Chinese economy's consumption-based model may not be doomed to fail: Kevin Rudd, former Australian prime minister

By Elena Holodny


The "China's going to collapse" thesis has been one of the more popular economic narratives recently pushed forward by academics and perpetuated by the media. However, Beijing's economic model is "probably sustainable" - and it's imprudent for the US to make policy decisions based on the assumption that China will collapse, argue former Australian prime minister Kevin Rudd and Eurasia Group president Ian Bremmer.

"Sorry, but on balance, the Chinese economic model is probably sustainable," Rudd wrote in his summary report on "The Future of US-China Relations Under Xi Jinping."

"On the sustainability of Chinese economic growth as the continuing basis of Chinese national power, on balance we should assume a Chinese growth rate in the medium to medium-high range (i.e. in excess of 6 per cent) as probable" for the next decade, he continued.

He highlights the following three major points regarding his conclusion:

One, he doesn't assume that Beijing's "vast battery" of policy responses to all of China's economic problems is destined to fail. Furthermore, if China's growth rate begins to falter, then Beijing has "sufficient fiscal and monetary policy capacity to intervene to ensure the growth rate remains above 6 per cent."

Next, Rudd writes that it's also unconvincing to argue that China's transition into a new consumption-based model "is also somehow doomed to fail." He adds that it's "a sophisticated policy blueprint developed over many years" with "a high level of political backing to drive implementation."

Finally, although he concedes that China faces plenty of policy challenges that could hurt Beijing's economic program, Rudd argues that it's "just plain wrong" to assume that China's policy elites are "somehow ... less capable" in meeting upcoming economic challenges than in the past.

Importantly, China's collapse isn't what people should be worrying about.

At lunch-and-discussion at the Asia Society on Wednesday, Bremmer and Rudd argued that the real danger is that Washington won't have a medium to long-term response to China's concrete geo-economic strategy.

"What really worries me, as a friend of this country, is this 'China collapsism' thesis [is] a great danger in that it induces policy complacency in this country, among other things," Rudd said at the event.

"It would be imprudent in the extreme for America's China policy to be based on an implicit (and sometimes explicit) policy assumption that China will either economically stagnate or politically implode because of underlying contradictions in its overall political economy," Rudd wrote in the China-US report.

Instead, the US should clearly define its foreign policy agenda in response to China's economic rise - like some other states are doing, argued Bremmer.

"When I go to Japan - the Japanese understand that [China's rise is something] they should be dealing with it every single day. It should affect their government. It should affect their national strategy. It should affect how their corporations think. Everything," he said at the Asia Society discussion..

"They're having that debate. And we're not having that debate. We're having a debate about Iraq - which we should have - but we're not having a China debate."