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China’s Growth Secret

SHANGHAI – Many people are profoundly pessimistic about the Chinese economy’s growth prospects, owing to the emergence of massive debt, excessive investment, overcapacity, and so-called “ghost cities” since the 2008 global financial crisis. But these problems are not new. They have, in various forms, affected China’s economy since 1978, and were evident in East Asia’s other high-performing economies – Taiwan, South Korea, and even Japan – during their periods of rapid growth.

Nonetheless, in the 35 years since Deng Xiaoping initiated his program of “reform and opening up,” China has recorded 9.7% average annual growth. And it took only 40 years for South Korea and Taiwan to complete their transitions from low- to high-income status.

How did these economies manage to grow so fast for so long and overcome the serious problems that they faced along the way? The answer is simple: resilience.

Economic development is a convoluted process, full of challenges and risks, successes and failures, external shocks and internal volatility. And adverse effects – such as a rising debt-to-GDP ratio and excess capacity – are inevitable.