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The Real Reason for China’s Rise

The standard account of China’s economic rise focuses on its state capitalism, whereby the government, endowed with huge assets, can pursue a wide-ranging industrial policy and intervene to mitigate risks. This explanation is wrong.

SHANGHAI – China’s rapid economic rise in recent decades has astonished the world. Yet the reasons behind the country’s success are often misunderstood and misinterpreted.

The rise of China is widely attributed to its state capitalism, whereby the government, endowed with huge assets, can pursue a wide-ranging industrial policy and intervene to mitigate risks. Accordingly, China owes its success, first and foremost, to the government’s “control” over the entire economy.

This explanation is fundamentally wrong. True, China has benefited from having a government with the capacity to implement comprehensive and complementary policies efficiently. With leaders not subject to the short election cycles that characterize Western democracies, China’s central leadership can engage in visionary and comprehensive long-term planning, exemplified by its Five-Year Plans.

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