CAN'T HAVE A CLASH OF CIVILIZATIONS WHEN THERE IS ONLY ONE:

 In a new book -- "The State Strikes Back: The End of Economic Reform in China?" -- economist Nicholas Lardy of the Peterson Institute for International Economics argues that, until a few years ago, China seemed to be moving gradually toward a system of private enterprise.

In 1978, when Deng Xiaoping launched China's present economic reform, state-owned firms dominated the economy. Now, according to Lardy's estimates, private firms account for roughly 70 percent of the country's output (gross domestic product).

The reversal came after Xi Jinping assumed leadership of the Communist Party in 2012 and, later, the presidency. He changed course, favoring state-owned firms, as Lardy shows by citing loans to businesses.

In 2013, 57 percent of loans went to private firms and 35 percent to state-controlled firms. By 2016, there had been a stunning reversal; state firms received 83 percent of loans, compared with 11 percent for private firms. Much of this lending came from state-owned banks.

This relates to a larger issue: the ferocious debate, mostly among economists, over China's future economic growth rate. In the decade leading up to the 2007-09 Great Recession, GDP growth averaged 10 percent annually. Since then, it has dropped to a 6 percent to 7 percent range, and some economists predict it will ultimately fall to a 2 percent to 4 percent range.

Many theories have been advanced to explain this shift. After years of fast growth, it's said, China has exploited most existing technologies. It will now act more like a "normal" economy. Or: China has too much debt, limiting expansion. Or: China's population is rapidly aging, hampering labor force growth.

Lardy dissents. He attributes the slowdown mainly to two factors: a declining trade surplus and the misguided decision to favor state-owned firms, which he regards as monstrously inefficient. He reports that the profitability of private-sector firms is more than double that of state-controlled companies.

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