All nations wrestle with opposing economic impulses: sustain current activity or undertake reforms that reduce short-term growth while bolstering long-term prospects. China is no exception: in fact, as the most populous nation on earth and the biggest marginal growth contributor among all countries during the past four decades, China faces the most profound struggle between these urges. This is especially true because even by its own appraisal, China has much to do to modernize its system. That appraisal can be found in President Xi Jinping’s Explanatory Notes for the “Decisions of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform,” penned in November 2013 to accompany the far-reaching reform program announced that month, or in now–Vice Premier Liu He’s May 2016 People’s Daily broadside on the urgency of carrying through stalled reforms to avoid systemic risks. What these statements share is a broad-spectrum diagnosis for China’s economic potential and the threats to it if policy changes are not enacted.
Outside China, these acknowledgments of the importance of policy improvements have fostered confidence that long-term objectives were shared. The advanced economy consensus on fostering sustainable growth broadly coincided with Beijing’s 2013 objectives. This is a big idea: a Chinese reform plan could both support China’s potential growth and be consistent with advanced economy policy norms. Despite some Chinese voices promising to overturn the normal rules of economic logic, the reality is that no one in Beijing has elaborated a viable improvement upon the directions set out by Xi and Liu in the documents noted above. No more recent plan is remotely as comprehensive as the 2013 plan, or as definitive in its message. Even in China, stimulus not guided decisively by the market will lead to resource misallocation – bad debt – and inevitably to downturns as adjustments are necessary. Reform is critical for long-term sustainable economic growth, and monitoring China’s progress, as we do in Dashboard editions, is in turn the key to good policy abroad.
In 8 of the 10 clusters we track, meaningful reform progress is lacking or even backsliding.