The debate over how China's economy might evolve over the next decade generally breaks down into two opposing cases. Bulls are confident that Chinese leaders will make the hard reforms needed to clean up local government debt, reform state companies, open more markets to private-sector competition and liberalize the financial sector. This should enable China to achieve another 10-15 years of rapid growth. Bears are equally convinced that the government will fail to enact any real reforms, provoking either a drastic plunge in economic growth or an outright financial crisis.
In fact, the likeliest scenario is far less dramatic. Rather than curing its economic woes and cementing its position as an economic superpower, or suffering a devastating collapse, China looks set to spend the next decade in genteel decline, much as Japan has since the 1990s.
If that outcome seems implausible for an economy of China's size and dynamism, consider the similarities. By 1990, Japan, too, had enjoyed a nearly four-decade run as the world's fastest growing economy, thanks to a growth model fueled by investment and exports. It also ranked second in the world in GDP and total trade. Its companies were moving rapidly up the technology ladder and seemed poised to supplant their U.S. and European rivals. The financial market was opening; Tokyo was anointed the next major center of global finance. The national saving rate was high and public finances were prudently managed: Japan had the lowest sovereign debt of any OECD country.