This chapter provides a comprehensive historical perspective on the ups and downs and the remarkable renaissance of China’s economy in modern times. It delves into the factors influencing China’s economic growth, explores future growth prospects, and examines the challenges it encounters.

China has a contiuous culture of over 5,000 years and Chinese culture was preeminent among world civilizations for 1,500-plus years before the eighteenth century. The prosperity of a civilization is determined by its material productivity, and the continuity of Chinese culture can be attributed to the preservation of its core value, i.e., benevolence (Ren in Chinese) for 5,000 years. Therefore, China’s cultural rejuvenation depends not only on economic prosperity but also the inheritance and preservation of core value ren.

This chapter describes the century-long national salvation spanning from 1840 when China was reduced to a semi-colony of Western powers as a result of the Opium War, to 1949, when the PRC was founded. This period coincides with the exploration for the path of national rejuvenation among Chinese intellectuals, characterized by a shift in focus from inherited artifacts to social organizations, and to ideas, habits, and values. These endeavors ultimately culminated in the socialist revolution.

This chapter explores the phenomenon known as the “East Asian Miracle,” which refers to the successful catch-up of Japan and the "Four Asian Tigers" with the developed world after World War II. It critically examines popular interpretations of this phenomenon, including cultural determinism, the Cold War, free markets, developmental state, and export-oriented strategies. Furthermore, the chapter introduces the theory of the new structural economics. This theory argues that enterprises are viable in open and competitive markets only if they align their choice of industries and technologies with their economy’s endowment structure.

The primary role of the financial system is to serve the real economy. However, China’s financial system is predominantly characterized by large state-owned banks and the stock market, and it is ridden with a spate of problems including bad debts and a highly speculative stock market. One of the fundamental problems related to economic development is the irrational financial structure, which underserves private small- and medium-sized enterprises (SMEs) and farmers, who are the main players in the real economy. Therefore, alongside enhancing financial supervision, it is crucial to improve the financial structure by promoting the development of regional small- and medium-sized banks, contributing to a healthier and more balanced financial system.

Chapter 3 shifts from the financial to the political sphere and is based on trips made to Whitehall to speak with civil servants working on economic policy. The chapter first provides some context by indicating the importance of economic communication in the political sphere as well as the civil service’s role in economic policy and communication. It then draws on time visiting Whitehall to outline the pressure to present economic knowledge in the political sphere as objective – when it is anything but – and describes the type of myth that stems from this pressure. Finally, before concluding, the chapter provides a case study that looks at how the argument constructed plays out in practice, through the setting of an economic policy: the minimum wage.

This chapter delves into the internal logic and the impact on economic development of China’s strategy of prioritizing heavy industries and its planned economic system, characterized by direct government allocation of resources. It covers the period from 1949, marking the success of the socialist revolution, to the eve of the reform and opening up program, which commenced in 1978.

Chapter 5 gives the lie to the myth by dealing with some fundamentals of how our economy actually works. It shows what is wrong with the visions of the economy exposed in the previous four chapters, before concluding on a hopeful note, showing how it is possible to achieve a better future if we are able to dispel the paralysis of myth. It does this through first outlining the process of credit creation, to show that the economy is not a finite pot of money, but largely dependent on the creation of money by private banks. It then draws on some insights from modern monetary theory and other heterodox economic writers to show how the state could wrest control of the creation and allocation of credit away from the private sector and put it to use in order to create a greener and fairer economy.

This chapter begins by introducing the Needham Puzzle, which examines why and how China had ceded its leadership in science and technology to Western countries after the Industrial Revolution despite its flourishing civilization in her history. Then the author challenges three prevailing hypotheses (cultural determinism, national competition, and high-level equilibrium trap) which try (in vain) to explain the Needham Puzzle. Furthermore, the author highlights that in premodern times technological innovation mainly relied on experience-based trial and error, so the bigger the population, the greater the chance for inventions in those days. However, the civil service examination system’s neglect of the acquired ability in mathematics and experiment hindered China from having an indigenous scientific revolution. Consequently, China failed to transit from traditional experience-based innovation to an indiginous Industrial Revolution, featuring science-cum-experiment-based innovation, leading to a widening gap with the Western world.