As China emerges this month from the all-important 20th National Congress of the Chinese Communist Party (CCP), its leadership will have to confront the most difficult set of economic choices it has faced in decades. It can shift out of an economic growth model that has generated a great deal of wealth, albeit at the cost of escalating inequality, surging debt, and an increasing amount of wasted investment over the last decade. Or Beijing can choose to continue with its current economic model for a few more years until it is forced by these rising costs into an even more painful transition.
The problem facing China is one that the German American economist Albert Hirschman described many decades ago. All rapid growth is unbalanced growth, Hirschman noted, and a successful development model is one in which unbalanced growth addresses and reverses the existing imbalances in the economy. But as these are reversed and the economy develops, the model becomes increasingly irrelevant to the original set of imbalances and eventually begins to create a very different set of problems.
