Justin Leverenz
Forbes.com
January 18, 2013
While China arguably has further to go in terms of political, economic and social policy reform, anyone contemplating China’s future needs to understand where the country has come from. China has changed almost beyond recognition over the past 20-25 years. There is still more to be done, but in the last two decades China has made unparalleled gains in economic development, living standards and freedom of choice.
So what is China going to look like in two decades? The overall view on its new leaders and prospects for further reform has been pessimistic. The concerns are not unfounded, but I believe they are unbalanced. While I’m not a political scientist, I can say that the principal themes in China since Mao Zedong – national pride and sovereignty, stability, and economic development –are unlikely to change. So, when speculating about the future moves of Xi Jinping and other members of Communist Party’s fifth generation of leadership, it is important to remember that economic reform is ultimately equivalent to political and social stability.
Serious reform took a back seat to the robust economic growth China experienced over the last two decades. As the economy slows, however, we expect a new wave of reform to occur. To maintain social stability and encourage domestic consumption, the government will have to create a more comprehensive safety net and focus on improving equality of opportunity.
Also, monetary policy liberalization and increased competition in the banking system will be key to improving credit and capital access for dynamic private companies. Land reform will also help unlock massive potential productivity gains.
As we have said for years, we believe China’s growth rate will slow toward a more normalized 5 percent to -7 percent. But even at that pace, China will likely continue to dominate global growth. I am very bullish on China – its economic growth prospects and the potential opportunities for discerning equity investors.
