Justin Yifu Lin on Pessimism about the Chinese Economy

"A key reason for weak expectations about the future is a lack of confidence, with claims such as 'there are structural problems' [...] exerting considerable influence on people." — Lin Yifu

Justin Yifu Lin is in many ways the poster-economist of China’s industrial policy. A former chief economist of the World Bank, his worldview of “new structural economics” is based on the simple idea that states should adapt industrial policy according to their changing comparative advantage as the economy develops. In the barest terms, a developing country is endowed with cheap labour, while more developed countries possess abundant capital, more advanced human capital and so on—trends which industrial policy should follow.

But as with most simple theories, there are certain blind spots. Lin does not account for how successful industrial policy might depend on defying, or rather newly defining, an economy’s landscape of comparative advantage through legal and political frameworks that favour certain economic actors over others, or currency intervention that depresses the foreign-currency value of wages and output. This was essentially the criticism made by the South Korean economist Ha…