Red Flags: Why Xi's China Is in Jeopardy

by George Magnus

A trusted economic commentator provides a penetrating account of the threats to China's continued economic rise

Under President Xi Jinping, China has become a large and confident power both at home and abroad, but the country also faces serious challenges. In this critical take on China’s future, economist George Magnus explores four key traps that China must confront and overcome in order to thrive: debt, middle income, the Renminbi, and an aging population. Looking at the political direction President Xi Jinping is taking, Magnus argues that Xi’s authoritarian and repressive philosophy is ultimately not compatible with the country’s economic aspirations.

Thorough and well researched, the book also investigates the potential for conflicts over trade, China’s evolving relationship with Trump, and the country’s attempt to win influence and control in Eurasia through the Belt and Road initiative.

Genres: China, Economics, Politics, Nonfiction, History, Business, Asia

248 pages, Hardcover

First published January 1, 2018

About the author

George Magnus is an associate at the China Centre at Oxford University, a research associate at the School of Oriental and African Studies, and former chief economist of UBS. He has written extensively about China in the Financial Times, Prospect, and other economic and financial publications.

Reviews

[Tariq Mahmood · Rating 4 out of 5]

The author raises some interesting points, why China will find it difficult to sustain growth and make the migration to a developed country focusing on the economy, government-led development schemes, ageing problem and its desire to become a world power. But he is unable to explain the politics of the CPC which for me still remains a mystery. How does this all powerful party operate? How is the leadership chosen? What are the various groups within the party? Why don't we ever see any women in power? I think in order to understand China it's vital to understand the working and structure of the CPC.

[Athan Tolis · Rating 4 out of 5]

In “the West,” we’ve been raised to believe that the way forward for nations that seek progress is a state which provides strong institutions within which millions of individuals can make billions of mistakes, from which we can collectively glean the necessary lessons to build a better future. But since the crisis of 2008 (to say nothing of Brazil’s 7-1 loss to Germany in 2014) an alternative narrative has emerged: men in gray suits, with access to data and vast resources can “beat the market” through intelligent, informed decisions.

So what’s it going to be? The free market that can wander into deep crises or the intelligently planned economy that keeps things on the straight and narrow? Does China hold the secret to growth?

George Magnus is writing with the benefit of having read Acemoglu and Robinson’s answer to this important question (namely that you need both inclusive economic institutions and inclusive political institutions to achieve lasting growth, and thus that China will fail) and indeed explicitly refers to their magnum opus, “Why Nations Fail.” Regardless, he prefers to duck the question and dwell on four hurdles China will have to clear before we get to the big stuff.

Much as I’d love to hear what he’s got to say about the big questions, and much as I care a lot less about the four questions he poses than I care about (for example) why a competent Chinese scientist / artist / intellectual / teacher / dolphin trainer would want to stay in a country where machines read his every email and constantly register his whereabouts, “Red Flags” makes for persuasive reading, because it spells out four threats Xi and his party (that is rapidly displacing all other institutions of the state, Magnus alleges) face right here, right now:

1. Do they bail out the rogue lenders or do they force the already twice bailed-out local governments and banks into “balance sheet recession with Chinese characteristics?” Can the country withstand the necessary fall in GDP that will accompany the necessary refocusing away from debt-fuelled growth?

2. What gives? Free movement of capital across the Chinese border, the risk-free rate of return on assets within the Chinese economy (with the associated rate of GDP growth) or the hyper-politicized exchange rate for the Renminbi?

3. What’s to be done about the fact that China is ageing faster than any other nation on Earth? Here George Magnus, author of “The Age of Aging” does not mince words: nothing! Even the US, I seem to remember from reading that book, could re-draw its border to include Mexico and its demographics would not change in a big way. China is simply going to age, end of.

4. The middle-income trap: China’s working population has been shrinking since 2012. It will be the first country of its kind (of the kind that bootstrapped its way out of poverty via a combination of increasingly sophisticated manufacturing and protectionism) to get old before it’s gotten rich, with all that may entail for people’s sense of gratitude to the institutions of government.

This fourth “red flag” is in truth the theme of the whole book: China has reached the end of the road that started with Deng’s reforms and ended with Xi’s appointment at the top. Magnus picks up on Richard Koo’s original observation that China has reached a “Lewis turning point” in its labor market and looks for the equivalent across all institutions, to conclude that the new emperor has his work cut out.

There are bonus chapters on Chinese history, on the Belt and Road initiative and on trade, and all are written along exactly those lines: so far so good, but sometime very soon you hit a fork in the road. Not only that, but wisdom will not suffice when those choices are made: China will need luck on her side.

I was persuaded.

[Wallace Ding · Rating 5 out of 5]

This book is pretty good and doesn't deserve this low ratings due to its broad views about the new China(Xi's China) and its neutral stand.

First, it's not for those who wants to know about China for the first time, especially the first part(the first three chapters), about Chinese brief history from the First Opium War to the Mao era, and to Modernity, which is a lot to take in.

Second, the meat and also the second part of the book(chapter 4-7) is about four traps: Debt trap, Renminbi trap, Aging trap and Middle-Income trap, in terms of which, the author examined the circumstances of China's last decades and this day and age and compared to its dominant opponent, the US.

Third, last but not least, the last three chapters introduce the trade war, the Belt and Road and Xi's China, which all touch the nerves of nations, companies and individuals who are involved in China, especially in business.

To sum up, I'd say this is a great book to know about China, not for all time but for this day and age. after a couple of years, we'll need to check the circumstances again to know precisely what has really happened in China.

[Evan · Rating 2 out of 5]

I am giving "Red Flags" two stars for two main reasons: 1) the author did not stress that how the Chinese Communist Party is morally bankrupt and 2) the use of "relative statistics" to make economic arguments.

In the first case, the CCP has an army unit of 10,000 hackers who can be leveraged for economic espionage. There is no private company in the world that can withstand the determined effort of the PLA if the PLA wants to steal. Therefore, when the author mentions that the US spends significantly more on R&D than China, the author should also note that China steals over $300 billion worth of intellectual property (IP) per year from the US, so China doesn't need to invest in R&D. When the author mentions the meteoric rise of China in technology since 2012, the author needs to acknowledge that rise was fueled by IP theft. Many examples where the author fails to signify the massive IP theft committed by China.

In the second case, the author notes many economic statistics adjusted for GDP or some other number. Without knowing the actual baseline absolute numbers, this practice of adjustment could be misleading. I'm not an economist, and I don't want to actually look up the absolute numbers he is using (I listened to the audiobook). So, when he disputes that China "is raping the US" in terms of exports by saying that a few years ago, exports to the US were 10% of China's GDP, but are now only 1.2% of China's GDP, so exports to the US aren't a big deal, I am underwhelmed. Ten percent of a smaller GDP could actually be the same in absolute terms as 1.2% of a larger GDP. This happens a lot when he is making economic arguments. Another example, Korea exports 5.4% of GDP and Germany exports 7.1% so China isn't that bad. Well, if Korea's GDP is 1/10 of China's, than it is like comparing apples and oranges. And look at the European Union, Germany's export balance is killing the Union.

His conclusions seem warranted, namely that China's rise is more brittle because of the 4 arguments he makes in the book. He is less sure (less optimistic) that China will become the economic superpower that others are predicting.

[Austin Gaghadar · Rating 3 out of 5]

An interesting and different perspective to balance the current rhetoric on the threat from China and contrast with the recent developments in the Western world with elements of convergence between Xi's China and Trump 2.0. Magnus made a compelling case on the limits to the potential success of the Chinese model of economic development, laying out a number of key challenges that the country faced at the time. For the most part, I think the main ideas and themes presented in the book continue to be relevant, even 7 years after publication. I particularly enjoyed the sections on the currency and demographic challenges that the country continues to grapple with, and which limits the potential role that they can play on the world stage. This was also a helpful exposition on the trade-offs that come from the Chinese approach, including the lack of dynamism and agency that can result from a more centrally controlled system. The book also highlighted the strengths of the system, particularly its success in lifting millions out of poverty.

One of the main drawbacks was that while this book was information dense, it was not broken down in a way that I found easy to understand or compelling to continue reading. In particular, there was a lot of jargon and very specific metrics that were hard to contextualize or understand the implications of without a lot more domain-specific knowledge, for example the talk of the measures of sufficient asset bases in the banking system. Finally, like many macroeconomic books, there are a lot of aggregate trends and statistics without more rigorous theory and assumptions. I found this limited the persuasiveness and explainability of the arguments that were being made, which, while still be consistent with the evidence were not the only explanations.

Overall, new ideas about a fascinating country, packaged in a dense, informative though often boring form.

[Raghu Nathan · Rating 4 out of 5]

One of the main points of debate among China watchers and economists today is whether China can disprove the Western gnome that dictatorships and long-term economic growth do not go together. Nonetheless, China has done spectacularly well for four decades now. Many developing countries admire China's example and even advance the idea that democracy is not suited to rapid economic growth, suggesting the examples of Phillippines and India. Till a few years ago, most analysts and experts extrapolated China's double-digit growth rates in the two decades since 1990 and predicted that the twenty-first century would belong to China. However, that euphoria tapered in the past decade. We saw an end to the extrapolation and the rise of more skepticism. The author of this book, George Magnus, says that China is, in reality, facing considerable dangers due to a decelerating economy and other non-economic factors. Many analysts have suggested similar concerns in the past decade. Though China has marched on, we can see some of the cracks showing up in the China miracle now. My reading of this book makes me feel that the non-economic factors are the more significant hazards that China faces in the coming decades.

Magnus' diagnosis identifies four quagmires that confront China today. Two of them are economic, namely the 'mounting debt' and the 'limits on the ability of its currency, the Renminbi.' Two others are the rapid aging of China and the possibility of getting stuck for good as a 'middle-income' nation. Magnus says that China's leaders are well aware of these problems and will try to attack them within the framework of an authoritarian, state-run economy. They have to do it this way because otherwise, the stability and continuity of the rule of the Communist party would be in jeopardy. However, the author says that lasting solutions to these four problems cannot be found without de-stabilizing the Party's control, and hence, Xi Jinping's China is at risk.

The discussion on the Renminbi becoming a global currency was interesting to me as I had not seen other China watchers write about it as one of the traps that China faces. Magnus says that the Renminbi's liquidity issues are something that is at odds with China's desire to make it a global currency. Historically, its emperors, both ancient and the modern-day ones in the Communist party, have distrusted foreigners. Such a mindset blocks foreigners from owning Chinese assets, including the Renminbi. There are substantial restrictions on remitting the currency abroad. China's command economy determines its valuation rather than the market. When a currency wants to reach a reserve status, the holder of the reserve currency should have a developed financial system that can provide safe assets for the rest of the world to invest its excessive savings. China fails the test on transparency and liquidity in its financial markets. In many ways, if China wants the Renminbi as a reserve, it cannot happen without China becoming a less exports-dependent economy. Owning a reserve currency makes exports of the reserve currency holder more expensive and reduces its competitiveness. Finally, no one will buy the currency of a country unless they have faith in the long-term stability and wealth prospects of the country. China is not yet there.

On China's debt problem, The author says that it is related to national savings and the role of state-owned enterprises(SOEs) in the economy. The SOEs have come to occupy a central position in China's economy once Xi Jinping consolidated his power and removed presidential term limits. They are the engines that built New China in the past thirty years. China has tens of thousands of SOEs. Officially, China says that they play a small role in the economy, providing barely 10% of employment and producing 20% of the output. The private enterprise is supposed to do the rest. But the truth is more likely that SOEs have a powerful hold on 70% of all enterprises. State ownership in most private companies is indirectly present in firms that invest in them. These firms ultimately belong to the state. Because of the size of their investment, it is the state by poxy that eventually determines appointments to senior management and the form and direction of the enterprises. As the economy slows down now, the SOEs spend more capital in unnecessary infrastructural projects. These projects do not benefit the economy in a big way but line the pockets of businesspeople close to the party echelons. Magnus says that this way, the Party has taken greater control of the investment, leading to even more inefficiency. China's economy is transitioning to one where efficiency will be more critical to move upwards in the coming decade. The SOEs will resist this restructuring as they hold a lot of financial power. China needs institutions like a free press or independent regulatory agencies or NGOs that act as a check on these kinds of concentrations of power.

Debt has propelled economic growth so far. Local governments allocate resources not based on needs but based on party loyalties. They chase GDP growth at all costs and hence accumulate debt. As debt increases and the demand for Chinese exported goods reduces, China would like to switch to higher domestic consumption. But in reality, Chinese household savings have increased substantially. They were 5% of disposable income in the 1980s and rose to 25% of GDP in 2016. Enterprise savings, too, rose to 17% of GDP in 2016. As a result, the government invests more and more to achieve less and less growth because of the inefficiencies already mentioned. Before 2006, an investment of 2-4 yuans brought 1 yuan of additional GDP. By 2015, China invests nine yuans in getting 1 yuan of additional GDP. It is unsustainable in the long run. Investment as a share of gross domestic product is now well over 44 percent, while private consumption has fallen to 36 percent. Some observers believe that this imbalance can only lead to economic collapse; others see it as China's underlying source of power. The author believes that the truth is in-between and that China is making the same mistakes that the West made in the 2000s.

This book also dwells on the demographic nightmare China could face as a result of their one-child policy and low fertility rate. After discussing its dire consequences, Magnus says that this is the most challenging problem to fix for China. Immigration is one way out, but historic xenophobia militates against it. The other possibility is through technology and automation via robots and artificial intelligence. The author believes that Chinese technological prowess could take decades to rise to that level. It is this rapid aging, coupled with the authoritarian system which resists needed fundamental changes that are likely to leave China trapped in the middle-income zone instead of climbing up to a high-income one. China's per capita income now is about $10000. It has been a middle-income economy — one where per capita income is between $1,000 and $12,235 — for nearly 25 years now. In comparison, South Korea, Taiwan, and Singapore spent 23, 27, and 29 years respectively as middle-income economies before moving up to upper-income level. China’s standard of living in 2011 is comparable to that of Japan’s in 1954, Taiwan’s in 1972, and South Korea’s in 1976, according to Ting Lu, an analyst with Bank of America Merrill Lynch. At present, China's per capita income is only 25% that of the upper-income nations, which is the reason many economists say that China will grow old before it becomes affluent.

I enjoyed listening to the book, as this is the first audiobook I have tried. For me, books such as this, which contain in-depth and detailed analysis, are difficult to grasp as audio. Before I could digest some statements, the voice moves on, unlike printed text, where you can linger as long as you want on a paragraph. So, I doubt if I will go back to buying audiobooks again. Coming to the book, I find most of the author's arguments on China quite convincing. The thought arises that China is an old civilization and has seen a lot in its history and has survived and prospered. In the brief span of just 15 years between 1957 and 1972, China suffered two devastating human-made blows in the form of the Great Leap Forward and the Cultural Revolution. China shook them off like water on a duck's back and seized opportunities in the next few decades to be where it is today. So, one can argue that China can shake off these challenges too and become an upper-income nation. But we must remember that the recovery after 1978 came only by abandoning socialism in practice and embracing state capitalism instead. Private property was made legitimate, and getting rich was encouraged. These are radical changes, albeit without compromising dictatorship.

Author George Magnus says that China not only needs radical changes yet again of that nature but also that most of them require the country not to be centralized and authoritarian. Western experts often say that the Chinese have a long-range vision of fifty years and more in dealing with its problems. But a long-term vision does not necessarily follow that it is a realistic grasp of history. The Communist Party and its leaders suffer from illusions about China's great past, both near and far. The Party believes that China’s superior growth is due to Chinese exceptionalism, the Communist party leadership, and planning. They don’t give enough credit to the market economy and learning from the rest of the world. Of course, such fantasies are not the sole propriety of dictatorships. India also has a long history, but the present Hindu Nationalist party and its leaders suffer from even greater illusions about India's past glory. Even the UK displays off and on phantasms about its Imperial past and tries to bring it to bear on contemporary events. From what the author says, it looks as though China does not have more than a decade or so to change course.

A scholarly work on China.

[Trisolaris · Rating 2 out of 5]

Poorly written. If I didn't have an economic background I would have struggled to understand good proportion of his arguments. George makes a good job of outlining major problems, but doesn't suggest any real solutions. In addition most of his arguments come directly from the IMF article IV reports.

[Charles · Rating 4 out of 5]

China’s Accomplishments and China’s Challenges

Author George Magnus has chronicled the astounding economic changes in China in the past 35 years, as a backdrop to looking forward. Overall, China has managed these changes and the impact on its society exceptionally well. Stability, says the author, is central to China’s DNA, perhaps explaining why the nation has been able to achieve such growth without more social unrest due to profound change.

Magnus begins his book by providing a historic context which is important in understanding how Xi and his leadership team view China’s current status and how they define China’s aspirations for the future.

For most of its thousands of years of history, China was the preeminent economy in the world. Magnus cites an estimate that in 1820 China accounted for perhaps 33% of the world’s trade. China had what the rest of the world wanted but wanted little of what the rest of the world could offer in return. In the 1840s, China was then subdued by outside Western powers and for 100 years effectively lost its sovereignty. The brutal actions of Mao Tse Tung forced out foreign influence and united the country but did so at the expense of trade and economic growth as well as of individual freedoms. By 1980 China’s share of world trade was probably less than 1%. With China’s economic reopening and rebound over the past 35 years China’s share of world trade is now around 17%.

But clearly, Magnus argues, China has major challenges in the coming decades.

- Economic and social pressures that result from an aging population. China’s effort to reverse the “one child” policy has had limited success. Incentives to have children haven’t been successful and the author cites the correlation around the world between rising income and lower fertility rates. 


- The “Middle Income Gap” (income per person), which the author defines as an economy trapped between low wage poor competitors and high wage richer innovators.
One-time events that powered China’s economic growth in recent decades will not be a factor in coming decades. These included a boost from membership in the WTO, huge rural to urban migration providing cheap industrial labor, and growth in world trade at twice the rate of growth of world GDP.


- Inefficiency of Chinese investment, with debt created to finance huge infrastructure projects lacking economic justification. Support of inefficient SOEs (State Owned Enterprises) which has been reduced but not eliminated. Existing debt remains an overhang on the economy.


- Governance weakness, in which China’s leadership must address the contradiction between Communist ideology and the importance of freedom of access to information and individual freedoms.
Increasingly, China will face the challenge of satisfying the aspirations of the middle class.


- Corruption. Land use is particularly subject to corruption since the State owns the land. Getting an urban residency permit is difficult, but it allows such residents better access to education, health, housing, and pensions. The lack of mobility imposes an economic burden but the cities are focused on short term costs of new migrants from the countryside rather than on long or medium-term payback (similar to the immigration debate in the US).


- Efficient resource allocation is constrained by capital controls and other restrictions on the Chinese currency (RMB) and the stock market. Exchange controls restrict Chinese citizens who would like to export their wealth, and capital controls restrict the RMB holdings of foreigners.

Recently, President Xi has been funneling control and decision making back to the Party. Local government finances are where China’s debt accumulation is taking place. Efforts to centralize and get local governments to switch from chasing growth have been challenging, exacerbated by the fact that the quality of data, including growth statistics, is poor. But centralization in a country as large as China is also problematic.

As relevant as all these observations are, one nevertheless questions whether the book’s subhead, “Why Xi’s China is in Jeopardy,” has been substantiated or is more of a hook to attract book sales.

Surely conventional wisdom has been poor at predicting how broad and long-term economic trends will affect individual countries. In the 1970s, OPEC was going to soak up the world’s wealth with its pricing and monopoly power over oil, and “recycling petrodollars” was seen as the world’s major economic challenge. At one point, Japan through its breakthroughs in production of reliable cars and electronics (remember the Sony Walkman?) was going to dominate the 21st Century world economy as Britain had done in the 19th Century.

China’s size and its ability to transform its economy over a period of 35 years may be an aberration. Or it may be indicative of the ability to rise to the challenge of the coming decades as it has done in recent decades. Magnus has identified China’s new challenges but he may have underestimated China’s ability to surmount them. In sum, however, this book aids us in having a better informed debate about China’s outlook and its place in the global economy.

[Máté · Rating 3 out of 5]

Sensationalist title aside, the book contains interesting insights into what challenges Xi's China faces. Though with most predictions regarding the economics and politics of China, it's likely most of the proposed ideas here will turn out vastly different in real life.

[Seth · Rating 5 out of 5]

Incredibly researched and well delivered.

China is authoritarian and protectionist. The debt trap, the aging trap, middle income trap and the renminbi issue are the major pitfalls they're approaching.

China made up the majority portion of global GDP until the 18th century. The historical Chinese relationship between State bureaucracy and agricultural exports set the basic ideology for the communist party.

The relationship between State and consumption gives China the top down ability to control market function.

The Opium Wars with the British. China lost both. Large parts of China were owned by foreign colonial powers at this time.

Japan v China war 1937 - 1945.
China lost maybe 20 million.

Chinese are xenophobic and distrusting of foreign intervention due to this.

Mao named the People's Republic of China in 1949. Developed heavy industry and national defence. Modern China bears no resemblance to the violence of the Mao regime

Income per head $450 per person. When he died it was $850.

GLF 1958 - 1962

Change to agriculture and private property rights. Communal living. 30 million workers went to work in factories. 30 million dead due to famine in 1st three years.

CULTURAL REVOLUTION 1966

Decade of social conflict. Undermined traditional Chinese institutions. Entrench communism as the single political system in China and purge the nation of the remnants of capitalism.

Quality of human capital and experience did improve. 4% of children went to school before Mao. 80% of the population were illiterate. To 97% by 1975.

Inadequate food, employment and total factor productivity (growth not explained by inputs affecting a GDP rise)

In the 80s certain capitalist ideals were reintroduced. Private house ownership

Goal is to move towards a service heavy economy instead of credit and debt.

Mini baby boom in 2016 saw fertility rate rise 8% (1.6m) but it fell back to normal levels in 2017. Rising income per head is the number one form of contraception in China.

China responsible for half of all worldwide debt created during 2005-2016

Three ways to combat rapid aging:

People, participation and productivity. Import skill shortages with works via immigration. You can encourage non participants into the workforce. (encourage certain demographics to enter workforce and make retirement age later. It's currently 60 and 50/55 for m and f). There retirment age is likely to change soon.

One child policy scrapped in 2015. Achieved very little and left China with a top heavy population. State intervened because the birth rate was too high in 50s. (around 6 children per woman). Halved after the policy. You could have another child if you had a girl as your first child.

Best form of contraception is rising living standards. Things that also affect lowering birth rates are higher female literacy, better access to social benefits and rising wages. By 2050 there will be 3x as many old people as children in China. (over 65s). 7.7 workers support every over 65 today. This will lower to 2.1 workers by 2050. China's old age dependency ratio will still be lower than South Korea and Japan. 1/3 of Indian population is under 15. China bought 1/4 of the robots sold worldwide since 2015. They are trying to replace gaps in the workforce with automation. They are also look to plug gaps with an immigrant workforce in the future. They are still vary wary of immigration as a means of productivity however and there are only 600k foreigners living in China.

No tendency for low income countries to head towards becoming a high income country. Middle income trap refers to countries that enter "middle income" in terms of annual income per capita of $11k or more and do not continue to grow. Brazil and Russia are examples. The key to avoiding the trap is total factor productivity (TFP = the processes and techniques of GDP growth).

2018 constitutional change. Abandonment of the 1982 prevention of 2 X 5 year term limit. Moves back towards authoritarianism. Xi could stay on for life. One man rule makes people less likely to stand up and raise the potential for errors in government.

Technology

China missed out on industrial revolution. They do not want to fall prey to foreign influence and control when it comes to technology and AI. GPT = general purpose technology. China seeks to be the world's primary source for AI by 2030. The 14th Five Year Plan (2021 - 2025) seeks to improve "peaceful negotiations" with Taiwan, who are a major player in battery production leading many to believe this may be the start of an annexation process. Chinas biggest hand over the rest of the world is their access to data.

Only 24% of working age people in china fully complete their education. Chinese children are at risk of developing cognitive development issues due to lack of stimulus, educational attainment and parenting issues.

If china can avoid the middle income trap (income per capita remains at an average level of between $1k and $12k stagnant without growth) they would become the first authoritarian country to do so.

[Rob Rains · Rating 4 out of 5]

Magnus writes a very well researched analysis of the suite of risks that face China going forward. Many of these even casual readers will have no doubt heard: China’s debt and its ability to continue to grow, its aging workforce, its lack of institutions and other issues. Magnus writes essentially a 200-page bear case for the emerging power that if you read the news regularly you are probably already aware of. I rate this four stars though because he makes some terrific points about general purpose technology development and a lack of a social safety net that would undergird a growth in consumption for the country. Details on that and a number of other things made this worth reading.

[Henry Heading · Rating 4 out of 5]

I found this interesting, a greater focus on economics is something I'm not accustomed too but the sprinkling in of politics did help. Nevertheless I found this book informative and gave me a greater understanding of China's role in the world economic system, aswell as its ambitions within that system, and also how President Xi's own ambitions and iniatives effect that role.

[A G · Rating 4 out of 5]

Sober, fluent, well-researched and accurate. Still, somewhat too short on information and analysis of Chinese government, the CCP and economic players from inside and their interplay.

[Daniil Lanovyi · Rating 4 out of 5]

I found it insightful and a good overview of the Chinese economic situation and future prospects.

[David Lademan · Rating 5 out of 5]

Objective analysis of current sop regarding China’s rise and turbulent transition from a Marxist-socialist to a semi-dictatorial country.

Great overview of one belt one road policy and Chinese investment in Far East, Africa.

[John Knowles · Rating 5 out of 5]

George Magnus writes about the dangers of the Middle-Income Trap in the Middle Kingdom, among other issues, in Red Flags: Why Xi’s China Is in Jeopardy. President Xi’s face adorns the book cover, with his name looming above. Fitting, seeing as China has removed presidential term limits; China’s fate is thus likely to be tied to the decision making of Xi for the next couple decades.

Magnus writes about the dangers of Xi’s likely ascendance to President-for-Life. Ever since the excesses of Mao’s one-man rule, China’s Communist Party has largely ruled by consensus, while provincial governments have served as a counterweight to federal authority via control of their land and many of their local State Owned Enterprises (SOEs). Xi Jinping is challenging this status quo. So-called Xi Jinping Thought is now official party canon, being taught in schools and in the media. The 2012 crackdown on corruption by Xi in his inaugural year was widely seen as a pretense for taking out political opponents and sending a message to his potential opponents. Ever since, Xi has been working to centralize power to himself. Magnus notes that being leader for life largely shields Xi from short-term popular discontent, but also means that every long-term decision, good or bad, will become part of Xi’s legacy. Hence, the book informally reads as a personal policy checklist for Xi.

Red Flags lists four red flags of likely impediments to Chinese economic development. Firstly is debt. China has been an unprecedented money-making machine for the past three decades or so. However, signs are starting to appear of a possible economic slowdown. Most significant is the debt to GDP ratio, which has skyrocketed over the past few years. Magnus writes extensively about how China’s growth, up to this point, has largely been fuelled by credit (debt). China’s much-maligned (by Trump, most notably) trade balance surplus has shrunk to no more than a few percent, statistically insignificant. China could theoretically make up for shrinking foreign demand for goods and services with domestic consumers. Magnus is unfortunately the bearer of bad news in this regard: “Household savings rose from about 5% of disposable income in the late 1970s to about 38% in 2016, or just over 25% of GDP. Savings by companies are also elevated, amounting to about 17% of GDP in 2016.”

Hence, the Xi regime has been trying to maintain economic growth via ever-greater sums of state investment funding. Magnus explicitly warns against this: “The reason the investment rate has to fall is because the more China relies on it, the more inefficient that investment will become.” Such a statement might seem self-evident, but Magnus backs it up with facts. For instance, he points out, “Between 1978 and 2006, for example, China spent between 2 to 4 yuan of investment to get 1 additional yuan of GDP. Since then, the amount has risen steadily to reach about 9 yuan in 2015, corresponding to a marked fall in investment efficiency.”

Magnus writes a lot about the inefficiency of China’s thousands and thousands of SOEs. “Officially, and according to some China-watchers, SOEs now account for just a fifth of output and a tenth of employment. The presumption though that the rest of the economy is in private hands, as we understand it in the West, is incorrect. Many private firms have large or majority state owners, who exercise significant control over senior appointments and corporate strategy, and state ownership is often disguised by multiple layers of investment companies ultimately owned by a state entity. Allowing for these opaque adjustments, the purely private part of the enterprise sector may actually be little higher than 20–30 percent.” SOEs have built much of modern China, but their efforts are increasingly being wasted on skyscrapers and airports that remain almost empty, Chinese Roads-to-Nowhere. A blank check invites planners to ignore long-terms concerns of viability, blinded by short-term gains that go directly into the pockets of Party-affiliated contractors. China’s financial services sector isn’t much better off. Magnus writes about all the bailouts, takeovers and general heavy-handedness by the government of various Chinese banks and other related companies. Due to a slowdown in trade and many other issues discussed in the book, state investment will figure to play an ever-larger role in China’s economy, inefficiency be damned.


‘Red Flags: Why Xi’s China Is in Jeopardy’ by George Magnus. 248 pp. Yale University Press
The book’s second diagnosed problem for China’s future growth is its currency, the renminbi. Xi mirrors the isolationist mindset of China’s ancient emperors with regards to cash inflows and outflows. It’s very hard for Chinese investors to send renminbi out of the country. Likewise, China restricts the ability of foreigners to own reserves of renminbi, or Chinese financial assets in general. The renminbi is subject not only to this lack of liquidity, but also the confines of a planned economy. China is infamous for its strict control of its currency valuation, as well as its monetary policy via diktats, investment and bailouts. Its ownership of USD and other foreign currency reserves must always be flawlessly balanced to safely back up the value of the renminbi. This resulted, for instance, in the selling off of a trillion of its USD reserves between 2014-2016. The combination of currency illiquidity and over-management limits the ability of the renminbi to fuel Chinese economic growth.

Thirdly, the book mentions the so-called Middle Income Trap. Once a country reaches a certain benchmark of development, it’s hard to maintain further momentum. China’s already experiencing slowed growth due to factors such as increased global manufacturing competition. As Magnus points out, China has already had its coming-out party to the world economy. It can’t join the WTO again or eliminate mass hunger again. Likewise, China has stalled in terms of rural development and education. Rural China is increasingly falling behind the major cities and the hukou system of restricted movement and rights for migrant workers isn’t helping. Students in China still attend far fewer years of school than students in developed countries like the US, especially in advanced fields like IT. These issues of inequality and 21st-century education must be addressed if China is to fully develop.

Lastly, Magnus writes about the demographics crisis. China has one of the highest ratios of elderly people in the world. Combine this with China’s 1.45 birth rate and the gender disparity caused by the one-child policy and you have a ticking time bomb. The workforce is increasingly running out of youngsters who can take the place of retirees, causing a slowdown in economic output. The higher the elderly population becomes, the more each working-age person will have to contribute to pensions and healthcare. The economic burden that only-children will have to shoulder taking care of their aging parents will inevitably lower marriage rates and thus further lower the unsustainably low birth rate.

This is the most dire problem because there’s very little that society can do about it. Xenophobia has prevented any meaningful amount of migration to China, but even if China were to let in tens of millions of foreign workers, that would be a drop in the bucket for a nation of 1.4 billion people. Even after China ended its one-child policy, couples are still averaging well below 2 children, despite increasing prosperity. The only real hope for China’s demographic problem would be a literal ex machina: automation. Robots may be able to generate untold wealth that could buoy a small nation like Singapore, but even an army of robots is unlikely to completely offset the gradual loss of hundreds of millions of working-age people to aging. Even if AI is a magic bullet for all productivity woes, it would take at least a century to meaningfully scale up, by which time China’s population will have substantially shrank. It doesn’t help that China is, in many respects, barely keeping pace in the AI race with the US, Japan and the EU. In the race for artificial intelligence, even being a year behind the competition can cost trillions of dollars; China’s tech sector will likely take a few decades to completely match Silicon Valley. Lastly, it should be noted that not even innovation can overcome the limited resources of our planet. We’re already running out of industrial resources like oil and lithium. It would be foolish to place all of one’s eggs in the basket of a sci-fi utopia.

Red Flags is a very detailed and interesting book about the future of China. Magnus isn’t anti-China by any means; he gives credit to China’s marvelous successes and doesn’t moralize. If anything, the book was too generous by barely mentioning the unrest in Xinjiang and not mentioning the occupation of Tibet at all. In an objective fashion, he succinctly explains China’s problems and offers possible solutions. China has shown an unprecedented ability to adapt to change. This flexibility may wind up being undone not by external adversaries or limitations, but by increasing autocracy. Dictatorship has rarely resulted in long-term, across-the-board growth. One can look at a fellow Communist country for an example: the Soviet Union. Though the USSR made impressive leaps in technology, manufacturing and agricultural output and human longevity, it was ultimately undone by its ideological rigidity. A lack of accountability for its leaders meant that the USSR was forever a captive to bad policy. Likewise, a lack of freedom stunted innovation. If Xi is to avoid the pitfalls of the USSR, he must avoid letting his power get to his head and embrace a flow of ideas from both fellow Party members and private citizens. Xi’s consolidation of control and crackdown on dissent would point otherwise, unfortunately. Only time will tell if China will continues to beat the odds.

[Cathal Donnellan · Rating 3 out of 5]

If you can get over the sensationalist title, this was an exceptionally good read touching upon some of the main challenges faced by China, some of which have come to fruition over the last two years.

The key points touched upon were the middle-income trap and the leveraging of debt in the name of economic growth, which has resulted in an unsustainable economic model. Magnus correctly points out that China can either inflate or deflate its way out of this burdgenoning debt, both of which are not palatable when you consider 'Social Harmony' to be one of the guarantors of CCP legitimacy.

With the Renminbi now in the IMF basket of currencies that can be traded against a variety of different currencies, Magnus also portends certain dangers, but in my opinion, didn't go into enough detail on this aspect. Recipient countries in the BRI project refused to receive loan capital in the form of the Yuan, instead choosing the US Dollar, with a weaker Yuan being inevitable in the future. This isn't necessarily a bad thing for China, but it does illustrate some of the key issues with attempting to upend the US Dollar as the global reserve currency.

While Magnus did go into detail about urbanization and the untapped rural workforce drying up as a driver of economic growth, with migrang workers being on of China's key drivers, one thing that Magnus did not delve into sufficient detail on was the Chinese property bubble being driven by urbanization and the movement of people from rural to urban areas. With the 'Buy A Car, Buy an Apartment' (买车买房) ethos deeply-rooted in Chinese culture as a form of investment and security, this is something that could be worrying in the grand scheme of things.

As the world has started to address a more bellicose and assertive China on the international stage, Magnus is absolutely right to point out that while China, has more economic clout than ever before, that it sorely lacks the levers of soft power and the ability to influence other nations without resorting to threats. This is something that is worrying in the long run.

While the book is great and he makes some great arguments about the debt trap and a rapidly-ageing population, it was still a little too high-level and, in my mind, in need of an updated follow-up.

[Rian Matanky-Becker · Rating 2 out of 5]

I think the issue wasn’t with the book but rather with the what I wanted the book to be (which it wasn’t). This was very economics focused and a bit technical which meant i zoned out a fair bit whilst listening to the audio book. I would like to read a political/social/historical analysis of modern day China but to be fair that just isn’t what this was or ever claimed to be

[Marcus Goncalves · Rating 5 out of 5]

Excellent and well researched book, providing in-depth details on the differences between China’s CCP financial and business structures versus the west. The author outlines some “red flags” and risks in Xi’s administration and his accumulation of power.

[Blake E · Rating 1 out of 5]

infinitely well researched and fair
infinitely and suicidally boring too!

[Yoda · Rating 4 out of 5]

A Very Good Book on the Current State of China’s Economy

Any review of this book would have to start out by pointing out a few facts. One is that it is intended as an analysis, at its heart, of the Chinese economy. Issues such as foreign policy, political environment, etc. are only discussed in a subordinate manner to the economy. A second fact is that the book itself is really geared to those who have an intermediate level of knowledge regarding macroeconomics, finance and economic development (i.e., those who are half way through completing their Bachelors degree in economics). Those with less than that knowledge base would not be able to get their (entire) money's worth out of this book. With respect to knowledge of modern China itself (and the immediate surrounding region), a basic knowledge of China is sufficient to comprehend this book. One does not need more than that. Then again, as stated above, it is a book geared much more to the economics.

The book starts of with the mandatory discussion of post-war Chinese political and economic history to provide the necessary historical perspective (i.e., Mao's rise to power and his economic policies during the Great Leap Forward and the Cultural Revolution, etc.). Very rudimentary and nothing not really unknown to those with even the most basic knowledge of Chinese history and economics. Then the book moves into the Deng period and early policies surrounding state owned enterprises (SOEs). After that it goes into the structural changes occurring from then until now (the book was published in late 2018). The book then goes into the current structure of the Chinese economy and the current state of that economy as well as strengths and weaknesses (i.e., too high debt, inefficiencies, lack of transparency and legal institutions, etc.). Mr. Magnus also provides recommended solutions to many China's current problems (i.e., structural changes requiring a more "balanced" economy based on consumption than investment, the development of more legal institutions and transparency, improving social services and education, in particular outside metropolitan areas and among rural migrants to urban areas, etc.). He is careful to stress, and provides his underlying logic, as to why he believes most of these "solutions" will not be enacted. For example, an economy based on more consumption and less investment and greater independent legal structures and transparency will probably not be occurring anytime soon due to the fact that they will undermine the party and Mr. Xi's current efforts to strengthen and centralize the Communist Party of China as well as his own political position. All and all a pretty good book with respect to all of these analyzed issues.

The book does have a few weaknesses though. One is that Mr. Magnus seems to depend too much on official Chinese statistics in many areas (i.e., debt) even though he, ironically, emphasizes the lack of transparency in many Chinese institutions and the statistics themselves. He provides some alternative statistics but nowhere enough given the problems and questions in the given Chinese statistics.

A second and more serious problem is the lack of depth regarding issues that are ancillary to the Chinese economy. He does cover the domestic political environment-economy nexus in some detail (especially the impact of the Communist Party and Mr. Xi's current efforts to centralize political power in China and its impact on the Chinese economy) but there is nowhere close to the amount of attention that is needed to be paid to the implications of Chinese foreign policy on the Chinese economy. For example, China's policy in the South Sea is making many enemies of China in the area (especially of the Philippines and Vietnam). It is hard to not imagine this not having an impact on Chinese trade with its neighbors. It is also difficult to imagine the implied increases in Chinese Defense spending that will, almost inevitably, arise to counter the neighbor's increased defense efforts not having an impact on the Chinese economy.

Despite these weaknesses, all and all, a highly recommended book on the Chinese economy that does a very good job at pointing out its development up to this point, its structure and current weaknesses. Four and a half stars.

[Jeffrey · Rating 4 out of 5]

Magnus provides one of the more nuanced and balanced assessments of China's economy. In many ways Red Flags offers insights, but Magnus does not extend too far in trying to make conclusions. Indeed it is refreshing to see a humbling opinion - as he admits there are still many unknowns, but Magnus does a great job highlighting the key ones.

Magnus eschews anecdotes and stories, instead interpreting statistics in a ways that give the reader interesting insight, I would recommend it over other books such as McMahon's China's Great Wall of Debt. . For example, he deconstructs the widespread claim of China's $370 billion trade deficit with the US, pointing out that this figure does not allow for the fact that China is the end point for products that are also partly manufactured elsewhere (for example, Japan and South Korea), and adjusting for this the deficit drops to $150 billion (p161). Magnus does not hesitate in pointing out false claims, regardless of the part involved.

However, more than just analysing the statistics, Magnus also condenses the issue down into key areas - his analysis is that China faces 4 traps, namely the debt, Renminbi, demographic and middle-income traps. The presentation of these is largely dispassionate. Indeed it is refreshing for once to not have someone declare that China will definitely fail, or definitely succeed. As he ends the book: "The short and honest answer is that we don't know." That is not to say he does not provide his opinion, but it does not dominate or colour his analysis.

My one criticism is that there are points where Magnus does seem to lapse into the common habit of presenting China and the US as representing different ends of the spectrum - China as the big-government and the US as the free-market caricature. For example on p152-3, he questions whether China's command model will be able to drive innovation, as opposed to the more risk taking and entrepreneurial environment encouraged by the US free-market system. For me this fails to take into account that both (and indeed all) countries lie on a spectrum between 2 extremes. It also ignores the recent work of other economists such as Mazzucato that argues that it is indeed government that has the risk appetite and long-term time horizons required to generate large innovative leaps which then entrepreneurs are able to exploit (for example US government's role in the space program, the internet and agriculture).

Despite this, overall this is one of the better books analysing the Chinese economy. It may leave you with more questions than answers, but at least it will have you questioning your assumptions - which is worth doing when we have reached the end of extrapolation (as Magnus argues).

[Adrian · Rating 4 out of 5]

While many works are available on the state of contemporary China, particularly a litany of works that examine the worrisome underpinnings of China’s economy, Red Flags may be the most comprehensive examination of the various threats that may derail China’s rise.
The Debt trap, referring to China’s debt fueled economic growth is dealt with early in the book, however, this issue has been dealt with at length in several other works. Nonetheless, Magnus provides a succinct and concise examinations of the debt burdens that are arising in China’s economy, largely a product of overheated GDP growth.
A strength of the work is the chapter on the Middle Income Trap, as Magnus lays out why authoritarian governments are often unable to escape the Middle Income Trap, but Magnus leaves room for some optimism that China could buck the trend.
Other issues are the aging of the population, and the contradictory status of the Renminbi’s valuation, and how some currency reform may be beneficial, if China can make the hard choices in revaluing the Renminbi.
The issue of Donald Trump’s trade war Magnus pretty much shrugs off as of no serious threat to China, and more harmful to US interests in themselves. However, a strength of the book is the penultimate chapter, the East Wind Prevailing over the West, wherein Xi Jinping’s Belt and Road Initiative is examined.
Essentially, Magnus contends that the BRI is met with mixed reviews, and its outcome is far from certain, but nonetheless he does not identify BRI as a factor that could potentially derail China’s rise.
The final chapter, Xi Jinping’s China, focuses mainly upon the overturning of term limits and Xi Jinping’s de facto status as President for Life. Magnus is somewhat bearish on this prospect, seeing it as a harbinger of the “Bad Emperor Syndrome” as unaccountability may have other unforeseen consequences. The other issue is the blurring of Party and State, as power is increasingly being concentrated in the Party itself, rather than institutions.
Nonetheless, it is the opinion of this reader that centralization of power is perhaps the best way to overcome the debt trap, as previous attempts to overcome the indebtedness were resisted successfully by vested interests, however, the anti-corruption campaign and increasing centralization of power make resistance to reform by vested interests much more difficult.
Magnus is somewhat bearish on China, but the book is nonetheless highly comprehensive and a worthwhile read.

[Jiliac · Rating 4 out of 5]

This is the best book describing China position in the geopolitical space right now (writing at the end of 2019). I'd recommend for anyone interested to read it ASAP b/c its value will decrease rapidly. It was published one year ago and some things are already worth re-evaluating (e.g. trade war, credit policy). To set the context, Magnus dedicates the first few chapter to Chinese modern history: starting with the fall of the Qing in the XIXth century, ~civil war years until 1949, Mao China, and then post-Deng China. (Although, I'd say reading "In Search of Modern China" by Spence would improve the comprehension.)

Then, one chapter for each of the four most important problem China will need to address in the future:
- Debt trap: since 2008, Chinese growth has mainly been fueled by (domestic) debt. This is not sustainable.
- Currency (renminbi) trap: with the current policy, the RMB stability cannot ensured, and it is unlikely that it will gain dominance. The main problem is the CCP reluctance to give up its control on exchange rates.
- Demographic (ageing) trap: due to the one child policy (and remaining low birth rate once removed) and the extremely low retirement age, China working population is going to rapidly decrease in the coming years. Three potential solutions: immigration, higher productivity and higher labour participation (women and later retirement). Probably a combination of all but doesn't look like enough.
- Middle-income trap: the export model is not enough for the future. Labour has expensive and global companies are switching to Vietnam, Indonesia, Bangladesh etc... To continue growing, China will need more skills, and more importantly, more creativity. But its authoritarian government impedes creativity (see "Why Nations Fails" by Acemoglu for more on this).

Ends with: we don't know what's going to happen, but several explanation of why it might not work out. No one succeeded with this model so far. We'll see. In the meantime, the author provides five recommendations for Western powers:
- better understanding of China intentions.
- China need to be acknowledge and have a fair say. Rejection is a lose-lose, or worse, could backfire.
- US, EU, Japan, Korea, India, Australia unity.
- Hold our values.
- Reinforce our comparative advantage: R&D, education, productivity growth.

[Mikko Arevuo · Rating 4 out of 5]

George Magnus's book considers the challenges China faces under the leadership of Xi Jinping over the next decades.
George is an independent economist and commentator, an Associate at the China Centre, Oxford University, and the former chief economist of UBS. Many books about China are written from a specific political or ideological perspective. In contrast, and true to his trade as an economist, George writes as a dispassionate outsider trying to make sense of what is happening in the Peoples Republic.
The book considers four traps that may have far reaching economic consequences to China and the wider world: Debt Trap, Renminbi Trap, Demographic or Ageing Population Trap, and Middle-Income Trap. The discussion of these traps requires that the reader has a solid grounding in economics to fully understand the nuanced arguments that George makes. Hence, I am only giving the book four stars as a general reader may become unstuck after the first three chapters that give an overview of China from Mao to modernity before moving into the discussion of these traps.
The book was first published in 2018 and the paperback in 2019. The paperback edition includes a new concluding chapter 'Afterword' where George considers the consequences of the increasing political centralisation of power by Xi Jinping and brings the reader up to date of the trade war between China and the USA. This new chapter also covers the political and security motivations that underpin technological competition between the West and China that is manifested in the case of Huawei's 5G networks. This is particularly timely as the UK government has given Huawei a green light to develop parts of the country's 5G network. If the discussion of economic traps is too technical, I recommend that one reads the penultimate chapter 'Xi Jinping's China' and the 'Afterword.'
George concludes that China represents an economic and geopolitical challenge. Although George does not think that China's emergence as the world's leading economy is a foregone conclusion, the West needs to find ways to engage with China where we also assert our own values and principles.

[X Li · Rating 4 out of 5]

Having recently finished two other books examining the current state of China (The Myth of Chinese Capitalism by Dexter Roberts) and Asia (How Asia Works by Joe Studwell), I would recommend fans who are interested in learning more about the socioeconomic dynamics of the region to first read the Studwell book, followed by Red Flags, then the book by Roberts. To set expectations, those interested in so called mega-trends (e.g., urbanization, technology/AI) should look elsewhere as should those interested in stories with more intimate human interest coverage.

In his analysis, Magnus identifies four Red Flags (e.g., aging/demographics, middle-income trap, debt, exchange rate stability) which could serve as constraints on Chinese growth economically and in terms of its ability to push forward a more ambitious global agenda. On the economic side, the focus is primarily on the types of domestic reforms and re-balancing needed to stand up more sustainable institutions (including the formal and shadow banking system) and social security systems. There are a myriad of tough issues but one get the sense most are known knowns that have been analyzed in detail but may be stalled due to other reasons.

In terms of global agenda, which is inevitably linked to China's ambitions to become a highly advanced nation (on par with Japan, Singapore, South Korea, and Taiwan in the Asia region), the diagnosis is more complicated as it involves more unknown variables such as the ability to convert economic development into soft power, vision and people's ambitions. Middle-income may be a trap, but for many, quite a comfortable one. As Mao once said: "...You young people, full of vigor and vitality, are in the bloom of life, like the sun at eight or nine in the morning. Our hope is placed on you. The world belongs to you. China's future belongs to you." Their ability to integrate the best of the world in China and to share the best of China with the world is the next series of chapters I look forward to reading in the decades to come.

[Kate · Rating 4 out of 5]

BBC Scotland recently created a series of thoughtful and dramatic covid-related vignettes that just started showing up on my Facebook video feed. One skit is in two parts and features a heavy-set middle aged woman stroking her toy dachsund while she tells us about her controlling, authoritarian husband. "He likes his rules, he does." She's cowed from decades of obeying his rules, yet you can see some inner resolve peeking through. She continues her story until it becomes clear that her husband only abides by his own rules, has contracted covid, and she's put him in the spare bedroom where she says he is coughing and feverish. She assures us that she'll tell the authorities in good time. In the second part, the husband is dead and she's face-timing her son who lives in Soho with his boyfriend, a situation of which her dead husband had disapproved. Her son persuades her to finally visit him in London, see Soho, and go out dancing. She's still emerging from the shackles of marital obedience, but eventually she agrees, admits she can't bear having her husband's ashes in the house and so will have them destroyed, and ends the call a step closer to personal freedom.
Magnus' book on the warning signs of China's economy would have certainly included an additional "flag" if it had been written during Covid. I read the book because my sometimes scary but annoyingly often right about things "ex" husband recommended it, and because it coincided with some zoom calls I had scheduled with various interest groups on the topic of China, Hong Kong, and the current political situation. It's a brilliant economic study and I take away an understanding of how a market economy can exist under a single-party, authoritarian government. But like the oppressed wife in the BBC skit, and as someone who has experienced some of that oppression myself, I agree with the author that the "supposed omnipotence" of the Party leader is at risk in a very brittle world. And Covid only seems to follow rules of its own, regardless. Let's sweat it out and see.

[Edmund Bloxam · Rating 3 out of 5]

Definitely not 'Ha Ha, China is Fucked, Lol', far more, if more prosaically, 'Potential Problems that the Chinese Government Must Overcome'.

It's a very balanced and studied book. If anything, the sheer weight of data made the book more challenging to read. It is not a criticism of the CCP; when it does have an opinion about potential contradictions in how an authoritarian dictatorship can become a truly global power, it does so in measured and thoughtful fashion, and couches such occasional statements in the weakest terms, such as 'I have a hunch that...'

It in no way assumes that the problems cannot be overcome. However, the most complicated problem would be a problem for any country, that of the middle income trap (for me, the most convincing 'red flag'), here exacerbated by the hurried dash into an aging population that the One Child Policy created.

There's an awful lot of dry economics here and this was at times distracting for me, as this is harder for me to process. The book would be a star or so higher if my brain was wired that way. But hardcore economics is at the heart of this book and the points it is discussing. It is a smart book written by a smart person, that does not say anything as controversial as the title implies, and as some reviewers have determinedly misunderstood - they seemed to come into reading this with a pre-set opinion, which makes reading the book, or any book, a waste of time.

The book is on the verge of being dated. The after-effects of the pandemic are, obviously, missing. Although not its focus, much of its analysis of US response is defined by responses to the Trump administration. If America First must make a comeback, with any luck it'll be less disastrous and self-destructive in terms of responses to China's coming out party. I think the rest of the book's analysis will last a decent amount of time though and thus the book is still worth reading.

[Akshay Anand · Rating 4 out of 5]

The author enlists four major red flags as hindrances to Chinese economic development:
1. High Debt Levels
The debt-GDP levels have been increasing exponentially since the last 10 years. Currently, at 329 percent of GDP, author explains why high growth fuelled by credit is not sustainable especially in China's case.

 “The reason the investment rate has to fall is because the more China relies on it, the more inefficient that investment will become.”

2. Currency
It’s very hard for Chinese investors to send renminbi (Official name of Chinese Yuan) out of the country.  Likewise, China restricts the ability of foreigners to own reserves of renminbi, or Chinese financial assets in general. This obstructs the road for Remnimbi to become a truly global currency , just like US Dollar.

3. Middle Income Trap
Once a country reaches a certain benchmark of development, it’s hard to maintain further momentum. China’s already experiencing slowed growth due to factors such as increased global manufacturing competition.

4. Demographic Crisis
China has one of the highest ratios of elderly people in the world. The current birth rate of 1.45 along with the fender disparity caused by the infamous one child policy has done more harm than the intended benefit.
Even after China ended its one child policy, couples are still averaging well below 2 children, despite increasing prosperity. The book explains that only solution to this problem is higher level of automation in future which China is betting big on.

This was my first technical reading on International affairs. Although I found Magnus to have already developed a bias against China, i will still go for a second read if possible.

[Warren · Rating 2 out of 5]

The author spends a lot of time elaborating on complex economic metrics and policies and also starts off with a brief history of modern China. In some ways it’s quite detailed. There’s an intentional moral distancing the author uses to try to I guess looks at it from an economist’s point of view. But this is absurd. And he also exposes his bias later in the book when he calls Trump’s tariffs “catastrophic” and yet on the other hand barely scratches the surface of the brutality of Mao or present day Xi Jinping. He says Chinese people don’t mind their totalitarian government, they trust it. Well, every aspect of their lives is monitored and any dissent could get them sent to a re-education camp so yeah under those conditions I imagine most people will not criticize the CCP. He regularly says China will have to do this or that in the future. The reasonable question one asks is, why? And, or what will happen? The answer is well, they don’t have to take this or that direction, that’s just to effect the economy. The answer is if they miss those targets the effect on the average person might be life is a little harder under a prolonged recession. Hardly a moral justification for totalitarian. People strive for more than just the relative ease at which they can afford to buy this or that widget. He also basically dismisses accusations of IP theft, which is more than rare or incidental. It’s systemic and intellectual property forfeit is even a requirement for operating foreign business in China.