Can China Adapt?

Many economists are becoming increasingly pessimistic about China's economic prospects, pointing to Japan as evidence that, after three decades, breakneck growth may be coming to an end. China can avoid Japan's fate, but only if its new leadership ensures that the country's economic institutions remain flexible and open to change.

SHANGHAI – China’s “Two Sessions” – the annual gatherings of the National People’s Congress and the Chinese People’s Political Consultative Conference held every March – have always drawn global attention. But the meetings this year seemed particularly significant, owing not only to the country’s leadership transition, but also to its economic slowdown amid calls for deeper reform. How, then, will China’s new leaders respond?

The problem is simple: No one can predict accurately how long the slowdown will last. The authorities, lacking confidence in their ability to restore pre-2009 rates of annual GDP growth, have lowered the official target to 7.5%.

Many economists are becoming even more pessimistic, pointing to Japan as evidence that, after three decades, China’s breakneck growth may be coming to an end. Japan’s economy, they point out, achieved more than 20 years of sustained rapid growth; but, in the 40 years since 1973, annual growth has exceeded 5% only a handful of times, and output has stagnated for the last two decades.

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