 So, this morning's event marks the halfway point in a two-year project that we're doing here at the Simon Chair on economic decision-making in China. This audience doesn't need to hear from me about the interest and the, frankly, concerns about the Chinese economy, that everyone in the global markets and global policymaking community, or a breakneck growth. China has clearly entered a period of slower growth, and the risks and challenges for policymakers have substantially increased. And so we're, I'm not going to spoil our multimedia presentation in a minute, but what we're trying to do in this study is really ask the question as to whether this group of policymakers, the leadership and the broader policymaking world in China, have or still have the right stuff to manage this transition to a new model of economic growth and development. So that's what this is all about. We call this project the Navigators. That's our nickname for it, because we imagine the crew of a riverboat that has been in relatively calm waters for 30 years and is moving now into the more turbulent rapids. And the question is, are they going to be able to get out the other side with long-term sustainable growth at the other end? So our focus, by the way, is very much on institutions and processes of decision-making, not on policy substance, although inevitably we obviously have looked at that and touched on that, and you'll hear more about that, I'm sure, later. But if you were hoping to learn today whether Chinese growth in 2014 is going to be 7.5 percent or 7.4 percent, or exactly when financial reform is going to unfold in what order then you may be disappointed. We hope you'll get something out of this institutional focus today. So before we start the presentations, let me acknowledge with gratitude some people who have helped get us to this point. First, many thanks to our sponsors, the Smith Richardson Foundation, GE Foundation, and Alcoa Foundation. Second, thanks to the many, many officials, scholars, business people, journalists, and other experts in Beijing, Shanghai, Hong Kong, Washington, and San Diego, and other places who gave us so much valuable insight and wise counsel through this first year. That includes all the panelists on the next session, so I appreciate it to all of you. And finally, let me thank my many colleagues here at CSIS who offer tremendous support along the way, including our China Chair, Chris Johnson, the CSIS Ideas Lab team who put together the presentation you're about to see. And I hope you'll agree about 12 minutes from now that this is a very engaging way of presenting what could be considered somewhat dry information, but it's, I hope, going to be something that will stick with you. And of course, my own team, including Research Associate David Parker and Program Coordinator Grace Hardy in a really terrific group of interns. So thank you all. A couple of quick housekeeping notes before we begin. Please turn off or set to stun your phones and noise makers. And we will be taking a short break at 10.45, but there's coffee out on the Sam Nun Terrace back there, which is covered. Don't worry, it's not out in the rain, out behind you there. And the restroom's out around behind me. You have to go out to the right here and around the corner. So with that, let's dim the lights and we'll start the show. China's economy has grown rapidly for 30 years due to a combination of smart politics and favorable economics. Four key factors enabled this economic miracle, a nearly unlimited supply of inexpensive labor, a high savings rate and massive investment, large and growing export markets, and the presence of one overarching goal that united China's people and its policymakers, the single-minded pursuit of rapid economic growth. Now these advantages are gone, and China faces the middle income trap. Short hand for a World Bank finding that of 101 middle income economies in 1960, only 13 have graduated to high income status. Yes, including equatorial guinea, apparently. And the country has already begun to slow down even as it encounters new difficulties, including a challenging urbanization process. This picture shows a typical protest in an urban area. Severe environmental degradation, industrial overcapacity and rising debt, and a widening array of new invested interests competing for influence. Back in 2007, former Premier Wang Jabao warned that China's economic growth was unstable, unbalanced, uncoordinated, and unsustainable. But these problems only deepened over the following five years. Xi Jinping and China's current leaders feel a renewed sense of urgency for reform. At last November's third plenum, they released a major vision statement for reform, promising to create a mixed public-private economy, give markets a decisive role, and build an ecological civilization. But in a more complex political economy, and facing a swirling array of challenges, the question today is, can China's leaders and policymakers continue to deliver sustainable economic growth? China has a large, technically capable central government, overseen by the State Council, China's cabinet, which handles day-to-day economic management. It is led by Premier Li Kuchang, a PhD in economics. Its 35 members include many internationally respected economic policymakers. But the central government is a small part of China's national policy-making apparatus. There are only 60,000 civil servants in Beijing. There are more than 40 million scattered across the country and at five levels of government. The center, 31 provinces, roughly 300 prefectures, nearly 3,000 counties, and over 40,000 townships. This is only the state. China also has a Communist Party that overlaps with the state and plays the predominant role in policy formulation. The party is led from the top down, starting with the seven-member Politburo Standing Committee, chaired by General Secretary Xi Jinping. These seven leaders also sit on the full Politburo, which has 25 members. Politburo members are in turn part of the Communist Party's central committee. This 205-member body represents the top leadership of an organization whose power and 82 million members extends throughout Chinese society. Party bodies control key levers of power, notably personnel appointments. Party committees exist in every ministry, at all government levels, and in public and private companies throughout China, including foreign enterprises. To support policy-making, the party has often drawn on so called central leading small groups, secretive bodies that conduct research and offer policy recommendations to top leaders. For example, much of the drafting of last November's reform plan was performed by officials secunded from the party's finance and economics leading small group. The drafting committee was chaired by Xi Jinping and composed of other top Communist leaders, including two additional Politburo Standing Committee members, and key experts. The committee's day-to-day work was overseen by economist Liu He, a confidant of Xi's, once referred to as China's Larry Summers. The third plan and plan also announced the creation of a new leading small group for the comprehensive deepening of reform, designed to coordinate China's reforms through 2020. Xi Jinping will again head the body, and three other Politburo Standing Committee members are in the group, giving it unrivaled authority as it seeks to implement reform. This CCTV video shows the new leading group holding its first meeting in January. Incidentally, this kind of TV footage for a meeting like this is highly unusual. The group's creation suggests that Xi has the clout to drive structural solutions at the highest levels of the system to get around the foot-dragging typical of China's gridlocked state machinery. The group will be replicated at all lower levels of government in China, which is unprecedented. A major reason for establishing this new group was to manage growing pluralism in Chinese policymaking. A variety of actors now compete to influence policy. Powerful vested interests, such as giant state-owned enterprises, are fighting to insulate themselves from reform. Scholars, think tanks, and government research institutes channel competing ideas to top leaders. Provincial leaders lobby for projects that will support regional goals. And media, NGOs, and civil society organizations constantly seek opportunities to advance their agendas. All of this has contributed to making China's policymaking space increasingly messy, complicated, and in a word, pluralistic. But China's economic policymaking also demonstrates certain enduring characteristics. First, despite a strong preference for top-down oversight and heavy state intervention, coordination remains a major challenge for Beijing. This is the gate to the compound where Chinese leaders work. This has improved with time. In 1982, there were 100 government ministries. Today, there are fewer than 50. But problems of jurisdictional overlap remain common. Because ministries are competing for influence and cannot issue binding orders to one another, gridlock and stovepiping are perennial problems. Second, there is a large gap between the center and localities. There is a Chinese saying that the mountains are high and the emperor far away. Decentralized governance has benefited China's development tremendously. Local leaders have competed intensely and creatively to meet central targets. These targets, especially GDP growth, determine officials' promotion prospects and create powerful incentives to comply with Beijing. Decentralization has also fueled unproductive overinvestment and a massive buildup of local debt, as seen in the 60 minutes program hosted by Leslie Stahl last August. This has become a major risk to the economy. Moreover, this dynamic has created space for corruption, as local leaders have pursued the rents that come with rapid growth. Third, leaders have repeatedly fallen back on a familiar set of tools to create incentives for reform, including experimentation and external pressure. Experiments such as Deng Xiaoping's decision in 1980 to allow foreign investment into the Shenzhen special economic zone limit the political and economic risk of new policies and incentivize competition among local leaders. Interestingly, Xi Jinping's father, Xi Zhongshun, was the top party official in Guangdong at that time. External pressure also provides useful political cover and helps clear away domestic obstacles to reform. Famously, former Premier Zhu Rongji used China's negotiations to join the WTO as a tool to push reforms that dramatically weakened the state-owned sector and laid the foundation for a decade of rapid growth. Today, the Trans-Pacific Partnership and a US-China bilateral investment treaty appear to be playing a similar role in encouraging Chinese leaders to advance new pilots such as the Shanghai Free Trade Zone opened last September. But it is uncertain whether these tactics are suited to addressing the challenges China faces today. Experimentation was a useful strategy for boosting manufacturing, but new experiments like the Shanghai FTZ are centered on promotion of services which are porous and more difficult to contain. Moreover, the size and complexity of China's economy and its interdependence with the global economy make managing the external dynamic far more complicated than in Deng's era. These dynamics provide a backdrop for understanding the challenges facing Chinese economic policy makers. Top Communist Party leaders have governed for 30 years with two overarching goals. The first is to preserve Communist Party legitimacy. The second is to enhance the country's wealth and power which Xi Jinping has branded the China dream. Reform is an essential means to both of these ends, fueling China's economic rise which in turn sustains the party's legitimacy. But implementation of reform remains fraught with challenges. Leaders must balance multiple objectives in addition to GDP growth, clean air, clean government, greater equality, and other goals demanded by the Chinese people. Moreover, as mentioned earlier, leaders will have to break through vested interests to deliver on reform and achieve sustainable growth. Even the right reforms are risky. China must carefully introduce market discipline in key areas such as capital markets while avoiding systemic shocks by liberalizing too quickly or in the wrong order. Moreover, economic policymaking in China faces one central tension. Xi Jinping is aggressively centralizing political control. And the third plenum document made clear that Beijing will continue to rely on state intervention both to sustain China's rise and to maintain the party's power. But giving the market a decisive role will require letting the go of direct control and reducing the direct role of the state to create space for private actors to innovate and flourish. Whether Xi and his successors can continue to reconcile this fundamental tension and maintain party control while sustaining economic growth remains to be seen. But it would be a mistake to count China's leaders out. They have proven themselves highly adaptable and pragmatic. They control all the major levers of power and they have access to enormous financial resources. But China's economic navigators are entering a narrower, more turbulent part of the river. The number of policy objectives and policy actors in China has proliferated and with them the complexity and risks of economic decision making. These will test the skills of China's leaders as they steer the country towards a new, more sustainable model of economic development. Okay, so that is that and hope you enjoyed that.