China and the Coming Reforms

By Saliem Fakir · 24 Apr 2014

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Picture: Shanghai Skyline courtesy Don-kun/Wikimedia Commons
Picture: Shanghai Skyline courtesy Don-kun/Wikimedia Commons

On the drive to Pudong International airport from the centre of Shanghai, which takes an hour, you sometimes do not see the sky and nature has long been filled with a concrete jungle so dense that this has become the hallmark of the Chinese growth miracle.

Behind this lies the intricacy of Chinese-style economic policymaking and politics. Often the way things work in China remains opaque for us foreigners given the language and cultural barriers.

One way of thinking of China is assertive state control over capital accumulation aimed at a singular objective - building a strong national sovereign. In this regard it would be fitting for us to consider that strong people oriented national sovereigns can do a lot more than empty democracies with weak sovereignty over national borders, economic policy and even the way one is allowed to govern.

The Chinese state is people orientated but it is also politically intolerant of dissent, openness and political competition. A paradoxical situation that will increasingly gain friction as China becomes more prosperous.

Skyscrapers are a sort of totem of Chinese progress, which also testify to the many positive and negative impacts of Chinese economic reforms since the late 1970s. Despite the fact that over four hundred million have been pushed above the poverty line, this has left in its wake a poor environmental record. China’s environmental footprint is also not limited to itself because Chinese growth consumes resources from all over the world, especially mineral, timber and other natural resources.

Where people have been pushed out of poverty, the growth in inequality will become a new challenge. China’s example raises many questions about the complementary of state management of planning, export-led growth, industrial development and building a ‘harmonious’ society with economic progress. The Chinese experience is worthy of study because it contains lessons of the trade-offs that high growth exacts on a country’s natural resources and people for all of us.

Whether state-led growth with unique Chinese characteristics can be replicated elsewhere is a moot point. China has sustained several decades of double-digit growth. In all major fronts of economic development it has achieved what no country has done in such a short span of time.

China’s economic world had to be created from scratch from within the bosom of communist ideology, where wisdom of what would work or not had to be worked out with some experimentation, taking risks with testing new ideas and then scaling initiatives that have been tried and tested elsewhere.

Ideological rhetoric was always the public face but pragmatism, as far as economic policy was concerned, managed to find its way in the often fractious debates within the Chinese Communist Party (CCP) during the period of Deng Xiaoping whose premiership catalysed major economic reforms that laid the bedrock for China’s economic success.

China is state-led but no longer communist. Long-term planning has been a key tool by which the state has created a managed economy.  This model has worked in China and perhaps also because a single party, the CCP, has dominated the country’s politics for so long.

But where is China going given that its current growth rate has slowed down to below the 7.5% mark? Can it build a sustainable economy given its growing challenges?

At a China-Africa roundtable hosted in the city of Shanghai in mid-April this year, I had the good fortune of listening first-hand to a presentation by an economist from China’s national bureau of statistics. The presentation provided some useful insights into China’s reforms and thinking for the next thirty years. Under the new President of China, Xi Jinping, the tilt will be much more internally focused.

China recognises it needs to rebalance its economy as it has become far too dependent on exports to sustain much of its economic growth. It has to shift from export led growth to encouraging higher rates of domestic consumption to counter-balance dependence on foreign consumption to keep manufacturing and other services going.

Most of these foreign consumers happen to be highly indebted Americans who prior to the 2008/9 financial crisis let their cheap money chase after cheap Chinese goods. This is no longer tenable given how deep the financial crisis is inhibiting consumption in the US and other major developed economies.

Despite growth in branded goods and malls in China, most Chinese people are not profligate consumerists. They are obsessive savers. Chinese national savings are one of the highest in the world – close to 55% of GDP and putting a constraint on domestic consumption. Looking at it from a different perspective, the US’ consumption share is around 70% of GDP, while China’s sits at around 36%.

To get the right balance between its reliance on exports and domestic consumption the Chinese government has to fix health care, social security and education. The Chinese bureau of statistics conducts annual surveys and it has emerged that these three issues together with environmental matters are the topmost concerns of Chinese people at present.

In fact, on the last point, the new Chinese five-year plan talks of building an ecological civilization. You see evidence of this in the numerous low carbon pilot cities, the intensity of investment in renewables and the growing pressure from citizens for the government to fix air pollution problems.

There are very good reasons why savings are high: lack of universal healthcare, social security and environmental health issues constrain Chinese disposable income, as Chinese households have to save to support themselves in old age and self-finance their healthcare.

China’s population is aging and if birth rates do not improve, it will go the way of Japan. Healthcare costs will go up and China needs to maintain a viable birth rate to keep its economy sustainable and adaptable to changing conditions. At the third plenum meeting of the Central Committee of the CCP this year, the Chinese government relaxed the one child policy and is looking to overhaul its national health security system.

If comprehensive social security is improved together with comprehensive healthcare planning, the Chinese will feel more confident to let go of some of their savings and spend more in the present.

The next decade or so marks a new journey in policy reform for China, which is aimed at boosting domestic consumption, focusing on infrastructure spend that has higher standards of quality and building or inter-connecting smaller cities with better links to larger economic centres for the spill over of economic benefits to spread wider, especially from the very prosperous coastal cities to the interior.

China has a strong state, but also a fragile one. The Chinese leadership understand this well. Former Chinese president, Hu Jintao’s vision of a ‘harmonious socialist society’ is gaining more importance than a preoccupation with growth.

The rebalancing is not only economic. There is some inkling that it could find its way into the political and cultural setup of China. There is a growing interest and receptivity towards a revival of humanistic religious practices that are closely aligned with the idea of a harmonious society and Chinese Confucianism. NGOs and organizations promoting these values are being given some freedom to manoeuvre.

China will continue to sustain high growth rates at least for the next decade, but its social and political challenges remain. Protests against local corruption, wage disputes and accountability of officials to the people continue on a daily basis.

There are close to 80 000 protests a year in China. These concerns can be met some way through economic measures, but new thinking filtering through the corridors of power recognises that society and social solidarity is not just built on material things.

Fakir is an independent writer based in Cape Town.

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Rory Verified user
26 Apr

The Economic Spoils

"There are close to 80 000 protests a year in China. These concerns can be met some way through economic measures, but new thinking filtering through the corridors of power recognises that society and social solidarity is not just built on material things."

When is our government going to realise that a healthy society is not just built on the wealth of a very few people?

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