The Economist April 8-14, 2000
SURVEY CHINA
Now comes the hard part
China looks set to change as much in the next five years as in the past
extraordinary 20, says Dominic Ziegler
“IF YOU think,” says a high administration official in Washington,D C,
“what will be required for economic success in the globalisation that is
exploding around us—technically dynamic, information-rich, highly
entrepreneurial—then the winners in that environment will be those able to
provide at least the following...” He counts on his fingers. “Free access
to global information and markets. Protection of physical and intellectual
property. People able to speak and associate freely. A government that has
sufficient legitimacy to feel comfortable joining the global economy. An
educated population. And a rules-based polity...This is a set of qualities
that does not conform to a highly authoritarian system.” That, put simply,
is the case for political change in China.
In the past few years, two uncertainties about China have cleared
themselves up. The first is that China’s central government has committed
itself wholeheartedly, irrevocably and (to all but the dimmest
apparatchiks) unambiguously to creating a market economy at home, tied to
the world at large. This is not because China’s septuagenarian leaders, all
former central planners, have become born-again liberals (although a
surprising number of liberals are moving up through the ranks). Rather, the
remnant Maoists have long been banished to the wings, from where they shout
ineffectually from time to time. Meanwhile, the remaining dominant
factions—whether their leaders are gung-ho reformers, cautious
conservatives or nationalists who see economic success as the basis of
future power projection—all agree on one thing: the Communist Party is
history unless it can deliver growth. And for each of the past seven years
now, China’s stellar economic growth has been slowing, risking unmanageable
dissatisfaction amongst the people.
So Zhu Rongji, the prime minister, by temperament and training an engineer,
not a free-marketeer, and popular neither with his peers in the Politburo
nor with minions, has had his reforming way all the same. New sources of
growth, he insists, have to be found by drastically (and painfully)
shrinking the state. The 15th Communist Party Congress in the autumn of
1997 was a watershed. It marked the start of this new phase with the
suggestion that tens of thousands of small and medium-sized state
enterprises would be cast loose upon private waters, to float or sink. In
the spring of 1999, guarantees that acknowledged the private sector for the
first time were written into the state constitution.
Growth from heaven
The first two decades of reform have in essence been catch-up growth, gains
that came from disbanding the agricultural communes and from allowing
capital and particularly labour to be poured into low-end manufacturing and
processing, a lot of it for export. The government did not really have to
do anything to foster such growth, other than to keep out of the way.
Double-digit growth rates were the norm, and fast growth created new jobs
for workers made redundant by inefficient state-owned enterprises, migrants
from the countryside to urban areas, and young people looking for their
first job.
Now those high growth rates are gone, possibly for good. Growth is not only
lower these days, but its “labour intensity”, according to Yukon Huang,
head of the World Bank’s mission in China, has also slowed. What growth
China is achieving is creating fewer jobs.
“We have run out of easy things to reform,” explains a senior Chinese
official. Laying the foundations for the next phase of growth will be very
much harder. The productivity of the land—and remember that two-thirds of
China’s 1.3 billion people still live in the countryside—has almost reached
its natural limits, given China’s severe shortage of water. Higher
productivity in agriculture will come at the price of even more people
leaving the land for urban areas—perhaps 8m-10m a year, for whom jobs will
need to be found. Another 6m jobs need to be created in the cities just to
allow for the modest natural increase in the urban population each year.
Then there are the 4m-7m a year being thrown out of work by shrinking
state-owned enterprises. That is a minimum of 18m urban jobs that the
economy must create every year for the next few years. But from where? The
woes of China’s industrial sector are well known, and the service sector
has been so stunted by the country’s socialist legacy that it is only half
the size expected for a country at that stage of development.
The possibility is there for a prolonged industrial slump and a restive
population. For China’s leaders, that prospect tilts the balance of risk
and reward in favour of serious structural change and market
reforms—short-term pain that should, touch wood, lay the foundations for
long-term growth and, they think, for the party’s long-term survival. Hence
the radical commitment to a private sector that breaks free from a
predatory state, to cleaning up the state sector over the next few years,
and to membership of the World Trade Organisation.
After years of procrastination, China has at last shown itself to be
serious about doing what is necessary to join the WTO. After NATO’s bombing
of the Chinese embassy in Belgrade last summer, relations with the United
States deteriorated sharply, and Zhu Rongji’s future was in doubt. Despite
these tensions, China signed a trade deal with the United States in
November to pave the way for WTO accession, possibly later this year.
Membership will prove as momentous a step as Deng Xiaoping’s “opening to
the world” in late 1978.
This helps resolve a second uncertainty, which is whether China can bring
about a smooth and successful change to an open economy under a political
system that remains highly authoritarian, indeed Leninist. The answer, as
the American official suggests, is that it cannot. This survey will argue
that in the next three to five years, China’s closer integration with the
world economic order will increase the pressure on it to become much more
open, liberal and receptive. That, in turn, will force profound changes on
both its political system and its society.
Until now, China’s Communist leaders have been able to scorn predictions of
political change, and to repress demands for it. They have two decades of
growing prosperity to point to, certainly the swiftest, most extensive rise
out of poverty any nation has seen. All the same, says a senior official in
the Chinese government (one of the liberals), “Given globalisation, in all
its meanings, the mainland Chinese are no longer satisfied to look back at
the change in the past 20 years. They want to be like Chinese in Hong Kong
or the US, or they want to be like Japan...Politicians are not given much
time these days.” Not even authoritarian ones like China’s, with strong
powers of coercion—although admittedly these are not as strong as they were.
Out into the unknown
Lazy editorial writers in the liberal West assume that a free-market
economy can be introduced, as one exasperated Chinese economist puts it,
with the wave of a central planner’s wand. And democracy, too, he might
have added. This is not to say that free markets and accountable government
in China are out of the question. Cultural impediments to them are not as
serious as political ones. The country’s vast size, its poverty, and its
legacy of a command economy surely need to be taken into account in
guessing how swiftly and how smoothly free markets and democracy can be
introduced—and how the interests of the central government and the varied
periphery can be reconciled.
China’s sheer size requires an active effort to comprehend. The country’s
1.3 billion people make up one-fifth of the world’s population, but they
live on only one-fifteenth of the world’s land. In fact, because a large
part of China is inaccessible and inhospitable, the density in the main
population centres is much higher than those figures suggest. Two-thirds of
mainland Chinese live in the fertile eastern fifth of the country.
Mao Zedong once said that China was like “another United Nations”. At
present it has 31 provinces, if you include the four municipalities with
province-level status and the five “autonomous regions”, which (especially
in the case of Xinjiang and Tibet) are anything but autonomous. In
addition, there are the two “special administrative regions”, Hong Kong and
Macau. Thanks to their closely policed territorial borders with the
“motherland”, they really are special and autonomous.
Think, for a moment, of the provinces as if they were separate countries.
By land area, the biggest is Xinjiang, three times the size of Spain,
although with less than half of Spain’s population. China’s largest city,
Shanghai, has five times the population of Singapore. The most populous
province, inland Sichuan, has over 110m people, about as many as Japan.
Guangdong, Hubei, Anhui, Hunan, Hebei, Jiangsu, Shandong and Henan each
have between 59m and 93m people, that is, populations very roughly the size
of Egypt, France or Mexico. The Guangxi Autonomous Region, with 46m people,
is more populous than Poland, yet how many people would be able to pinpoint
it unhesitatingly on a map? And this paragraph has mentioned fewer than
half of China’s provinces.
Or look at China’s GDP per head. The national average (excluding Hong Kong
and Macau) was $735 at 1998 prices, which makes China somewhat poorer than
Indonesia. That average, though, conceals great regional inequalities. The
poorest province, Guizhou, has a GDP per head of $280, on a par with
Bangladesh or Yemen. Sichuan, with a figure of $525, is level with
Pakistan. Meanwhile, Shanghai’s residents, at $3,400, are up there with
Turkey or South Africa. Now bring in Hong Kong, which at $22,990 has a
higher per-head income than Britain, its former master. The dozing commuter
on the Star Ferry is likely to be 90 times wealthier than the
vegetable-seller in Guizhou.
Town and country
Regional inequalities, then, are a serious matter, and Beijing’s leadership
is at last beginning to wake up to them. Equally serious is the wealth gap
between city and countryside. In cities, 90% of households have washing
machines and colour televisions. On farms, the most widely owned consumer
durable, found in 70% of all households, is the sewing machine. Least
remarked upon, but equally serious, are huge differences in wealth within
the same locality, along with dire cases of poverty, even on the
“prosperous” eastern seaboard.
Bearing in mind China’s sheer scale, variety and relative poverty, it is
hard to see how a monolithic leadership in Beijing can prevail in the
longer term, now that the Chinese people are no longer in thrall to Maoism.
(And remember that even under Mao Zedong, during the Cultural Revolution,
anarchy rather than central rule held sway for ten years.) Indeed, far from
being monolithic, China’s political system, both in the regions and at the
centre, is one of sharp elbows and centrifugal forces. Yet at the same time
China has refused to break up into a warring mess of baronries, as many
western experts had predicted.
Until now, the centre—that is, perhaps no more than 200 unelected, often
elderly, men—have by and large kept control of the reform process and of
the country as a whole. In simple terms, they have done so by devolving
responsibility for economic growth to the local level, whilst enforcing
party discipline by keeping control of the hiring and firing of local and
provincial officials. Crucially, they have attempted to recentralise the
collection of tax revenues and, more successfully, the rationing of credit
to the state sector. With implications that have gone largely uncommented
on in the West, a de-facto federal system may evolve in China that could
possibly form the template for future political and institutional change.
It could even help solve what is currently the biggest threat to the
region’s security: the question of Taiwan.
Predicting that political change will come is the easy bit; predicting how
it will come about is harder. And the outcome will not necessarily be
happy. Integration with the world economic order will also mean more
opportunities for friction, aggravating the sores of China’s formerly
centralised economy. The opportunities for corruption that will arise from
state assets being stripped by officials and managers of state enterprises
are also a cause for pessimism.
China’s history is full of shimmering metaphors, parallels and examples
that usually help to throw light on current events. But this time, history
offers no guide to what happens next.
To read the rest of this survey (and get full access to everything on the
site, including free unlimited archive retrievals), please subscribe.
China GDP per head.gif
China-GDP.gif
China GDP per head.gif
China-GDP.gif