What will China’s new leaders do? Bold or incremental reforms?

Summary:  China is one pole of the 21st century world. Skeptics have predicted China’s crash for over a decade.  Even the IMF has began warming about China’s over-investments and shake banking system. Now a new generation of leadership take command. Much depends on their decisions, which will affect both China and the world.

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Western experts believe China’s new leaders will act cautiously and conservatively on their major domestic programs:

  1. they will prioritize steady strong economic growth over structural economic reform,
  2. they will avoid potentially destabilizing (ie, large) political reform, hoping that steady economic growth maintains the Communist Party’s legitimacy.

Both of these goals seem unwise. The combination might be lethal for China.

China has long-deferred problems, and a window of strong growth in which to act. The alternative, so common in history, is to delay until an economic crisis forces action — under difficult circumstances. Most leaders believe that delay preserves options.  False. Time inexorably closes more options than it opens.

Another scenario:  China’s new leaders, who take office in March, act boldly to take advantage of the “new team” honeymoon. Political capital is usually strongest on day one, and tends to decline over time (ie, friends come and go; enemies accumulate).

However, even bold action might prove futile since these goals are contradictory.

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