In early 2023, after three years of smothering lockdowns, China reopened its doors to the world. “China is back,” many declared. But by the second quarter, the country’s economic outlook was becoming gloomier by the week. Western commentators duly swerved. After warning that China was overtaking the West, they now argued that it had peaked and would threaten global stability by dint of its decline. (In these narratives, China always constitutes a threat, regardless of whether it is rising or falling.)
With Chinese leaders busy fighting fires at home, nobody talks about learning from China anymore. If Xi’s 2017 speech marked China’s “coming out” as a superpower—one ready to offer not only cash but also enlightenment—it may have been the shortest-lived geopolitical triumph in modern history. Yet even though China is no longer “winning,” it would be short-sighted to dismiss its recent experience as irrelevant. In fact, China’s combination of accomplishments and stumbles, from the “reform and opening” of the 1980s through the present day, makes it an even more instructive case than if it were only a miracle.
A term from US history is useful in assessing those accomplishments and stumbles. China has gone through its own “Gilded Age,” delivering growth but also creating many new problems.
Crucially, “gilded” does not mean “golden.” It implies that beneath the dazzling appearance of gold lies a base, dark metal. That is why novelists like Mark Twain and Charles Dudley Warner seized on this metaphor to characterize America’s rise as a global industrial power during the late nineteenth century (roughly 1880-1900). It was a time of spectacular growth but also outrageous corruption, inequality, and financial bubbles. If you take some US Gilded Age stories and give the players Chinese names, you might think you were reading a tabloid anywhere in China.
When Xi came to power in 2012, China could boast many achievements, having sustained the growth needed to lift 800 million people out of absolute poverty. At the same time, however, elite corruption was endemic and brazen, income inequality had reached levels exceeding that of the US, local governments were drowning in debt, and a real-estate bubble loomed.
Xi thus inherited a China that was enjoying prosperity, but also succumbing to gilded-age excesses. Seen in this light, the question of how China achieved its “economic miracle” is the wrong one to ask, because it presumes that GDP growth represents an unqualified success. A better question is: How did China end up with its own Gilded Age of crony-capitalist, unbalanced, risky growth?
It is a big question—one that I have spent two books (How China Escaped the Poverty Trap and China’s Gilded Age) seeking to answer. In essence, though it is true that Deng Xiaoping, the pathbreaking reformist who succeeded Mao Zedong, established an extraordinarily growth-oriented political economy, he effectively put an expiration date on it.
Deng implemented pragmatic policies that liberated the private sector, partnered and traded with the US, and introduced competition, accountability, and adaptive mechanisms into the government apparatus. More to the point, these reforms all rested on a quiet political revolution: a fundamental shift from Mao’s one-man rule to a new model of collective, term-limited leadership. While Deng never endorsed corruption, he announced that “some will get rich first,” implying that CPC officials would personally benefit from doing their part to drive GDP growth at all costs.
Subsequently, under Jiang Zemin (1989-2002) and Hu Jintao (2002-12), the initially rural orientation of China’s market reforms—which massively benefited poor farmers—took a decidedly urban turn as export manufacturing and foreign investment surged, including from factories relocated from the US, yielding the greatest gains for producers. Rural areas fed cities with a vast surplus of workers who lacked equal access to urban services, thereby keeping labour costs low. Then, in the 2000s, land and real estate emerged as the favoured engines of growth. But the resulting wealth was highly concentrated, creating robber barons like Hui Ka Yan (the founder of the property developer Evergrande, who was placed under “residential surveillance” in September), while the vast majority of Chinese either could not afford housing or paid dearly for it.
Far from failing, Deng’s capitalist reforms served a historic role in pulling China out of poverty within a single generation. When Xi took over, his task was to confront the excesses of the old model and facilitate a transition toward a new one. To that end, he launched his anti-corruption drive, followed by his campaign of “common prosperity”, emphasizing high-quality, equitable growth. In the American Gilded Age, the excesses of capitalism prompted a sweeping wave of social, economic, and political reforms through democratic activism, which came to be known as the Progressive Era. Analogously, Xi’s China is undergoing a “Red Progressive Era” with top-down methods and communist-style “campaigns” being deployed to tackle the same kinds of problems.
Xi chose to accompany this “progressive” social agenda with an extreme concentration of personal power, heightened repression, and ideological control. Among other things, that meant reasserting the role of the state sector in the economy, embarking on an ambitious foreign policy, and ordering three years of “zero-covid” restrictions. While the latter policy did not singularly cause today’s economic stagnation, it did amplify economic imbalances and political tensions that had been building up for more than two decades.
Gilded Ages have much to teach us if we draw the right lessons from them. The challenge is to recognize the mixed outcomes they produce, rather than caricaturing them as “successes” or “failures”. Economists’ view of development tends to equate GDP growth with progress, and, furthermore, attributes “success” to just one or a few simple causes that can then by “copied” elsewhere. America’s current “Gilded Age 2.0″ is a case in point.
The end of the Cold War handed the US the ultimate victory, establishing it as the world’s unchallenged superpower. The political theorist Francis Fukuyama famously argued that liberalism would forever be the lodestar of governance, not only in the West but around the world. Through the 1980s and 1990s, the US government and Washington-based international institutions had carte blanche to prescribe market-based policies—including privatization, deregulation, and trade liberalization—to developing countries.
Within the US, the fervent belief that free markets offered the best solutions to all problems gained doctrinal coherence under the label “neoliberalism”. Mainstream economists reinforced the policy consensus by churning out studies to show that “good institutions” (meaning private-property rights and checks on government power) are the key drivers of growth, conveniently eliding the historical relevance of state capacity and government interventions, and the eradication of indigenous populations and colonial exploitation in Western development.
But faith in neoliberalism took a hit in 2008. Deregulation and years of reckless risk-taking by US financial institutions culminated in a global financial crisis, and while Wall Street was bailed out, Main Street suffered. As extreme inequality continued to rise, Donald Trump rose to power by tapping into widespread popular resentment against the establishment.
Looking back, America’s “total victory” after the Cold War now looks like the beginning of an era of hubris. Not coincidentally, it also marked the start of the new Gilded Age, with steel and railroad tycoons being replaced by titans of finance, pharmaceuticals, and technology—all with deep pockets for lobbying and financing political candidates. Now, many previous advocates of neoliberalism are aghast and insist that governments ought to spend more, pursue industrial policies, and reassert control over markets.
Analysts and policy makers routinely think of outcomes in binary, zero-sum terms: “success vs. failure” or “winners vs. losers”—as in popular titles like Why Nations Fail: The Origins of Power, Prosperity, and Poverty or Gambling on Development: Why Some Countries Win and Others Lose. This way of seeing things has produced the familiar cycle of euphoria, followed by disillusionment, which has persisted throughout modern history.
When Western Europe was a colonial power, it regarded its idealized form of “liberal democracy” as a silver bullet (with many prominent academics exaggerating the role of the 1688 Glorious Revolution in fuelling the English Industrial Revolution). Then, in post-Cold War America, neoliberalism was the answer to everything, as were “Confucian values” in East Asia and a “strong state” in China. In all these instances, the very factor to which advocates attributed their success was later exposed as the source of their biggest problems.
The political foundation of success has also been misinterpreted in China’s case. One of the most common fallacies today is that China’s growth has demonstrated the superiority of authoritarianism over democracy. This conclusion has animated ideological debates in which the “China Model” is pitted against the “American Model”, as if the West’s successes stem solely from democracy, and China’s solely from autocracy. In reality, China succeeded under Deng because he replaced one-man rule with an institutionalized leadership and rejected dogma in favour of a culture of “seeking truth from facts”. By the same token, the recent economic erosion under Xi was partly triggered by his own revival of personalistic power and ideological controls.
A related problem occurs when commentators miss the right lessons because they have been misled by their own biases and distortions. For example, in China’s Gilded Age, I argue that “access money corruption” (meaning elite exchanges of power and wealth, as opposed to petty bribery or embezzlement) functioned like “steroids” and led to the risky, unbalanced growth that China experienced in recent decades. But some readers, including academics, miscast my argument as claiming that corruption is beneficial, and then moralistically criticize me for endorsing it. In fact, I am highlighting the hypocrisy of rich countries in erasing their corrupt past (and sometimes legalizing corruption today). Looking at contemporary China forces us to revisit the troubled history of richer countries. In taking lessons from China—or any “success” story, for that matter—we should not only ask what to learn, but also what not to learn. Deng showed that a balance of stability and institutional checks on the political leadership is a necessary foundation for economic growth. Adaptive governance paired with sensible macroeconomic and foreign policies is also essential. We should not assume, however, that concentrating power in one person’s hands is the answer; in fact, it risks capriciousness and wild policy swings.
More broadly, China’s story reminds us that any success in modernization includes caveats. Other developing countries would do well to avoid pursuing growth at all costs, especially now that climate change is intensifying. Sustainable growth also must be inclusive. If growth enriches only a small handful of elites, it may eventually trigger a political crisis.
It is equally important to distinguish between learning a principle and simply copying a particular practice. One valuable principle from reform-era China was to “use what you have”. That is, local communities tapped into indigenous techniques and resources to spur entrepreneurial activities. An example is “profit-sharing”, a practice adapted from tax-farming traditions in which civil-service compensation is de facto but not de jure linked to economic performance. Profit-sharing worked at an early stage of growth by strongly incentivizing bureaucrats to generate income; but it became incompatible with the pursuit of higher-quality growth and was gradually phased out. This example should inspire other countries to find ways to give their officials a personal stake in development, in ways compatible with indigenous practices. But they should not simply copy this practice, which has become obsolete even in parts of China today.
As the Chinese economy enters a period of stagnation, it will doubtless offer richer lessons about development and governance. China’s trajectory reminds us that no solution, even one as ingenious as the model bequeathed by Deng, can last forever. Every generation, and every stage of development, confronts a new set of problems that demands a new response. Xi wants to prove that he can use top-down controls instead of bottom-up forces to contain them. But reality, so far, is proving him wrong.
Cut-and-paste solutions or get-rich-quick schemes exist only in commercials. Often, the best lessons are learned the hard way, by adapting the right principles to ever-changing contexts.
Yuen Yuen Ang is chair of political economy at Johns Hopkins University, and the author of How China Escaped the Poverty Trap and China’s Gilded Age.
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