yuan (US$552 billion). For the announcement part, I would recommend a very big package, and you need to explain to people why we need it now.
If I were the finance minister, I’d be on television explaining this: look, the private sector is in a balance-sheet repair mode. The problem is that people are all doing the right things, trying to regain financial health and repair balance sheets. But if everyone does this at the same time, you will kill the economy.
This is what we call the fallacy of composition.
And we must try not to cut stimulus prematurely, because that’s the one huge mistake Japan made in 1997.
When the bubble burst there in 1990, Japan put in a stimulus, so its GDP growth was maintained. Japan’s GDP, by the way, never fell below the peak of the bubble. This is in spite of the fact that its commercial real estate values fell 87 per cent nationwide, and the amount of wealth the country lost was equivalent to three years worth of Japan’s GDP in 1989.
That was a remarkable feat.
But in 1997, the International Monetary Fund and the Organisation for Economic Cooperation and Development told Japan: your budget deficit is too large [and you should stop]. I was advising Prime Minister Ryutaro Hashimoto back then, and I was the only one against cutting the stimulus. I said if you cut, the economy will come crashing down.
But the PM decided to cut. Then Japan had five consecutive quarters of negative growth and a complete breakdown in the banking system. And eventually, Japan’s budget deficit also increased. It took Japan 10 years to bring its deficit back to the level of 1996, to come out of the hole; it wasted 10 years with that one mistake in 1997.
I hope China will not repeat that mistake of removing stimulus prematurely, particularly when the private sector is still repairing balance sheets. Only when private businesses are coming back to borrow, that’s the time to remove a stimulus.
Specifically, to begin with, Beijing should do whatever it takes to complete all unfinished homes. The reason is that if you want to do a big stimulus, you have to come up with a plan for projects you’ll put the money in.
But the planning to identify a pipeline of projects and design them will take time – probably a year and a half. That means you could end up wasting a lot of time during this process when the economy is already faltering.
If the Chinese government uses the money to complete unfinished apartments, this will allow the money to start circulating in the economy faster. Then you bring the best and brightest people in China to come up with new projects that can earn a social rate of return higher than 2.4 per cent.
I say the social rate of return because if the private sector invests in infrastructure projects, it will not collect all of the benefits, because of what economists call externalities, or a consequence of an economic activity that affects other people or things without these effects being reflected in market prices. But the government can collect the externalities.
And why 2.4 per cent? Because the yield on 10-year government bonds in China is 2.4 per cent. So, if the project earns more than that, it will be self-sustaining financially to pay the interest and won’t become a burden on taxpayers in the future. And one of the key characteristics of a balance-sheet recession is that, with the private sector deleveraging, government-bond yield comes down to levels unthinkable in ordinary times.
So, for now, complete all of the unfinished homes. And in the meantime, prepare for financially viable, shovel-ready projects to be launched in a year or so. Delivering homes to these buyers will also boost confidence. Lots of them have put in all their savings as down payments.
The biggest advantage China has over Japan is that so many Chinese are already talking about a balance-sheet recession
Richard Koo
China faces deflation pressure, and you have written about the risks of demographic threats and its shrinking labour force. It appears China has all of the symptoms that Japan experienced 30 years ago. If China is facing “Japanification”, what lessons can it learn?
What China is facing right now is a combination of stagnation and a shrinking, ageing population.
Japan’s population was still increasing for 19 years after the bubble burst. But in China, population decline and the bursting of the bubble started roughly at the same time, around 2022 and 2023. So, the Chinese situation is far more serious than that of Japan 30 years ago.
For homebuyers with borrowed money, they want to make sure the value of their apartments will rise. But that’s not the case if the population is declining. In most places throughout China, other than top-tier cities, it’s very difficult to make the argument that home prices will continue to go up.
A declining population is worsening China’s balance-sheet recession because people have reduced expectations of home prices recovering or rising. This is something Japan never had to worry about because its population was still increasing back then.
So, China today could be staring down a deeper cliff because the population decline started at almost the same time as the emerging balance-sheet recession and deflation.
On the other hand, the biggest advantage China has over Japan is that so many Chinese are already talking about a balance-sheet recession. Back in the 1990s in Japan, no one knew anything about this disease. And if the [Chinese] government uses this advantage and puts in a big stimulus, then nothing may happen because the economy may not collapse.
Back in Japan 30 years ago, we never realised that the private sector would choose to minimise debt even at a zero per cent interest rate, because that’s not in our economics textbooks. We wasted so much time doing the wrong things and then allowed the asset prices to collapse.
But if China understands what’s going on, explains to the public that this is a balance-sheet recession, and assures people that the government won’t pull the plug [on stimulus] until private sector balance sheets are repaired, then people will feel safe and will continue to spend and invest.
If people start feeling that this is a bad situation and change their behaviour, then at that moment a balance-sheet recession has arrived
Richard Koo
What do you think is going through Beijing’s mind when assessing the threat of a balance-sheet recession? Are leaders and economic advisers in denial?
Beijing is probably of the view that home prices haven’t fallen all that much, at least as gauged by official statistics, thinking the damage to the private sector balance sheet should not be that large.
But my counterargument is that a balance-sheet recession sets in when people start believing that they are chasing the wrong asset prices. It’s that moment.
When Japan fell into balance-sheet recession in 1990, a lot of people were in denial too. They said real estate prices never fell for the last 55 years so it would just be a small correction. But once people realised they were chasing the wrong asset prices, panicked and changed their behaviour, that was the moment [Japan] slipped into a balance-sheet recession.
Many people in China already feel as though home prices cannot rise further, so they want to deleverage. If people start feeling that this is a bad situation and change their behaviour, then at that moment a balance-sheet recession has arrived.
You have spent quite some time in the US, both in academia and in the Federal Reserve system. Given that the Chinese economy has lost some momentum, some say China may never be able to catch up with the US in GDP. What’s your opinion?
Well, that all depends on if Chinese entrepreneurs are free to pursue their dreams; if there are few restrictions or constraints; if the global market is fully open to Chinese products; and if China is fully open to foreign investments from the US, Japan or wherever. If all of these favourable conditions are still in place, I’m sure China will surpass the US in a few years. But today, unfortunately, that’s not the case.
Many in China are very worried about their own future, and they’ve become very cautious. Foreign markets are becoming less open and less friendly to Chinese products, and foreign direct investment is not flowing into China the way it used to. So, I’m afraid that the day [of China overtaking the US in GDP] may never come if we stay on the current path.
It also appears that geopolitics is something that Beijing’s economic policymakers cannot control. But domestically, Beijing has quite a lot to do, especially on how to further unleash the entrepreneurship of its people to make sure that private businesses can feel confident again to invest.
So, it depends on Beijing’s choice of policies: whether Beijing will continue to put politics and national security above the economy. Beijing has shown quite the tendency to do that.
I will recommend that China be a little more careful with its neighbours, because Americans and the West are watching very carefully
Richard Koo
How should Beijing navigate this external environment marred by geopolitical rivalries and decoupling?
Many Chinese entrepreneurs who previously thought of investing to expand capacity may now feel that foreign markets aren’t as open as before. The US, Europe and Japan, or the “West”, account for 56 per cent of global GDP, and their average per capita GDP is US$60,000. Then there are India, Russia, Africa and Latin America, which represent 26 per cent of global GDP, with their average per capita GDP of US$13,000. So, it’s like 1/5 of the West.
If I were a Chinese entrepreneur selling products, when 56 per cent of the global market is not going to be as open as before, and I have to rely on this remaining 26 per cent, I would be very careful and cautious. I don’t want to invest or expand when I realise there’s no market for it. So, I think that may be one of the reasons why Chinese entrepreneurs are becoming more cautious.
The US government has always judged China not just on how it deals with the US, but how it deals with its smaller neighbours, and it’s there that things are not going very well: recently, with the Philippines, and with all of these other countries, there are a lot of tensions.
I will recommend that China be a little more careful with its neighbours, because Americans and the West are watching very carefully. How China treats its smaller neighbours may affect the degree to which the Western market remains open to Chinese products.
Will we see a further fragmentation of global supply chains and more geopolitical and economic turmoil in the coming decades?
Even if China moves in a different direction, there are so many other countries out there waiting for Chinese factories to come. Vietnam, Indonesia, the Philippines, India, Bangladesh. They all work very hard to make themselves attractive so that more factories will move there, including Chinese ones.
So, this is very different from the first 30 years of China’s opening – what I call the easy part of China’s development, in my book. Back then, China was the only game in town: it had everything going for it, so it became the world’s factory. But today, other countries have learned from China and said: we have to fix our infrastructure and our customs duty procedures, we have to educate our people. And then these countries become big competitors.
If I were the Chinese government, I would drop this belief that, no matter what, foreign companies will come to invest in China. That was true for the first 30 years, but not any more. China has to make itself attractive again so more factories will come and stay in China.
The Chinese market is so big, [foreign firms] should stay in China. But the fact that so many of them are moving out suggests to me that there’s some room for improvement.
So, China may suffer from reduced investments and exports because of all of the decoupling and so forth. But other countries will benefit from it. Vietnam will benefit massively from this. India, Indonesia, the Philippines – they all might benefit from it. China’s misery can be its neighbours’ fortune.
So, if you look at the global economy as a whole, it might not make all that much difference, even though the Chinese economy is slowing down. It’s not like a global catastrophe scenario.
The past 10 years haven’t been so great, and all the reforms appear to have stalled, despite all the lofty promises
Richard Koo
When was your first trip to China? In your eyes, in what way has China changed the most?
My first trip was in 1992, I think. And those people [in Shanghai] were the host and it was the first big international meeting after the Tiananmen crackdown in Beijing in 1989. And so they tried to put in a lot of good stuff for the meeting. Very interesting for me, too. That was quite a big image-rebuilding effort, especially by Shanghai, which is more like an economic city.
The infrastructure has improved dramatically, with the greatest economic growth in human history. People were able to unleash their energy. Chinese people are very entrepreneurial people, and their energy was released and they produced something absolutely remarkable.
The past 10 years haven’t been so great, and all the reforms appear to have stalled, despite all the lofty promises. For the last 10 years, the economic performance has been somewhat mixed.
What kind of advice do you have for China’s depressed and disillusioned youth, some of whom are experiencing similar mental distress that became prevalent among Japanese youngsters a few decades ago.
I remember that period very well in the 1990s in Japan, when companies were cutting hiring. Only those with good grades and excellent experience got jobs. Others had to lower their expectations.
But in the meantime, Japan’s GDP never fell below the peak of the bubble. So, most people had a decent standard of living. Streets remained safe and clean, with social services readily available. So, if GDP stays the same and your social structure remains intact and people help each other, then [recession] won’t be so bad.
If the social structure and bond aren’t so strong in China, and things start falling apart, it could get much uglier. A lot depends on the society as a whole and how well young people will be able to cope with difficulties.
And the challenges in China remain formidable because of high youth unemployment.
I would argue that if young people think life is just like an escalator – you go to a good school and get out of a top university and get a good job – I’m afraid that world is gone. The certainty is gone. You have to be more flexible, you have to adapt.
You have to keep your eyes open to developments outside the narrow field you specialise in. It’s important to have the kind of flexibility and willingness to learn more, to constantly upskill yourself and try different options and career paths.
