A significant book was published the day before yesterday by Springer, authored by researchers Horst Löchel and Tim Jablonski, titled:
The Rise of China’s Economy: Past, Present, and Future
This book presents an analytical study of the Chinese economy from both local and global perspectives. It covers the reform trajectory and the performance of the Chinese economy since Deng Xiaoping launched the reform and opening-up policy in 1978, through to the current challenges and economic policies under Xi Jinping, including integration into the global economy.
The remarkable success of the reform and opening-up policy in China after 1978 is one of the most prominent developments of our time. China’s rise has changed the world and will continue to do so in the coming years. Today, China has become the second-largest economy in the world and the largest trading nation. The per capita income of its citizens has increased more than 230 times in the past forty-five years, when measured in local currency, and the country achieved the largest leap in the Human Development Index of any other country, moving up 33 ranks from 108th in 1990 to 75th in 2023.
The aim of this book is to explain the success of the Chinese economy and examine the ongoing changes and challenges over time.
China’s real challenge is to elevate itself to a high-income country status, having successfully managed its development from a low-income country to a middle-income one. This challenge requires a new round of structural and institutional reforms.
The book is specifically written for Western readers interested in understanding “China’s uniqueness,” a term coined by Kissinger (2011: 5). The main message of this book is that China and its economy are more nuanced and complex than a simplistic black-and-white perspective may suggest. The depth of Chinese civilization, along with its economic and political significance, cannot be ignored. China and its economy are too large and important to overlook.
China’s rise challenges the Western concept of the interrelationship between political and economic systems, a notion developed by the famous German economist Eucken. China’s development provides empirical evidence that a one-party authoritarian state can also achieve significant economic success. This mitigates the belief that fully market economies based on a liberal system are the only ones capable of ensuring long-term economic prosperity, a vision particularly relevant for the developing world.
The Chinese economy is indeed different; it has a party state that is omnipresent, interventionist, and paternalistic. It seems that the entire economy is managed like a company, with clear performance indicators, reporting lines, and a CEO who also serves as the General Secretary of the ruling party and President of China. The boundaries between the private and public sectors, as well as between politics and economics, are fluid.
Despite these characteristics, the economy is highly competitive, dynamic, and technology-driven. In the latest global competitiveness ranking published by the International Institute for Management Development in 2024, China ranked fourteenth, only two spots behind the United States and ten spots ahead of Germany. Performance-oriented behavior is highly respected, not only in the economy but also within society and government bureaucracy. Despite its central party state, economic policy is largely decentralized at the local level.
To understand the Chinese economy, history must be adopted as part of the interpretation. Until the early 19th century, China possessed the largest economy in the world, and the country is expected to regain this status by the mid-century. China’s long-standing historical position is evident in various scholarly research it has conducted.
China was a pioneer in inventions such as paper currency, gunpowder, the magnetic compass, and printing, among others. Its expertise in ceramics and silk was unparalleled on the global stage. For Marco Polo, China was “a vision of the future” when he visited Zhongguo, the “Middle Kingdom,” in the 13th century.
For almost two thousand years, China was the leading civilization in Asia. However, this dominance began to decline with the emergence of the European Industrial Revolution and faced further challenges through a series of military invasions by various imperial powers, starting with the First Opium War with the United Kingdom between 1839 and 1842. After its military defeat, China was forced to sign the Treaty of Nanjing – a highly unequal agreement still etched in the collective memory of the Chinese people. The treaty is still regarded as the starting point of the “Century of Humiliation,” which lasted until the establishment of the People’s Republic of China in 1949.
This historical sentiment resonates in today’s Chinese economic policies. The failure to engage in the first industrial revolution, also exacerbated by the last imperial dynasty, the Qing, and its reluctance to undertake the necessary structural and institutional reforms to modernize the country and its economy, serves as a strong motivator for the current Chinese leadership. Just two weeks after his election as General Secretary of the Communist Party of China, President Xi Jinping stated in 2012, during the opening address of the “Path to Renewal” exhibition in Beijing, that in order to achieve the “Chinese Dream” of “rejuvenating the Chinese nation,” the country must develop into a technological power.
The authors argue that the political economy of China is deeply rooted in its past, and from a certain perspective, it can be considered a “modern version of the traditional Chinese imperial state.”
The book is structured into three parts: the past, present, and future. Each part consists of several chapters that address the topics systematically, building upon each other.
The first part highlights the origins and trajectory of the reform and opening-up in China from its inception in 1978 to the present day. The paramount Chinese leader, Deng Xiaoping, liberated the economy from the ideological framework of Mao Zedong’s era. His pragmatic approach, designed according to Chinese characteristics to fit local conditions, led to a unique transformation which peaked in the most successful transition story for any economy in the 20th century. However, over time, China’s reform path has shifted from constructing and enhancing the market to shaping and directing the market. Under the current President and General Secretary, economic policy has become increasingly governed by the direct leadership of the party. Thus, the economic system in China today resembles state party capitalism rather than merely state capitalism.
The second part explores the main aspects and features of the contemporary Chinese economy. It begins with an analysis of the main characteristics of the Chinese economy: its remarkable performance over time, its unique growth model characterized by high investment and low consumption, the significant economic disparities between provinces, and the relationships between the party and the state, as well as between the center and provinces in designing and implementing economic policy. It also addresses the challenges posed by the slow recovery post-COVID-19 and the ongoing real estate crisis.
Based on this broad picture, the corporate sector in China is described in detail: the relationship between state-owned enterprises and private businesses, the main characteristics of the financial sector, and the role of foreign companies operating in China. Special emphasis is placed on the development of the private platform economy in China as the primary driver of economic growth and technological advancement over the past decade.
Finally, the second part also explores China’s role in the global economy. The following questions guide the discussion: How did the country become the largest trading nation in the world? What role does the Belt and Road Initiative play in China’s internationalization strategy? How has China’s exchange rate system evolved over time, and what efforts are being made to internationalize the Chinese currency, the renminbi or yuan? The analysis concludes with a comprehensive discussion of the highly complex and sensitive issue of global competition between China and the United States, which has expanded into a broader “systemic rivalry” culminating in an economic “trade and technology war” between China and the West.
The third part discusses China’s search for a new growth model.
First, the long-term major challenges facing the Chinese economy are revealed: declining technological progress, shrinking demographic returns, rising debt levels, particularly local government debt, and environmental degradation. This is followed by a detailed description of the prevailing economic strategy employed to overcome these challenges. The main focus is on the concept of new productive forces, which centers on state-led innovation-driven growth. In fact, Chinese leadership views the Fourth Industrial Revolution, characterized by technologies such as artificial intelligence and big data, as an opportunity to position the country directly as a global leader in developing frontier technologies.
The final chapter of the book discusses the pros and cons of this strategy. It claims that the approach suffers from serious shortcomings in terms of a focus on growth and the economic model. Again, the focus is directed toward investment rather than consumption, reflecting similarities with the growth model of the past. Moreover, the economic model intensifies the guiding approach.
The chapter reveals that the chosen strategy is not coincidental but a rational decision that aligns with the interests of the party state, making more substantial structural and institutional reforms somewhat challenging.
Key Insights
One of the key insights from this book is that the Chinese economy has reached a critical turning point after a prolonged period of successful development. Two interrelated challenges hold particular significance:
The domestic need to upgrade to a high-income country with a new growth model and international tensions, especially with the United States. Both challenges present systemic risks that could severely hinder the future development of the Chinese economy if not managed carefully.
Domestically, it is not only a matter of implementing the right economic policies; the currently dominant economic model in China also requires a new round of reform and opening-up. The scope and scale of the unilateral supply-driven guiding policies have become excessively broad in recent years, tending to create excess capacity and fierce competition within China’s economy. State-led interventions should be reduced, and markets and private entrepreneurship should be empowered to drive leading innovations forward.
The current situation recalls the 1980s in China, where institutional changes were essential to drive economic development. However, the path forward now seems more complicated than in the past. Organizing an industrial revolution is one challenge, and transitioning to a high-income country is another. The greatest danger is that China may fall into a “trapped transition,” a situation reminiscent of the last Qing dynasty, where necessary institutional and structural reforms stalled due to internal constraints. The remaining question is whether the party state can once again prove its ability to adapt and learn under economic pressures and legitimacy challenges.
Despite the domestic challenges, the future of China’s economy is also heavily influenced by Western efforts to weaken globalization and contain it. The most significant economic risk involves potential technological setbacks.
Although China has made significant technological progress in catching up, the gap with the United States remains substantial in many areas, particularly in general technologies such as semiconductors. Without access to these technologies, China’s progress could slow dramatically. Therefore, mitigating the geopolitical fragmentation between the West and the East, which ensures continuing smooth integration into the global economy and international governance systems, is in China’s interest.
