Book Review: China’s Crisis of Success

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China’s Crisis of Success, William H. Overholt. New York: Cambridge University Press, 2018. 304 pp.

Economic, societal, and governmental advancement are a series of incremental shifts toward modernity and prosperity. Moving too quickly on all fronts foments instability and unrest. Likewise, advancing in one category while maintaining the status quo in the others creates lopsided, unsustainable advancement. Following the conclusion of World War II, Japan, South Korea, Taiwan, Singapore, and China faced a diverse set of geopolitical challenges, but they experienced a similar set of domestic political and economic factors. They all had relatively simple economies, societies with preexisting shared national identities, and a pervasive fear of societal collapse or destruction. These factors created the conditions for successive economic miracles in these countries. Ultimately, each of these countries achieved impressive economic growth year over year—sometimes as high as 10-percent growth in gross domestic product (GDP)—albeit at different times throughout the twentieth century. China’s economic miracle did not begin until 1979 after Deng Xiaoping assumed leadership of the country following Mao Zedong’s death.

William Overholt’s book, China’s Crisis of Success (2018), proves useful as a road map of China’s rapid economic development from 1979–2010, the transitions China’s economy must undergo to continue growing, and the political challenges Pres. Xi Jinping faces going forward.

Most of the “Asian miracle” economies were overseen by authoritarian governments that committed human rights abuses, but through strong, unified leadership were able to take politically unpopular actions to advance their countries economically. Driven by fear of collapse, invasion, or restoring national power (in the case of Japan), the populations of these countries tolerated overbearing governments and societal dislocations in the hopes of a better future. The governments prioritized agricultural reform and development to advance the interests of their mostly agrarian populations. They invested in expanding labor-intensive light industry and worked toward developing the workforce and infrastructure to expand domestic heavy industry. Rather than pursuing political liberalization and social reform, prioritizing this approach to industrialization and achieving GDP growth year over year enabled the greatest (in terms of both speed and the sheer number of people) uplifting of people out of abject poverty in human history. Still, as the economies of these countries became more complex, state-led economic development became an onerous task, yielding smaller returns. As the people became more affluent, their priorities and values shifted. Generally, they demanded a greater voice in the political process, a response to environmental damage from decades of breakneck development, and a greater focus on social welfare. The fear that drove the people to accept the otherwise unacceptable in exchange for greater prosperity for future generations gave way to confidence. The “Asian miracle” countries reached an inflection point. Overholt argues that while a Leninist approach to politics and a socialist, government-driven approach to economics worked to achieve the initial developmental gains, a transition consisting of economic and political liberalization was required to continue development and maintain legitimacy in an increasingly complex system.

In the Chinese context, the author describes the crisis as “the exhaustion of the old drivers of growth; a crisis of obsolete priorities; the inevitability of slower growth; and a serious financial squeeze” (p. 51). This is further complicated by demographic shifts that will create future shortages of labor and an aging population that will need to be supported. The government’s plan to address this is to transition to a market allocation of resources while maintaining party control of the economy. This plan includes a transition from relying on exports and international investment for economic growth to domestic consumption-driven growth, moving away from labor-intensive light industry to technologically advanced manufacturing for local brands, moving from a manufacturing-based economy to a service-based economy, basing finance on credit instead of property, and servicing the country’s burgeoning debt.

While there is a well-developed plan to address the economic transition, Overholt believes that President Xi’s administration does not currently have as detailed of a plan to solidify its political power among China’s increasingly complex political and social forces. Overholt characterizes Xi’s primary response to these forces as repression. Xi has instituted a sweeping anticorruption campaign crackdown on graft within government and state-owned enterprises (SOE); however, it has a dual use of cracking down on Xi’s political dissent and opposition. The government has cracked down on various groups, like university students, lawyers, ethnic minorities, religious organizations, whistleblowers, and nearly any organization that receives foreign funding. Overholt writes, “there is no publicly articulated political strategy for aggregating and adjudicating these myriad, powerful conflicting interests.” (p. 249). The author contends that repression absent a plan to integrate some of these societal elements into the political process is an unsustainable approach that will likely fail lead to a crisis of legitimacy and diminish Xi’s power. Without adequate political power, pushing through necessary economic transitions will not be possible. The author suggests that most productive path forward for Chinese leadership is for President Xi to solidify political control in his first term (which ended in 2018), pursue the necessary economic reforms in the second term (through 2023), and in his third term (through 2028) address political reform.

China’s Crisis of Success should challenge the preconceptions of US officials as to the best practices for protecting human rights and supporting political liberalization via international development projects. US policy makers should consider that political liberalization before achieving economic development may be counterproductive and potentially stagnate future development. Overholt points out that when you cannot properly feed your family, read or write, see a doctor, and have a low life expectancy being able to participate in a potentially corrupt election does not necessarily improve one’s quality of life. Instead, prioritizing economic development first can prepare a society for democratization down the road. This is not to suggest that US policy makers should abdicate human rights considerations in decisions on international development projects in the hopes that they will be protected in the future. Doing so risks sacrificing US values for something that may never materialize. Further, the Asian model of development outlined by the author only functions under a specific set of circumstances, and clearly, China has yet to achieve domestic political liberalization. Still, understanding that economic development creates a stable environment to sustain a democratic system of governance, in the long run, is an important lesson of this work.

This book was published in 2018, but was officially released in December 2017; thus, it does not account for significant events in the past three years that will affect China’s ability to enact Overholt’s recommended changes. In 2018, the Trump administration placed tariffs on hundreds of billions of dollars of Chinese exports to the US, and China responded in kind. The ensuing trade war resulted in a $35-billion reduction of Chinese exports to the US, with the US diverting this trade to other countries, like Taiwan, Mexico, the European Union, and Vietnam. Economic sectors such as office machinery, communications equipment, and furniture were among the most heavily impacted.¹

China has responded better to the COVID-19 pandemic than most countries, including liberal democracies. Generally, this could be because liberal democracies are demographically older on average, lockdowns are more difficult to enforce for extended periods due to infringement on political freedoms, and the open nature of such societies are more conducive to viral diffusion.² China’s economic growth has surged to 4.9 percent in July–September 2020, just under the 5.2–5.5-percent growth projected absent a global recession. Yet, this came at the cost of increased borrowing by local governments and SOEs to stimulate growth.³ China’s total domestic debt (corporate, household, and government-held debt) had grown from 318 percent of its GDP in the first quarter of 2020 to 335 percent in the third quarter.⁴ President Xi’s Belt and Road Initiative—which includes financing infrastructure projects in developing countries—is under strain as the pandemic-induced global recession has left many of China’s debtors unable to service their loans. This has forced China to offer a moratorium on debt servicing for 2020, but some countries may require debt restructuring or debt forgiveness as their economies recover.⁵ These recent economic stressors will probably not prevent China from carrying out necessary reforms in the long run. However, they may reduce the political will required to prioritize the transitions and they will likely delay China’s ability to reduce its debt burden as the global economy recovers and increased investment is required to maintain economic growth.

Overholt’s argument that to avoid a legitimacy crisis, space must be made for new segments of society to have agency in domestic Chinese politics is based in reality. This argument is not made on the basis that a more democratic political order is normatively preferable, rather it would likely be “the most durable and stable regime under the circumstances in which China now finds itself.”⁶ Jiwei Ci, a professor of philosophy in Hong Kong, supports this view, stating that China already has a democratic society because it has eradicated its fixed social hierarchy, every citizen is seen as capable of learning to contribute to society, and all citizens can decide how to live their lives. This reality is out of alignment with the current political regime. Ci further reinforces Overholt’s argument by pointing out that the revolutionary communist legitimacy the Chinese Communist Party, and by extension Xi, enjoys will continue to fade with time. Attempting to enhance the declining legitimacy of the one-party state with economic growth and improvements in quality of life cannot continue in perpetuity if the underlying legitimacy of the regime deteriorates. Utilizing Xi’s relatively strong position now to prepare China’s political system for a transition to a more democratic system more aligned with its societal values would avert a legitimacy crisis in the future.⁷

Ultimately, China’s Crisis of Success serves as a useful road map as to how China achieved its initial economic miracle and how it must adapt to remain successful in the future. Nonetheless, an updated edition that reflects the impacts of worsening US–Chinese relations and the fallout of the COVID-19 pandemic would be useful for understanding China’s current strategic trajectory.

Paul David-Albert

Doctoral Student

Department of Defense and Strategic Studies

Missouri State University

Notes