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How China’s Economic Miracle Went Off the Rails

Writer Dan Wang joins Derek to discuss why the Chinese economy has slowed down after decades of growth and the implications of that decline

Wind Power in Bijie Photo by Costfoto/NurPhoto via Getty Images

This month, President Joe Biden and President Xi Jinping of the People’s Republic of China (PRC) met in San Francisco amid trade wars and even the prospect of a catastrophic hot war over Taiwan. Their meeting took place during a nervous period in the history of China. After decades of spectacular growth, the Chinese economic miracle has sputtered, with huge implications for its own population and the world. And yet, even as the most dire aspects of the Chinese economy make headlines, it remains the case that China is the foundry of the green energy revolution, making more solar panels and wind turbines and electric vehicles than any other country. To help us understand how China thinks about economics, technology, and America, we welcome back to the show writer Dan Wang.

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In the following excerpt, Dan Wang explains to Derek why the 2007-08 financial crisis led China to go a different direction than the U.S. with its economic model.

Derek Thompson: So I really wanted to have you on the show to talk about a few themes related to China: what’s gone so wrong with their economy and the purported Chinese Century, but also what’s gone right that the Western media might’ve missed.

So first, let’s talk about the economy. In 2007, you go back to the financial crisis, and you told the writer Ben Thompson, “After the financial crisis, China decided that it doesn’t have too much to learn from the West anymore.” Tell me about that. Why did China 15, 16 years ago decide it was time to chart a totally different course of economic growth than the West?

Dan Wang: I think the global financial crisis in 2007, 2008 was a pretty pivotal moment for the Communist Party in Beijing. I think it would be oversimplifying a bit, but to play up this model, … I think one could have told a story of happy convergence between China and the U.S. prior to 2007, 2008, when there were some green shoots of political liberalism in China. There was a little bit more of a spirit of cooperation between these two countries when George Bush was getting together with Hu Jintao. And then after 2007, 2008, I think China, along with quite a few other countries in the world, took a look at the U.S. and said, “Well, maybe not.” This was a pretty devastating financial crisis built off of—the popular explanation at the time was excessive housing construction, excessive speculation, people getting loans for houses. And the Chinese, I think, took a look at this model and said, “Well, maybe we shouldn’t have so much of a financialized economy that is prone to these sorts of financial crises.”

So I think they started to take a little bit of a pivot onto the other side, really much more to double down on much greater political authoritarianism, much greater centralization of power, as well as what I think is a little bit more of a retro view of the economy. And if I want to fast-forward to today, the way I’ve described Xi Jinping’s view of a lot of economics would be actually a pretty boring, traditional manufacturing superpower along the lines of Germany today. Or maybe you can talk about the United States back in the 1950s, in which you have a very large manufacturing sector employing a lot of workers in these kind of traditional, boring manufacturing/high-capital industries because they don’t create too many political problems, [in] that they are not prone to financial crises, that they are not agitating for a lot of social change on the internet, and that people are pretty happy earning a wage turning wrenches, to put it simply, for a lot of different manufacturing models.

And so I think the Chinese government really decided to double down: less financialization, a little bit less of the Silicon Valley disruptive model, and much more of this kind of boring, traditional manufacturing-led growth.

Thompson: So before the crisis, the story of happy convergence. After the global financial crisis, it’s the story of purposeful divergence. Give me some texture on what that looked like, what that felt like living in China. You no longer live in China; you now live in Connecticut. But what did the kind of political centralization that you’re describing feel like to residents of China?

Wang: Well, to residents of China—I wasn’t in China at the time in 2008—there were two, I think, major pieces of divergence that we can think about today. The first is there was a lot more political centralization in the five years after the financial crisis that led to the elevation of Xi Jinping as the general secretary of the Communist Party. So Xi Jinping came to power with a party that felt, and that self-acknowledged in a way, … pretty diffident, that it had a lot of these factions, that it had a security chief that was running his own fiefdoms, that there were a lot of other members of the Chinese elite that were simply not really listening to the leader. And then Xi Jinping arrived with this mandate to really try to clean house, really try to make sure that there is much more centralization of power, which he did with not extreme effectiveness, to the extent that I think it is pretty likely that he will be the ruler of China for life, at least for the next five to 10 years.

The other manifestation of the economic divergence was—I think back in 2008, I’m sure you were covering, Derek, these debates about the stimulus, how much America should have been investing. I think there is a little bit of an economic consensus now that the administration under President Obama didn’t quite invest enough, that there should have been a much more vigorous fiscal response to the financial crisis. And in China, they did not really have anything like this underinvestment response. They had this enormous infrastructure building spree. They built about 20 Japans’ worth of high-speed track in the aftermath of 2008. They built about 140 million housing units. I just saw this estimate from a bank about the population, let’s say half the population of America: They built that over the course of a decade. They built roads and highways. They built enormous bridges. And so there was an enormous infrastructure boom really to build up the country after the financial crisis.

This excerpt was edited for clarity. Listen to the rest of the episode here and follow the Plain English feed on Spotify.

Host: Derek Thompson
Guest: Dan Wang
Producer: Devon Manze

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