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China’s Next Transformation

HONG KONG – During three decades of favorable global economic conditions, China created an integrated global production system unprecedented in scale and complexity. But now its policymakers must deal with the triple challenges of the unfolding European debt crisis, slow recovery in the United States, and a secular growth slowdown in China’s economy. All three challenges are interconnected, and mistakes by any of the parties could plunge the global economy into another recession.

To assess the risks and options for China and the world, one must understand China’s “Made in the World” production system, which rests on four distinct but mutually dependent pillars.