January 4th, 2014
11:48 PM ET

Can China reform in time?

By Fareed Zakaria

I know, it's seems odd to speak of problems and the need for reform in the world's fastest growing big economy. But China has built up imbalances in that economy for some years now and they are not sustainable for much longer. Even before the financial crisis, China's top officials were aware that the economy was, in Premier Wen Jiabao's own words, "unstable, unbalanced, uncoordinated, and unsustainable." It needed to wean itself off cheap credit and undergo market reforms.

Since then, in response to the global economic slowdown, China pumped even more easy money into its economy. The result, according to Morgan Stanley's Ruchir Sharma, is that China's total public and private debt is more than 200 percent of GDP, an unprecedented level for any developing country. Sharma points out that while it used to take one dollar of debt to produce one dollar of Chinese GDP growth, today it takes $4 to produce that same dollar of growth. Businesses and local governments have piled on debt. The property boom has accelerated. Without serious policy changes relatively soon, this is a bubble that is going to burst.

I'm not ready to bet against China. Its leadership has shown itself to be capable of difficult decisions and smart execution. And if the leaders do manage this transition well, China will emerge stronger, and of course become the largest economy in the world. If they don't, they will likely face a slump and perhaps political tensions that bubble up in the wake of a slowing economy.

For more on this, watch the video or read the TIME column

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Topics: China • Fareed's Take

soundoff (43 Responses)
  1. Sergio from Italia

    No! No, China cannot reform in western style – never! We need to focus our attention on NATO countires, as here is very large potential for more economic growth.

    January 5, 2014 at 5:44 am | Reply
    • Prediction

      Our orientation is future, their is past. It will be at least another generation before change.

      January 11, 2014 at 9:08 am | Reply
  2. Marcel

    We should listen to advice from French politician and general Bonaparte NAPOLEON: 'let Chinese sleep – don't awake them' - once awakened we will have difficulties defending and protecting ourselves. Meaning: we need to be careful and not naive with dealing with Chinese. We need to set priorities: No.1: National Security, No.2: Intellectual Property Rights, No.3: NATO alliance partnership, No.4: National Interests, No.5: No military collaborations with Koreans.

    January 5, 2014 at 10:14 am | Reply
  3. sarah

    to late china is already here. the company i work for has sent chinese people that live in ca to our division to " help us not hurt us" so they say. well they have done nothing to help us what so ever. our scrap rate has doubled, our product quality has gone down the drain,moral is beyond competently down the drain, we were forced to work thanksgiving and christmas thanks to a new 24/7 365 days a yr schedule, mind you this is manufacturing, not a hospital where they save lives and need to be open. these chinese people are nothing more then dictators where i work, promoting their own and disposing of those that do not agree with their policies. they have only been in my company 5 months and in 5 months have ruined what was once a good place. CANT STAND THE CHINESE!!!!!!!!!!

    January 5, 2014 at 10:23 am | Reply
    • LiveFree

      You should help lucky that you haven't wave the red flag yet.

      January 6, 2014 at 4:56 pm | Reply
    • danny

      sound like hard working chinese replace a lazy ass worker. everywhere i met, chinese usually work harder then others

      January 7, 2014 at 11:45 am | Reply
  4. Erick Holmes

    These analysts that say China will be No. 1 by 2028 are not patriotic. I can't stand the Communists Chinese. They will never be No. 1 while they practice communism. **** Chinese Communist ********.

    January 5, 2014 at 1:11 pm | Reply
    • LiveFree

      It takes more than an economic miracle and military power to be a superpower. The way the Chinese behaves right now, there is no way they can be respected as a superpower.

      January 6, 2014 at 5:00 pm | Reply
    • LT

      The Communist Party of China has ceased to practice communism a long time ago.

      January 10, 2014 at 8:00 pm | Reply
  5. j. von hettlingen

    No doubt China is realistic enough to know that the heyday of its double-digit growth is not permanent and that it would one day have to "settle into a more normal trajectory". It remains to be seen, what longterm solutions the leadership is seeking to diversify its economy and how they would deal with various pressing issues that the country is facing.

    January 5, 2014 at 2:38 pm | Reply
  6. JAL

    The "extra mile" mentality that is needed comes from freedom, not restriction. However, freedom can be fickle to those that have not had their fair share. Freedom does work, but again, we must prove it.

    January 5, 2014 at 2:49 pm | Reply
  7. sand

    china don’t need reform china has capitalism china uses the dollar as the world currency and china is increasing export and imports with all countries year after year the Chinese system is bullet proof china just put a rover on the moon and is driving it around and analysing the moons surface.

    January 5, 2014 at 4:23 pm | Reply
  8. TiredOfPaying

    China is simply the first of the low-labor-cost countries being exploited. When China's labor costs get higher than Somalia's with similar quality then China will crash. They will be left with polluted skies and rivers but no jobs. Its the exact same thing that is happening here: When Unbridled Capitalism sees a penny more in profit by moving elsewhere they will do so. So while Globalism has a net effect of greater prosperity, in reality it goes from one poor country to another, exploiting workers until it finds others to exploit more.

    If you are lucky enough to be one of the Rich or if your country is the current 'cheapest labor' source then you personally will benefit. But beware if you rise too far in prosperity – the Rich will sell you out in a hearbeat if they find someone to exploit more. When this happens to China they will be in big trouble.

    January 6, 2014 at 11:44 am | Reply
  9. JJ

    China, a culture based on greed has *never* been a team player since the Opium incident. An unfortunate incident single handedly brought about by China. We supported Chinese products only to have China turn around and destroy our planet simply for the name of *status symbol*. China's crave for ivory has wiped out over 60% of elephants worldwide. This is negatively affecting our planet's ecosystem since wildlife are the irreplaceable gardeners of the forests from which we source at least 40% of the world's critical oxygen necessary for our survival. China is acting destructively while taking the rest of the human race along with it. The current international boycott China campaign is working well and it is important for each and everyone of us to continue this effort. China will tell the world what we want to hear while it's doing the things we don't want to see. The world must always keep China at bay from generation to generation.

    January 6, 2014 at 1:33 pm | Reply
    • Timer

      This only illustrates you know nothing about Chinese culture. One of Confucius' ideas is focused on harmony while maintaining differences between countries. The "Opium incident" reflects westerners' lack of morality by selling the addictive poison, opium, to the Chinese. The Chinese prohibited opium and the westerners attacked China in 1840 as a result. And why not blaming yourselves instead of blaming others.

      January 6, 2014 at 2:38 pm | Reply
      • JJ

        You must go back and study your history again. China exported tea at the time but refused to import anything and everything. Additionally, China demanded silver coins as the only form of payment. When silver became a shortage worldwide, Britain was forced to implement the policy to pay China with opium. If China was a team player from the beginning, would Britain have had to enforce the opium payment policy? You Chinese are destructive to yourself and the rest of the human race! Reason why you've never been able to attain sustainable progress for the greater good of humanity even though you've been around for over 5000 years. You have much improvements to do!

        January 6, 2014 at 3:19 pm |
      • Amanda

        It seems that you are the only person in this forum who can see the reality!

        January 7, 2014 at 9:43 pm |
    • LiveFree

      Absolutely!

      January 6, 2014 at 5:05 pm | Reply
    • Timer

      China never intended to be a business team player with other countries in the 1840s because it was a closed-country at that time. You should study more about history not on your perspective but on others' perspectives. Plus nobody forced Britain to buy tea from China. This statement"You Chinese are destructive to yourself and the rest of the human race!" shows your pathetic character of being both a racist and an extremist.

      January 6, 2014 at 5:50 pm | Reply
      • MYS

        JJ has a point somehow. At that time, it was true that China didn't want to import anything from western countries. British tried really record, trying to introduce everything like piano, instruments, machinery... in vain. There are many history books and novels reflecting that episode. The fact you also agreed that China was a "closed-country" kind-of confirms what JJ said, China still has a lot to learn to be a team player on this planet...

        January 6, 2014 at 10:37 pm |
      • Amanda

        what's wrong to be a closed-country at that time? Should they had their choice, MYS? Also, a team player according to who's rule?

        January 7, 2014 at 9:47 pm |
      • JJ

        Timer – I am of Chinese heritage. I am not a racist. “Us Chinese” are sick and tired of being ashamed of our Chinese heritage because of the mindless actions of “You Chinese".

        January 8, 2014 at 11:53 am |
      • JJ

        MYS – You're spot on! China had no business on the international trade scene with its decision as a closed-country. China was lucky to have been allowed on the scene back then. It's time China learn the true meaning of the phrase "you cannot have your cake and eat it too!"

        January 8, 2014 at 12:42 pm |
      • Timer

        JJ – Well if you are ashamed of the Chinese heritage and brainwashed by western propaganda, I really have nothing to say.

        January 9, 2014 at 3:06 pm |
      • Timer

        I just feel sorry and sad for millions of innocent Chinese citizens in the 19th century who were slaughtered, robbed, forced to consume opium by British and other western troops, who were forced to be cheap labors and slaves to be shipped to western countries under the notorious Treaty of Tientsin during the 2nd Opium War. These were all recorded in history and there was no way to deny it.

        January 9, 2014 at 9:11 pm |
    • danny

      lol so you said if someone don't won't export their stuff, you force them to buy drugs. sound like cartel near texas border lol

      January 7, 2014 at 11:47 am | Reply
      • Amanda

        Yes, we set the rule for the rest of the world, we like it this way and this is our rule.

        January 7, 2014 at 9:50 pm |
    • danny

      some stupid locgic you got there. if i don't won't to trade/buy stuff from you, you gonna force drug to me/my family.

      January 7, 2014 at 11:50 am | Reply
      • globeharmony

        Yes, that was the western rule then and still is today. Play my game or else....

        The difference of today from the past is the rules are now being dressed up as 'international rules' or 'fair and free trade', or under the 'human right and freedom' banner. .

        January 9, 2014 at 4:11 pm |
  10. The Bee

    Fareed Zakaria, you are becoming my least favorite political analyst. Who writes your stuff? I highly recommend more reading of the history of countries you write about. Whenever I read your commentaries, it feels like they reflect a computer-generated-like commentary that does not incorporate any extensive research or history of what you are writing about. Maybe you just need to travel to the places you write about. That would help a lot.

    January 6, 2014 at 10:07 pm | Reply
  11. Sean B.

    Top notch writing as always, Fareed- but your site has to stop with the headlines that can be answered by a yes or no.

    January 7, 2014 at 12:39 am | Reply
  12. Soggy

    Unfortunately, what need to see from China is SMART decisions and TOUGH execution.

    January 7, 2014 at 3:48 am | Reply
  13. advancingtime

    The imbalances have become gigantic and will not be easily fixed. Fast growth tends to mask flaws and weakness within a system, and China has been growing like a weed for years. To make things worse many of the investment decisions were driven by politics. This has created massive overcapacity. Money has been poorly allocated and often shoveled into deep holes like ghost cities and bridges to nowhere

    Currently a 6.6 trillion dollar spending spree used as stimulus to combat global economic slowdown is coming back to haunt China. This has greatly expanded credit and created huge overcapacity during the past five years. A massive debt crisis now looms in the offing. At stake are trillions of yuan in bank loans to factories that sit empty because of lack of demand. More on the situation in the post below,

    http://brucewilds.blogspot.com/2013/11/china-land-of-overcapacity-and-debt.html

    January 7, 2014 at 7:50 am | Reply
    • globeharmony

      So you want slower growth while millions starved?

      Chinese economic disaster has been predicted by the West for years while they are still making progress.

      Why doesn't the author turn his focus on his own?

      January 9, 2014 at 4:18 pm | Reply
  14. sadhumanbehavior

    let's be honest......... the chinese have "quietly" been trying to copy the west by adopting a "grow grow grow" policy...... the only way they could achieve this was by becoming capitalist, with a veneer of communism on top...... unfortunately, they had to also become extremely selfish, like us, to achieve these ends.......... so look into a "mirror" my dear "western world" of you want to blame china for this "growth" phenomenon.......... unfortunately what the "eastern world" has not yet caught onto is that history teaches us that "grow grow grow" if always followed by "crash crash crash".......... or a huge war, wherein everything is left laying in rubble and death........... how about all of us "east and west" alike, adopt a new approach, don't just think "grow grow grow"....... instead think grow very slowly, always thinking about how ALL the people in your country are doing, not just the 1%........... think about the environment, our once beautiful planet, and how we can stop trashing it and destroying it!!!!!!!!!!!!!!!!!

    January 7, 2014 at 10:43 am | Reply
    • sadhumanbehavior

      How about we completely change what we humans view as an "amazing achievement" or even our concept of so-called "progress"........ let each nation accurately measure how much trash they are creating every year (separated pout into trash-to-landfills and trash-to-recycle) and accurately compute the "average" air quality and water quality measured in the downtown area of 6 major cities in each nation. Then, every year, each nation reports the DECREASE in the percentage in the amount of trash to landfills and the percentage improvement in the air and water quality........ and then, instead of all of us going "Ga Ga" about what your percentage "growth" was, each year, we all go "Ga Ga" about what the percentage DECREASE in trash was, each year, and the percentage improvement in air quality and water quality, each year................ would not that be a better way for all of us humans to be looking at progress???????? To hell with the few greedy businessmen that want to get richer and greedily look at their "bottom line" to see if they got richer, each year........... let's look at whether we humans have learned how to "sync" with Mother Nature in a better way, each year!!!!!!!!!!!!!!!!!!!!!!!!!!!!

      January 7, 2014 at 4:38 pm | Reply
      • globeharmony

        Silly comment, trashes were created by consumptions and polluted industries were moved to less developed countries for greed. BTW, tons of our electronic waste continue to be shipped to poor countries, the not at my backyard approach.

        Trashes and pollutions are not as important with an empty stomach and we still have one of the highest CO2 footprint per capita in the developed world. .

        January 9, 2014 at 4:29 pm |
  15. Amanda

    You are right, stop attacking others, get on your own business and be a positive person. Remember the Chinese need to grow more to feed their own people. What you can do is to stop creating trash and work hard.

    January 7, 2014 at 9:57 pm | Reply
  16. sadhumanbehavior

    Hey Fareed, instead of asking if China can "reform" in time to save itself, how about we ask the really tough question: Can the "Western World" reform itself to be able to compete successfully against the "Eastern World"............... what I see happening in the "Western World" is a complete lack of any notion that people in the West are going to have to "pull up their socks" and be disciplined and work hard and word smart in order to "get our jobs back" from Asia............ instead, I see huge cheering and high-fives in American society that marijuana has been made legal for recreation in Washington and Colorado States!!!!!!!!!!!!!!!!!!! So the "West" wants to party more and somehow hopes that by some amazing imaginary non-existent miracle, we will be able to compete against Asia and get our jobs back??????

    January 8, 2014 at 3:04 pm | Reply
  17. No chinks

    Is it not possible to watch Chinese reality, and to reflect oneself?

    January 9, 2014 at 4:26 pm | Reply
  18. outspoken

    Stop China bashing. Mind your own business. You are not the only one Sheriff in the town anymore.

    January 10, 2014 at 9:42 am | Reply
    • sadhumanbehavior

      Very good comment! "Big Boy" America does not know how to be a "Little Boy"......... so it is really sad to watch them forced to becoming little boys that smoke Pot and do not much else........ :( Americans still think that they are a powerful country that can "swagger" around the planet and bomb anybody they feel like!!!!! If only all us Americans knew that 6 US ports are currently being modified by China, so that the new "Triple E-Class" container ships can bring us more stuff from China!!!!!!!!

      January 10, 2014 at 4:08 pm | Reply
  19. wakeupAmerica

    Why concern ourselves with China, when we need to be concerning ourselves with figuring out how to fix some pretty huge messes, in several areas, right here in America? Let's try to reform ourselves first! One suggestion would be to develop a culture of humility and awareness. Fixing our dismal broken family situation, our huge poverty numbers, our move towards more drugs (legal & illegal) and our culture based on greed, instant gratification and putrid politics might be worth looking into huh?

    January 10, 2014 at 10:31 pm | Reply

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