Thread by @Noahpinion

1/Let's talk about perceptions of Chinese government omnipotence, versus the reality.

noahpinion.substack.com/p/chinas-gover…

2/In the 1980s, as Japan threatened to overtake the U.S., many observers were wowed by the Japanese government's performance in directing the country's economy.

In 1989, Bill Emmott wrote a book pointing out some of that government's mistakes.

amazon.com/Sun-Also-Sets-…

3/In fact, Japan's bureaucracy and industrial policy had never been infallible; the cracks in the model appeared decades before we started to notice it, and decades before they had real macro consequences.

amazon.com/Can-Japan-Comp…

4/My prediction is that China will be similar.

Over the past 20 years, as China has conquered poverty, recessions, and COVID, and built marvels of technology and infrastructure, many have tacitly accepted that the Chinese government can do anything it puts its mind to...

5/Doubtless there were always weaknesses in China's governance model. But as with 1980s Japan (or any rapidly developing country), those weaknesses take time to become obvious.

We may be hitting that point now.

6/The first big weakness *I* noticed in the Chinese model was slowing productivity growth.

That has contributed to an overall slowdown in growth, from 9-12% in the 2000s to 6% now, with further decreases expected soon.

7/And one cause of slow productivity growth is probably that China's model for avoiding recessions -- i.e., use state-controlled banks to push lots of capital toward construction, real estate, and infrastructure -- tends to come with a cost.

bloomberg.com/opinion/articl…

8/Then, in recent years, China had another big visible screw-up.

Its plan for building infrastructure in other countries ran into multiple debacles.

bloomberg.com/opinion/articl…

9/China's Belt and Road planners learned the hard way that the rest of the world doesn't work like China.

10/Contrast this flamboyantly poor performance with Japan's quiet success at helping other countries build infrastructure.

warontherocks.com/2019/04/qualit…

11/The next government mess-up I noticed was the COVID vaccination effort.

A few months ago, China's government was going around trying to claim that U.S. vaccines don't work.

How's that going, guys?

washingtonpost.com/world/asia_pac…

12/Eventually, a Chinese official admitted -- in a rare moment of candor, for which he was rapidly punished -- that it was China's vaccines that were not quite up to snuff.

scmp.com/news/china/sci…

13/Meanwhile, despite having a head start, and despite its reputation for heroic feats of infrastructure and manufacturing, China has managed to vaccinate less than 1/4 the percent of its population that the U.S. has vaccinated so far.

14/Now, it's important to put these screw-ups in perspective.

China's weak vaccination effort won't stop their economy from rebounding, thanks to their success at controlling the virus through public health measures.

15/And China's Belt and Road stumbles won't hurt it economically (it's tiny compared to China's GDP), and making Malaysia and Kenya annoyed probably doesn't cause China's leaders to lose much sleep.

16/But these stumbles show that China's state is not as omnipotent as some commentators appear to tacitly believe. And they may be the first glimmers of overreach. China's leaders may have overestimated their *own* state capacity.

17/We'll soon get more tests of Chinese state capacity, with the Made in China 2025 industrial policy push, and the push for self-sufficiency in semiconductors.

en.wikipedia.org/wiki/Made_in_C…

macropolo.org/beijings-tech-…

18/Of course, displacing the U.S. from East Asia, including a conquest of Taiwan, would be the most ambitious government project.

Hopefully China's leaders won't overestimate their ability to pull that one off, and do something reckless.

19/Anyway, just as with 1980s Japan, it's important to get some perspective and realize the limits of a seemingly unstoppable state juggernaut.

(end)

noahpinion.substack.com/p/chinas-gover…

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