July 9, 2012


China approaches a defining moment (Rogier Creemers, 6 July 2012, OpenDemocracy)

The problem facing the Party now is that different aspects of this model seem to be running out of steam. China's economic growth, for example, has been fuelled by export and investment. Enormous quantities of money have been shifted from private wealth, particularly savings, to large, mostly State-owned enterprises, in an effort to cushion the impact of market liberalization. This has avoided the economic catastrophe that happened after the Russian "shock therapy", but also created a new class of officials and SOE managers that grew tremendously wealthy off graft and corruption. As a result, Chinese household wealth remains relatively low, and the nearly non-existent social safety net further reduced incentives to spend. As the ongoing economic malaise in the United States and Europe dampens demand for Chinese products, it is clear that further growth needs to be fuelled by increase in domestic consumption.

Also, China is faced by economic challenges it created itself, in terms of inflationary pressure on commodities, but also matters such as environmental pollution. The voracious appetite of the Chinese economic machine has raised commodity prices across the board, causing inflation inside the country. The increasing use of cars causes traffic gridlock and severe environmental pollution in the larger cities, which themselves grow at breakneck pace. Growing meat consumption is straining Chinese agriculture. The speed at which new infrastructure is constructed, and the concomitant corruption, has led to quality and safety issues. There are significant amounts of bad investments, aimed at artificially boosting GDP numbers and local employment.

Most importantly, maintaining high levels of growth itself is becoming more difficult. While China's double-digit performance is hailed as an economic miracle, it is easy to forget that China started from an extremely low base, which was to no small extent caused by the disastrous economic policies that were implemented between 1949 and 1979. Enormous gains could be made with simple measures, such as permitting farmers to sell some of their surplus produce on open markets, introducing financial incentive systems into enterprises and permitting foreign trade. The establishment of basic legal and regulatory structures went relatively rapidly in the beginning, but there's a difference between recognizing the necessity of a patent system to incentivize innovative activities, and dealing with the enormous technological and legal complexities that operating a patent system in the twenty-first century entails. Also, the external conditions for Chinese growth were beneficial. Particularly after the end of the Cold War, the new impetus for international trade enabled China to grow swiftly through exports to the developed world, which at that time had the capacity to absorb this influx of cheaper goods. Now, China will need new consumers to support further growth of their manufacturing capacity, either at home or abroad. In other words, the low-hanging fruits for China's economic development have been picked, and further economic development will become more arduous and less susceptible to centralized policy-making.

At the same time, the political model advocated by Deng is showing cracks as well. First and foremost, the next generation of leaders will be the first not to have been hand-picked by revolutionary Communists. Hu Jintao's ascendancy was marked as Deng ensured a place for him on the Standing Committee of the Politburo in 1992, as the second youngest member ever. Hu had come to Deng's eye because of his managerial skills, but also his determined actions in putting down an uprising in Tibet, where he was party secretary, a few months before the Tiananmen incident. This new generation lacks that blessing, and the resulting political strife. Second, Deng's model of collective leadership is threatened by economic diversification. In the Nineties it was possible to have the rising tides lift all boats, as the economy was much more homogenous, meaning that simpler policies could have broader effects. Now, economic policymaking, by necessity, is becoming more of a balancing exercise between different interests. China's goal to move up the value chain, for example, is now pushing lower value-added manufacturing into other Asian countries. However, these tend to be labour-intensive industries, and their departure may have a significant impact on employment. Inflation is an ever-present threat, with strong political repercussions in a country where most people rely on personal savings for pensions, in the absence of a stronger social safety net.

As a result, Chinese society is rapidly becoming more pluralized, as far as economic interests go, but this pluralisation is not reflected in politics. The enormous popularity of the recently ousted Bo Xilai, indicates that Chinese citizens might welcome a more open political debate. However, pluralized politics would strike against the very notion of collective leadership. Third, Deng advocated control over the public debate in order to maintain social stability. The Internet, however, has vastly increased the potential for citizens to communicate and organize outside of the official purview, raising the stakes in the control game. The Chinese government itself has spent enormous resources in policing the Internet, but has increasingly made websites and other service providers responsible for content inspection. This in turn greatly inhibits the development of commercial Internet activities, and may be a brake on further economic development. Development is a complex affair, and it may be true that the recipes that brought China to the position where it is now, may effectively be hindering its future path, something that is called the "middle income trap".

Resistance to democracy, capitalism and protestantism is not avoidance.
Posted by at July 9, 2012 4:38 AM

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