A Reckoning for the China Dream

Chinese policymakers may well have the wherewithal to prevent the crisis at Evergrande, the country’s second-largest property developer, from triggering a broader financial and economic meltdown. But whether they can successfully reorient China’s growth model is far less certain.

In this Big Picture, Columbia University’s Shang-Jin Wei urges the Chinese authorities to make it clear that they will do what is necessary to contain potential spillovers from an Evergrande default. But even if this reassures nervous financial markets, says Kenneth Rogoff of Harvard University, the larger challenge facing policymakers is to rebalance an economy that has depended for too long on a bloated real estate sector.

And on this front, China may be headed in the wrong direction. Stephen S. Roach of Yale University fears that President Xi Jinping’s regulatory clampdown and “common prosperity” campaign will subdue the entrepreneurial activity that has been key to China’s private-sector dynamism over the past four decades. The University of Chicago’s Raghuram G. Rajan agrees, warning that China’s lack of political checks and balances heightens the risk that Xi’s business crackdown may go too far.

Drawing parallels between today’s China and late-nineteenth-century America, Yuen Yuen Ang of the University of Michigan explains why Xi is determined to take China out of its current decadent Gilded Age and into its own era of progressive reform. But Northwestern University’s Nancy Qian recalls that while decisive political leadership has often served China’s progress, the consequences can easily prove calamitous when policymakers get it wrong.