BPF Book Review | Red Flags: Why Xi’s China Is in Jeopardy

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Bigger Pie Forum | BPF Book Review | Red Flags: Why Xi’s China Is in Jeopardy | Ashby Foote
 
It’s been 30 years since the fall of the Berlin Wall and the demise of the Soviet Union.  Americans who witnessed those momentous events assumed communism had finally been consigned to the dustbin of history.  Not so fast, fast forward to 2019 and it’s déjà vu.
America once again confronts communism, albeit a different strain with a quasi-capitalistic twist.  Now it is China.  How does America deal with a country of 1.4 billion people with the world’s 2ndbiggest economy all under the control of the Communist Party and its “leader for life”, Xi Jinping?
George Magnus, former chief economist at UBS and now China scholar at Oxford University tackles this critical question in his new book, Red Flags: Why Xi’s China Is in Jeopardy.  Magnus provides much needed insight into the unique and mostly opaque Chinese economic system, its strengths and also its vulnerabilities.
The author sites several “traps” that threaten China’s long term growth and financial stability. They include high and rising debt, a not fully convertible currency and an aging population distorted by 37 years of its one-child policy.
What China has accomplished over the past 30 years is nothing short of miraculous, but that stunning success comes with serious structural issues.  China is a top down economy where a small group of elites make most of the key decisions.  Central planning invariably allocates capital poorly and creates rigidities poorly suited to handle the disruptions and dislocations that are commonplace in a global economy driven by innovation.
Compare that to the largely bottom up U.S. economy where millions of consumers and businesses make millions of unique decisions every day.  It is messy, with lots of mistakes and failures along the way, but the result is adaptability

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