China

The first one is the economy. China's economy has been typically the best-performing economy or among the best-performing economies in the world since 1979 when reforms began, averaging about 7 percent growth. One note of concern, though, is that those conditions that allowed that 7 percent growth are not likely to be prevalent in the years to come, because for over 30 years, China has relied extensively on lower wage rates and export-driven growth. But wage rates have been bid up, as happens; the Chinese are victims of their own success, you could say. And secondly, the rest of the countries in the world are not going through high rates of growth, and they’re not going to be importing the way they had been historically. So, that formula isn’t going to be as successful going forward as it has been.
China needs to shift away from an export-driven economy to more of a consumption model. It needs to be mindful about funding its state-owned enterprises, about subsidizing state-owned companies. It needs to lessen its reliance on low-end manufacturing and move up the value chain. By the way, these aren’t my observations; these are observations by Chinese leadership. If you follow any Chinese leader’s speech on China’s economic transformation, these are the points he’ll make. We would call that market rationalism or just normal evolution as a country rises to middle-income status.
But there are also some countervailing impulses. There’s a strong streak of economic nationalism; there is a desire to promote national champions; there are protectionist impulses; and investment barriers—the policies called indigenous innovation, where China looks for ways to highlight or promote local companies at the expense of international competition.
The fundamental economic question is: Will market rationalism prevail over these kinds of distortions, whether you call them