Monday, August 30, 2010

State companies in China: growing powerful

China Fortifies State Businesses to Fuel Growth
The New York Times, August 29, 2010

BEIJING — During its decades of rapid growth, China thrived by allowing once-suppressed private entrepreneurs to prosper, often at the expense of the old, inefficient state sector of the economy.

Now, whether in the coal-rich regions of Shanxi Province, the steel mills of the northern industrial heartland, or the airlines flying overhead, it is often China’s state-run companies that are on the march.

As the Chinese government has grown richer — and more worried about sustaining its high-octane growth — it has pumped public money into companies that it expects to upgrade the industrial base and employ more people. The beneficiaries are state-owned interests that many analysts had assumed would gradually wither away in the face of private-sector competition.

New data from the World Bank show that the proportion of industrial production by companies controlled by the Chinese state edged up last year, checking a slow but seemingly inevitable eclipse. Moreover, investment by state-controlled companies skyrocketed, driven by hundreds of billions of dollars of government spending and state bank lending to combat the global financial crisis.

They join a string of other signals that are fueling discussion among analysts about whether China, which calls itself socialist but is often thought of in the West as brutally capitalist, is in fact seeking to enhance government control over some parts of the economy.

The distinction may matter more today than it once did. China surpassed Japan to become the world’s second-largest economy this year, and its state-directed development model is enormously appealing to poor countries. Even in the West, many admire China’s ability to build a first-world infrastructure and transform its cities into showpieces.

Once eager to learn from the United States, China’s leaders during the financial crisis have reaffirmed their faith in their own more statist approach to economic management, in which private capitalism plays only a supporting role.

“The socialist system’s advantages,” Prime Minister Wen Jiabao said in a March address, “enable us to make decisions efficiently, organize effectively and concentrate resources to accomplish large undertakings.”

State vs. Private
The issue of state versus private control is a slippery one in China. After decades of economic reform, many big state-owned companies face real competition and are expected to operate profitably. The biggest private companies often get their financing from state banks, coordinate their investments with the government and seat their chief executives on government advisory panels.

Chinese leaders also no longer publicly emphasize sharp ideological distinctions about ownership. But they never relaxed state control over some sectors considered strategically vital, including finance, defense, energy, telecommunications, railways and ports.

Mr. Wen and President Hu Jintao are also seen as less attuned to the interests of foreign investors and China’s own private sector than the earlier generation of leaders who pioneered economic reforms. They prefer to enhance the clout and economic reach of state-backed companies at the top of the pecking order.

“China’s always had a major industrial policy. But for a space of a few years, it looked like China was turning away from an active and interventionist industrial policy in favor of a more hands-off approach,” Victor Shih, a Northwestern University political scientist, said in a recent telephone interview.

Mr. Shih, among others, now believes that the 1980s reforms that unleashed China’s private sector and the 1990s reforms that dismantled great sections of the state-run sector are being partly undone.

“The problem is that the reforms of the first 20 years, from 1978 to the end of the ’90s, actually did not touch on the power of the government,” said Yao Yang, a Peking University professor who heads the China Center for Economic Research. “So after the other reforms were finished, you actually find the government is expanding, because there is no check and balance on its power.”

Divining Government’s Role
There are no comprehensive statistics to catalog the government’s influence over the economy. So the shift is partly inferred from coarse measures like the share of financing in the economy provided by state banks, which rose sharply during the financial crisis, or the list of the 100 largest publicly listed Chinese companies, all but one of which are majority state owned.

The statistic showing an uptick in the share of industrial production attributable to the state sector is regarded by some analysts as a blip rather than the start of a trend. The World Bank’s senior economist in Beijing, Louis Kuijs, said the state sector’s unusually rapid growth will most likely moderate with the ending of the government’s stimulus spending.

“As the growth process normalizes again, the traditional trend toward a declining SOE share will take over again,” he wrote in an e-mail message, using the shorthand for state-owned enterprise. “I don’t think that the senior leaders had a strategy of reversing this trend.”

But others argue that officials had always intended to create a vibrant state sector that would tower above the private sector in important industries, even as they sold off or shut down money-losing state enterprises that drained capital from the government budget and banking system.

Recent alarm over the expanding role of the state, said Arthur Kroeber of Dragonomics, an economic forecasting firm based in Beijing, is mostly “perception catching up with reality.”

In some ways, the differences in this debate are small. Everyone agrees that China runs a bifurcated economy: at one level, a robust and competitive private sector dominates industries like factory-assembled exports, clothing and food. And at higher levels like finance, communications, transportation, mining and metals — the so-called commanding heights — the central government claims majority ownership and a measure of management control.

Yet the two camps’ view of China’s future are markedly different. Those who see little evidence of an expanding state sector generally believe that China has a decade or more of robust growth awaiting it before its economy matures. Theirs is a Goldilocks view of state intervention — not too much or too little, but just enough to push a developing economy toward prosperity.

The skeptics have a darker view: they believe distortions and waste, in no small part due to government meddling, have resulted in gross misallocation of capital and will end up pushing growth rates down well before 2020. What drives their pessimism, the skeptics say, is that China, like Japan a generation ago, has too much confidence in a top-down economic strategy that defies conventional Western theory.

The skeptics also point to what they say is the growing political and financial influence of China’s state-owned giants — 129 huge conglomerates that answer directly to the central government, and thousands of smaller ones run by the provinces and cities.

While no public breakdown exists, most experts say the vast bulk of the 4 trillion renminbi ($588 billion) stimulus package that China pumped out for new highways, railroads and other big projects went to state-owned companies. Some of the largest companies used the flood of money to strengthen their dominance in their current markets or to enter new ones.

In the last year or so, many of the 129 central government companies have moved forcefully into China’s real-estate industry, with hundreds of billions of dollars in construction projects and land deals. State-owned steel giants have cut deals to buy out more profitable and often more efficient private competitors. A host of government conglomerates have snapped up coal mining companies in Shanxi Province.

“In 2009, there was a huge expansion of the government role in the corporate sector,” Huang Yasheng, a leading analyst of China-style capitalism at the Massachusetts Institute of Technology, said in a telephone interview. “They’re producing yogurt. They’re into real estate. Some of the upstream state-owned enterprises are now expanding downstream, organizing themselves as vertical units. They’re just operating on a much larger scale.”

Local Interests
At the local level, governments set up 8,000 state-owned investment companies in 2009 alone to channel government dollars into business and industrial ventures, Mr. Huang said. One example suffices: a private Chinese automaker, Zhejiang Geely Holding Group, made worldwide headlines in March when it agreed to buy Sweden’s Volvo marque from Ford. Much of the $1.5 billion purchase price came not from Geely’s relatively modest profits, but from local governments in northeast China and the Shanghai area.

Geely reciprocated this month, announcing that it will build its Volvo headquarters and an assembly plant in a Shanghai industrial district.

The reasons for the state’s push for greater involvement in business vary. State control of energy supplies is crucial to China’s growth, and the Shanxi coal takeovers will increase production, guarantee fuel to some state-owned utilities and give Beijing new power to control coal prices. State mining companies also argue that they have a superior safety record to their accident-prone private competitors.

But in other areas the state looks more mercenary.

Take telecommunications. Upon joining the World Trade Organization, China committed itself to opening its communications market to foreign joint ventures for local and international phone service, e-mail, paging and other businesses. But after eight years, no licenses have been granted — largely, the United States says, because capital requirements, regulatory hurdles and other barriers have made such ventures impractical. Today, basic telecommunications in China are booming, and are virtually 100 percent state-controlled.

Take the passenger airline industry. Six years ago, the central government invited private investors to enter the business. By 2006, eight private carriers had sprung up to challenge the three state-controlled majors, Air China, China Southern and China Eastern.

The state airlines immediately began a price war. The state-owned monopoly that provided jet fuel refused to service private carriers on the same generous terms given the big three. China’s only computerized reservation system — currently one-third owned by the three state airlines — refused to book flights for private competitors. And when mismanagement and the 2008 economic crisis drove the three majors into financial straits, the central government bought stock to bail them out: about $1 billion for China Eastern; $430 million for China Southern; $220 million for Air China.

One private passenger carrier that remains is Spring Airlines, a tenacious startup run by a founder so frugal that he shares a 100-square-foot office with his chief executive and takes the subway to business meetings.

That founder, Wang Zhenghua, survived in part by building his own computer reservation system. He canceled a planned interview. But in Chinese news reports, he was caustic about the state subsidies given his competitors. “Now with the injection of 10 billion yuan” for China Eastern and China Southern, “everything is in chaos,” he told Biz Review, a Chinese magazine.

China’s private entrepreneurs have a catchphrase for such maneuvers: “guo jin, min tui,” or “the state advances, the private sector retreats.”

State-owned enterprises in China have taken the best of the economy for themselves, “leaving the private sector drinking the soup while the state enterprises are eating the meat,” Cai Hua, the vice director of a chamber-of-commerce-style organization in Zhejiang Province, said in an interview.

First in Line
Mr. Cai says he believes that China needs government-run industries to compete globally and manage the country’s domestic development. But locally, he said, their advantages — being first in line for financing by state banks, first in line for state bailouts when they get in trouble, first in line for the stimulus gusher — have created a “profound inequality” with private competitors.

Some analysts argue that the state-owned conglomerates, built with state money and favors into global competitors, have now become political power centers in their own right, able to fend off even Beijing’s efforts to rein them in.

Of the 129 major state enterprises, more than half the chairmen and chairwomen and more than one-third of the chief executive officers were appointed by the central organization department of the Communist Party. A score or more serve on the party’s Central Committee, which elects the ruling Politburo. They control not just the lifeblood of China’s economy, but a corporate patronage system that dispenses top-paying executive jobs to relatives of the party’s leading lights.

China’s leaders have sought occasionally in the past year to curb speculative excesses by state-controlled businesses in real estate, lending and other areas. In May the State Council, a top-level policy body sometimes likened to the cabinet in the United States, issued orders to give private companies a better shot at government contracts — for roads and bridges, finance and even military work — that now go almost exclusively to state-owned companies. Virtually the same rules were issued five years ago, to little effect.

Yet it is hard to argue with success, other economists say, and China’s success speaks well of its top-down strategy. Asian powerhouses like South Korea and Japan built their modern economies with strong state help. Many economists agree that shrewd state management can be better than market forces in getting a developing nation on its feet.

Experts on both sides of the debate have but two questions. One is how much longer state control of vast areas of the economy will generate that growth.

The other is whether, should that strategy stop working, China will be able to change it.

Li Bibo contributed research.

Germany: dangers of China dependence...

The most famous German magazine depicts the growing dependence of German economy from China (well, the same happens with everyone else...)
Paulo Roberto de Almeida

Beijing's High-Tech Ambitions
The Dangers of Germany's Dependence on China

Der Spiegel, English Edition, August 27, 2010

Germany largely has China to thank for its current economic upswing, given the Asian powerhouse's demand for German machine tools and other such products. But many German industrialists are asking themselves how long the symbiotic relationship can go on, given Beijing's ambition to become a high-tech economy itself.

It's a humid Friday afternoon in Beijing, where German Chancellor Angela Merkel is addressing a friendly crowd of 80 students from the Central Party School, the Chinese Communist Party's highest training institution for its officials. A banner on the wall behind her reads: "Welcome, Chancellor Merkel."

But on this day Merkel doesn't have much time for niceties. Of course she admires the country's economic vitality, she says, and is impressed by how quickly China has overcome the financial crisis. But, she adds, it's also important to address the country's deficits -- which she then proceeds to do.

China's protections for intellectual property are not up to Western standards, says Merkel. Besides, she adds, Chinese companies have the bad habit of siphoning off technical expertise from their German partners.

At the end of her speech, the German chancellor hands the future elite of the Chinese Communist Party a few lessons in democracy. There are currently five parties in the German parliament, she says, and although this can be vexing at times, it's also productive, because the multiparty system ensures that every issue and every cause finds a voice. "This is why we ask ourselves: Can one party achieve as much as five parties achieve in our country?"

Merkel's open words in the heart of a one-party dictatorship clearly illustrate how the chancellor -- all diplomatic niceties aside -- feels about Germany's East Asian trading partner. She is well aware of the opportunities in the world's largest market, which is home to 1.3 billion people. But Merkel also knows that business leaders in Germany are starting to feel uneasy about the unstoppable rise of Chinese industry.

Some are already wondering whether the supposedly lucrative China connection will turn out in a few years' time to have been a pact with the devil.

Dependent on Each Other
Germany, more than most other Western industrialized countries, is currently tying its economic well-being to China's recovery. Trade with Beijing is the most important driving force behind the current German upswing. It also explains why economists also foresee a bright future for the German economy in the medium term.

With its luxury cars, machine tools and power plant turbines, German industry offers precisely the products the giant East Asian country desperately wants or needs. But the jubilant mood at German industrial giants like Siemens and BASF has recently been somewhat marred by worried questions. What is the significance of the Chinese starting to compete in more and more high-tech markets? What will be the consequences if the fates of entire industrial sectors are decided in the back rooms of Beijing's party bureaucracy in the future?

The Chinese-German Relationship
And what happens if growth in China proves to be an illusion? The government in Beijing, using the tools of a state-controlled economy, is already trying to prevent the next big bubble from bursting in its real estate market.

"I am aware that a growing portion of the company is dependent on this country," says Dieter Zetsche, the CEO of German automaker Daimler. And that relation of dependency applies both in good times and in bad.

Uninterested in Human Rights
At the end of last week, the human rights organization Südwind revealed that German companies like Aldi, Adidas and Metro, as well as their suppliers in the People's Republic, have some of the worst records when it comes to overtime and exploitation of workers. But the leaders of these and other companies pay little heed to such accusations.

They are also uninterested in the fact that China still imprisons hundreds of thousands of critics of the regime in reeducation camps. But what really keeps German company bosses awake at night is the fear that they themselves could eventually fall victim to Chinese power politics.

Beijing tends to react very sensitively to any form of criticism, as it demonstrated once again last week, when the United States Defense Department issued a report concluding that China is pursuing an expansionist military strategy in Asia. The Chinese state-owned press promptly rejected the report as "aggressive."

Beijing was equally reluctant to accept new statistics indicating that China will surpass Japan this year as the world's second-largest economy. The Chinese leadership announced that the news should not lead anyone to conclude that the country should lose its status as a developing nation -- a status from which Beijing derives financial benefits.

On Its Own Terms
China is seeking to engage with the West, but on its own terms. German companies are beginning to feel the effects of this policy. For instance, they note with concern that there is a growing tendency among the Chinese to blatantly demand the divulgence of industrial know-how in return for the right to do business in China. They are vexed by the country's tight control over access to domestic raw materials while it simultaneous seeks to secure exclusive rights to strategic energy reserves in Africa and Asia. And it irritates them that China is treating traditional German industrial domains as strategic business fields.

Some German entrepreneurs and executives consider it a polite understatement when German Economics Minister Rainer Brüderle complains that China is "not always an easy partner." And some Asia experts even predict that Germany's China connection could trigger the long-term demise of many icons of German industry. They warn that German companies that accept China's embrace could quickly find themselves being squeezed too tightly for their own good.

Doing business in China has already brought about deep-seated changes in German companies. Some small and mid-sized companies -- Germany's famous Mittelstand -- already do more than half of their business in East Asia, and the number of German-Chinese joint ventures continues to grow. Chinese executives have already advanced into the ranks of senior management in a number of German companies. There is hardly a company listed on Germany's blue-chip DAX index that hasn't absorbed a part of the People's Republic -- or perhaps it is the other way around.

* Part 1: The Dangers of Germany's Dependence on China
* Part 2: Risky Symbiosis
* Part 3: Growing Demand for German Consumer Goods
* Part 4: Warning Signs for German Industry
* Part 5: Optimizing Imported Technology
* Part 6: War of Nerves
* Part 7: Cultivating a Difficult Relationship

Saturday, August 28, 2010

China's GDP and Questions of Strength

Dispatch: China's GDP and Questions of Strength
Rodger Baker
Video Stratfor, August 16, 2010

China’s gross domestic product (GDP) is close to surpassing Japan’s to become the second largest in the world. Analyst Rodger Baker explains the multiple fundamental weaknesses in China’s economic system and why GDP is not the only indicator of a state’s economic strength.

Dispatch: China's GDP and Questions of Strength

China 'hukou' system

China 'hukou' system deemed outdated as way of controlling access to services
By Keith B. Richburg
Washington Post Foreign Service
Sunday, August 15, 2010; A08

Wang Aijun is the editor of the Beijing News, one of China's most influential private daily newspapers. Yet here in the capital, Wang said, he often feels like a second-class citizen.

He pays Beijing taxes, but his teenage son is not allowed to attend a Beijing public high school. To install a telephone or an Internet line, he must pay in advance. He is charged more for a ticket to some city parks. He doesn't qualify for a subsidized apartment. He cannot enroll his family in the city's public health-insurance program.

The reason for the discrimination? Despite having lived and worked in Beijing for seven years, Wang still does not have that most sought-after of commodities: a Beijing "hukou."

One of China's oldest tools of population control, the hukou is essentially a household registration permit, akin to an internal passport. It contains all of a household's identifying information, such as parents' names, births, deaths, marriages, divorces, moves and colleges attended. Most important, it identifies the city, town or village to which a person belongs.

The hukou dates back at least 2,000 years, when the Han dynasty used it as a way to collect taxes and determine who served in the army. Mao Zedong's Communist regime revived it in 1958 to keep poor rural farmers from flooding into the cities. It remains a key tool for keeping track of people and monitoring those the government considers "troublemakers."

Critics say the hukou system perpetuates China's growing urban-rural divide. Migrant workers flock to the coastal cities to labor in factories and take other manual jobs, sometimes living many years in places such as Beijing, Shanghai and Guangzhou. Because they lack an "urban hukou," they are forever designated "temporary residents" -- unentitled to subsidized public housing, public education beyond elementary school, public medical insurance and government welfare payments.

People who live in a city such as Beijing but do not have a local hukou must travel to their home towns to get a marriage license, apply for a passport or take the national university entrance exam. Parents and students say the last requirement is particularly onerous, especially if a student has to take the exam in a province that uses different textbooks.

Some economists here say the hukou system is outdated and unsuited to a modern economy that requires the free movement of labor. Others call it "China's apartheid," saying it has created a two-tiered system of haves and have-nots in all the major cities.

"You have a large number of rural migrants who already earn most of their income in the cities, who have been in the cities a long time, but do not have hukou-related benefits," said Tao Ran, an economist at Renmin University. "This system is very bad; it's ridiculous."
Life without a hukou

White-collar professionals also find life more difficult if they happen to be born without the right hukou.

Wang, 42, moved to Beijing seven years ago from Zhengzhou, in Henan province, after he became editor of the Beijing News. The paper could not get him a Beijing hukou, but he took the job anyway. "I thought I should do something I was interested in," Wang said. "I also thought China's hukou system would be reformed in six or seven years."

He estimates that nearly a third of Beijing's 22 million-plus people do not have a Beijing hukou -- including, he said, most members of his newspaper staff. Some reports put the number of temporary residents in the capital at 8 million.

"I've gotten used to living in Beijing without a hukou," Wang said. "A hukou is like the air -- you don't think about it normally. But once you need it and don't have it, you get pretty upset." Wang cited the fees he must pay for his 15-year-old son's expensive international school.

Some get desperate, taking a job they don't really want if it offers them a hukou.

Peng Li, 29, graduated with a law degree from a Beijing university in 2008 and was offered work in a company's legal office. But the offer did not include a guaranteed Beijing hukou, so she took a job as an official in a Beijing suburb.

"This job is kind of boring, and the salary is not high," she said. "I regarded it as a springboard to getting a Beijing hukou."

Some young people seeking a spouse on popular Internet sites will state upfront that they prefer a partner who has a Beijing hukou.

"Girl, 26, from North China, 161 cm tall . . . looking for a guy who was born between 1976 and 1983 and wants to marry within three years," says one posting on a popular site by a girl calling herself "imzly." "I hope you . . . have a Beijing hukou (because I don't have one)."

The Beijing hukou is the most prized, if only because it is the hardest to get. One reason is education: The capital has the country's most highly regarded universities, and those schools reserve a large quota of places for Beijing hukou-holders.

Chinese from outside the city can switch to a Beijing hukou by joining the civil service, getting a job with a state-owned company or achieving a high military rank.
Relaxing the rules

In the 1990s, some cities, including Shanghai, Shenzhen and Guangzhou, began allowing people to acquire a local hukou if they bought property in the city or invested a large sum of money. Shanghai further relaxed the rules last year so that professionals who have lived in the city for seven years as tax-paying temporary residents could qualify.

The Beijing government has taken several small steps toward hukou reform over the years. A Beijing pension can now be transferred to another city, for example, and the city's public kindergartens and grade schools were recently opened to all students, regardless of hukou status.

Some critics advocating an overhaul of the hukou system -- or abolishing it altogether -- said changes must be gradual to avoid large-scale disruption. Some have recommended assigning hukous by income or giving priority to those who have paid taxes in a city.

Whatever the pace of change, experts said, the hukou has outlived its usefulness.

"Migration is inevitable," said Tao of Renmin University. "We're proposing the government should just open all the cities."

Researcher Zhang Jie contributed to this report.

Sunday, August 22, 2010

For China, Will Money Bring Power? - New York Times

For China, Will Money Bring Power?
The New York Times, August 21, 2010

Cambridge, England

“ WHEN China awakes,” Napoleon is said to have warned, “the world will tremble.” For more than a century and a half after his time, that prospect seemed remote.

The ancient civilization became a byword for isolation and stagnation. China’s decadent emperors were immured behind the Great Wall and inside the Forbidden City. Its vaunted invention of gunpowder had spluttered into firecrackers. Its art of printing had withered into the production of stereotyped editions of Confucius. Its navy was antediluvian: mandarins tried to emulate Western paddle-steamers with junks propelled by coolies turning treadmills.

China was devastated by flood, famine, rebellion, warlordism, invasion, civil strife and, finally, a Communist dictatorship. It’s all the more of a shock, then, that the sleeping dragon has now awoken with a vengeance.

As the media have breathlessly reported, China has just overtaken Japan as the world’s second largest economy, and bids fair to knock the United States from the top spot within 20 years. Ever since Deng Xiaoping embarked on his “second revolution” in 1978, introducing free market reforms and opening up to the outside world, China’s economy has grown by almost 10 percent a year — one of the most sustained expansions in history.

Deng retained socialist control while permitting capitalist enterprise, a well-nigh miraculous achievement that resulted in the creation of another workshop of the world. The crucial question is: how will China use its new-found wealth?

The traditional answer is that rich countries tend to equip themselves with the sinews of war in order to enhance their position at the expense of rivals. According to the dominant economic philosophy of the 18th century — mercantilism — wealth and power are interchangeable, each helping in the acquisition of the other.

Thus Britain used its economic predominance after the Industrial Revolution to establish global hegemony. Protected by the fleet, its multiplying colonies supplied the mother country with raw materials and bought her manufactured goods. But by 1914 Germany was easily out-producing Britain, and Kaiser Wilhelm’s challenge to the Royal Navy’s supremacy did much to precipitate the First World War.

However, history does offer alternative answers — and the case of America is particularly pertinent. The economy of the United States overtook that of Britain in the 1870s, and by 1914 it was nearly three times as large. A small island making steam engines by hand inevitably fell behind a bountiful continent that mass-produced motor cars on assembly lines.

It also seemed inevitable that the United States, particularly under the internationalist leadership of Presidents William McKinley and Theodore Roosevelt, would mount its own challenge to the British Empire by translating its economic strength into military might. Uncle Sam did arm, of course, during the conflict with Spain and World War I, creating an outstanding Navy.

But for the most part, the nation’s business was business. In the 1890s it was suggested that the State Department should close down because it had so little to do. And during the isolationist period between the two world wars, when at its peak America was responsible for nearly 40 percent of the world’s manufacturing output, the United States Army was around the 17th-largest on the planet.

In other words, the military of the world’s richest nation amounted to hardly more than a border constabulary armed with obsolete equipment like 1903 Springfield rifles. During the Depression, cash was so tight that its best officer, a bald-headed major named Dwight D. Eisenhower, had to make a requisition for his streetcar fare between the War Department building and the Capitol.

Needless to say, Axis aggression transformed the United States into a military-industrial colossus. It so galvanized a depressed economy that the historian Niall Ferguson of Harvard has been moved to dwell on “the benefits of militarism.” Indeed, in his 2001 book “The Cash Nexus,” Mr. Ferguson argued that the “imperial America” should devote “a larger percentage of its vast resources to making the world safe for capitalism and democracy.” He regretted, however, that the United States was unlikely to impose “the rule of law in countries like Iraq,” partly because of “a pusillanimous fear of military casualties.”

Historians get many things wrong when they interpret the past and most things wrong when they forecast the future. So Niall Ferguson may also be mistaken when he dismisses as hopelessly unrealistic the view of Adam Smith and his disciples that peace promotes prosperity, and vice versa, through the operation of free trade. Market forces act in the moral world, said the 19th-century British politician Richard Cobden, like “the principle of gravitation in the universe — drawing men together and thrusting aside the antagonism of race, and creed, and language.” Certainly this is an ideal to which China has at least paid lip service since the end of the cold war, asserting that globalization fosters international cooperation.

Recall that at the start of the new millennium, a consensus existed among China-watchers that the Red Menace was as much of a mare’s-nest as the Yellow Peril. Like the United States before Pearl Harbor, China would concentrate on butter not guns, harmonizing its interests with those of its competitors through the peaceful mechanism of the open market. There was much talk of an entente between China and Japan, even of a Chinese-American alliance to maintain stability, fight poverty, tackle global warming and so on.

No doubt much of this was wishful thinking. Indeed, such soft soap may well have been part of a charm offensive by China, culminating in the Beijing Olympics of 2008, designed to mask the true character of a monstrous tyranny that was made manifest on Tiananmen Square in 1989.

Whatever the truth, informed opinion is now divided about Chinese intentions. Some pundits maintain that the fundamental assumption of China’s leaders is that conflict is part of the human condition, the only way of resolving differences in a perilous world. A recent comprehensive survey of Chinese authors revealed that most anticipate a repeat of the “warring states era in Chinese history.” Is not hostility toward “foreign barbarians” China’s default state?

There are, at any rate, obvious signs that the awakened dragon is flexing its muscles. China’s defense budget rose to be the second highest in the world in 2008, and its naval (particularly submarine) buildup has, in the opinion of the American journalist Robert D. Kaplan, caused “the loss of the Pacific Ocean as an American lake.” In search of markets and natural resources, China is expanding its influence aggressively in Asia, the Middle East, Africa and South America.

On the other hand, China’s 6.6 percent share of global expenditure on arms is dwarfed by America’s 46.5 percent. And, like the United States during and after the reconstruction era, modern China is preoccupied by the problems associated with rapid growth: pollution, corruption, rural poverty, urban overcrowding and troubled labor relations. Above all, its leaders have to keep the lid on the simmering political and ethnic cauldron, while at the same time preventing the economic bubble from bursting — as Japan’s did.

China may well keep its promise, for the moment at least, to follow the path of peaceful development. We can’t know, of course. But doom-merchants predicting that China will topple America from its pre-eminence should recognize that history is not necessarily on their side.

Piers Brendon, a fellow of Churchill College, Cambridge University, is the author of “The Decline and Fall of the British Empire.”

Friday, August 20, 2010

China downplays economic advances

China downplays economic advances
By Barbara Demick
Los Angeles Times, August 20, 2010

As China becomes the world's second-largest economy, officials are trumpeting the nation's problems, especially rural poverty. It's a mix of shrewd tactics and ingrained humility.

Reporting from Beijing
Who me, rich and powerful? China's official reaction this week to its latest milestone — surpassing Japan to become the world's second-largest economy — has been more modest than boastful.

Rather than flaunting its newfound status, China, the world's most populous nation but still roughly 100th in per capita income, is going through contortions to show that it really isn't that successful at all.

Since Monday, when Japan released economic data showing that its gross domestic product for the second quarter had slipped behind China's, Beijing has been trumpeting its shortcomings. In news conferences, on talk shows and in editorial pages, commentators have hastened to pooh-pooh the statistics, saying they are wrong, misleading or meaningless. They compare China not to Japan or the United States, but to Albania; both have annual per capita income of about $3,600.

This has not been a time for the Communist Party to boast about the fact that under its leadership, China has chalked up annual growth rates averaging 9% for the last two decades.

"There is little celebration in this land," sniffed the English-language China Daily in an editorial Thursday. "We have no time to be intoxicated by big numbers."

At a briefing Tuesday in Beijing, a Foreign Ministry official, Zhu Honghai, gave a lengthy enumeration of China's weaknesses: rural poverty, social disparities and low levels of investment in education, medical care and social security. Commerce Ministry spokesman Yao Jian advised reporters that "there are 150 million people who can't even reach the standard of $1 per day.... That's a fact about China."

On the talk show "Today Observed" on CCTV, economists chatted about why Chinese shouldn't be happy about overtaking Japan, while a flashing headline accused the foreign news media of "trying to flatter China to death."

A strange turn of phrase in a country where the foreign news media is often accused of "China bashing."

What, beyond truthfulness, is behind all the self-deprecation?

"China has played the underdog and victim for a long time and they're used to that role," suggested Patrick Chovanec, an associate professor at Tsinghua University's School of Economics and Management in Beijing. "There is an adolescent quality of not being comfortable with what you're becoming."

By insisting that it is still a "poor, developing nation," a phrase Beijing officials often repeat like a mantra, China is also able to beg off demands in negotiations over issues varying from climate change to trade balance.

"You have this strange contradiction. China is proud of what it has accomplished and wants to be a power, if not a superpower, but it feels if it is no longer seen as a developing country that would harm its interests," Chovanec said.

To some extent, China's expressions of humility might be a cultural reflex.

"As Chinese, we do things differently from the West. We are used to keeping a low profile and not bragging about any single achievement," said Zhang Yansheng, an economist at the National Development and Reform Commission. "And this is a country with such a long history that we know, no matter how much you achieve you might lose it."

Zhang points to the example of Japan, which in the mid-1990s enjoyed a per capita income well above that of the United States, but has since slipped behind.

The Japanese Cabinet reported Monday a second-quarter gross domestic product of $1.29 trillion, dropping behind China's $1.34 trillion in the world rankings (although China's per capita income remains one-tenth that of Japan's). Economists had anticipated China would overtake Japan sometime this year, with 2030 often mentioned as the year the Chinese economy is likely to move ahead of the United States'.

Some Chinese analysts believe that it was the spate of natural disasters — and the money poured into relief and rebuilding — that allowed China to move up the statistic ladder.

"The Chinese are not in high spirits at the moment," said Shi Yinhong, a professor of international relations at Beijing's People's University. "We feel that we still face so many difficulties and that we have not a friend in the world."

Times staff writer David Pierson and researchers Tommy Yang and Nicole Liu in The Times' Beijing Bureau contributed to this report.

Copyright © 2010, Los Angeles Times

Monday, August 16, 2010

China: second biggest economy in the world

China Passes Japan as Second-Largest Economy
The New York Times, August 15, 2010

SHANGHAI — After three decades of spectacular growth, China passed Japan in the second quarter to become the world’s second-largest economy behind the United States, according to government figures released early Monday.

The milestone, though anticipated for some time, is the most striking evidence yet that China’s ascendance is for real and that the rest of the world will have to reckon with a new economic superpower.

The recognition came early Monday, when Tokyo said that Japan’s economy was valued at about $1.28 trillion in the second quarter, slightly below China’s $1.33 trillion. Japan’s economy grew 0.4 percent in the quarter, Tokyo said, substantially less than forecast. That weakness suggests that China’s economy will race past Japan’s for the full year.

Experts say unseating Japan — and in recent years passing Germany, France and Great Britain — underscores China’s growing clout and bolsters forecasts that China will pass the United States as the world’s biggest economy as early as 2030. America’s gross domestic product was about $14 trillion in 2009.

“This has enormous significance,” said Nicholas R. Lardy, an economist at the Peterson Institute for International Economics. “It reconfirms what’s been happening for the better part of a decade: China has been eclipsing Japan economically. For everyone in China’s region, they’re now the biggest trading partner rather than the U.S. or Japan.”

For Japan, whose economy has been stagnating for more than a decade, the figures reflect a decline in economic and political power. Japan has had the world’s second-largest economy for much of the last four decades, according to the World Bank. And during the 1980s, there was even talk about Japan’s economy some day overtaking that of the United States.

But while Japan’s economy is mature and its population quickly aging, China is in the throes of urbanization and is far from developed, analysts say, meaning it has a much lower standard of living, as well as a lot more room to grow. Just five years ago, China’s gross domestic product was about $2.3 trillion, about half of Japan’s.

This country has roughly the same land mass as the United States, but it is burdened with a fifth of the world’s population and insufficient resources.

Its per capita income is more on a par with those of impoverished nations like Algeria, El Salvador and Albania — which, along with China, are close to $3,600 — than that of the United States, where it is about $46,000.

Yet there is little disputing that under the direction of the Communist Party, China has begun to reshape the way the global economy functions by virtue of its growing dominance of trade, its huge hoard of foreign exchange reserves and United States government debt and its voracious appetite for oil, coal, iron ore and other natural resources.

China is already a major driver of global growth. The country’s leaders have grown more confident on the international stage and have begun to assert greater influence in Asia, Africa and Latin America, with things like special trade agreements and multibillion dollar resource deals.

“They’re exerting a lot of influence on the global economy and becoming dominant in Asia,” said Eswar S. Prasad, a professor of trade policy at Cornell and former head of the International Monetary Fund’s China division. “A lot of other economies in the region are essentially riding on China’s coat tails, and this is remarkable for an economy with a low per capita income.”

In Japan, the mood was one of resignation. Though increasingly eclipsed by Beijing on the world stage, Japan has benefited from a booming China, initially by businesses moving production there to take advantage of lower wages and, as local incomes have risen, by tapping a large and increasingly lucrative market for Japanese goods.

Beijing is also beginning to shape global dialogues on a range of issues, analysts said; for instance, last year it asserted that the dollar must be phased out as the world’s primary reserve currency.

And while the United States and the European Union are struggling to grow in the wake of the worst economic crisis in decades, China has continued to climb up the economic league tables by investing heavily in infrastructure and backing a $586 billion stimulus plan.

This year, although growth has begun to moderate a bit, China’s economy is forecast to expand about 10 percent — continuing a remarkable three-decade streak of double-digit growth.

“This is just the beginning,” said Wang Tao, an economist at UBS in Beijing. “China is still a developing country. So it has a lot of room to grow. And China has the biggest impact on commodity prices — in Russia, India, Australia and Latin America.”

There are huge challenges ahead, though. Economists say that China’s economy is too heavily dependent on exports and investment and that it needs to encourage greater domestic consumption — something China has struggled to do.

The country’s largely state-run banks have recently been criticized for lending far too aggressively in the last year while shifting some loans off their balance sheet to disguise lending and evade rules meant to curtail lending growth.

China is also locked in a fierce debate over its currency policy, with the United States, European Union and others accusing Beijing of keeping the Chinese currency, the renminbi, artificially low to bolster exports — leading to huge trade surpluses for China but major bilateral trade deficits for the United States and the European Union. China says that its currency is not substantially undervalued and that it is moving ahead with currency reform.

Regardless, China’s rapid growth suggests that it will continue to compete fiercely with the United States and Europe for natural resources but also offer big opportunities for companies eager to tap its market.

Although its economy is still only one-third the size of the American economy, China passed the United States last year to become the world’s largest market for passenger vehicles. China also passed Germany last year to become the world’s biggest exporter.

Global companies like Caterpillar, General Electric, General Motors and Siemens — as well as scores of others — are making a more aggressive push into China, in some cases moving research and development centers here.

Some analysts, though, say that while China is eager to assert itself as a financial and economic power — and to push its state companies to “go global” — it is reluctant to play a greater role in the debate over climate change or how to slow the growth of greenhouse gases.

China passed the United States in 2006 to become the world’s largest emitter of greenhouse gases, which scientists link to global warming. But China also has an ambitious program to cut the energy it uses for each unit of economic output by 20 percent by the end of 2010, compared to 2006.

Assessing what China’s newfound clout means, though, is complicated. While the country is still relatively poor per capita, it has an authoritarian government that is capable of taking decisive action — to stimulate the economy, build new projects and invest in specific industries.

That, Mr. Lardy at the Peterson Institute said, gives the country unusual power. “China is already the primary determiner of the price of virtually every major commodity,” he said. “And the Chinese government can be much more decisive in allocating resources in a way that other governments of this level of per capita income cannot.”

Hiroko Tabuchi contributed from Tokyo.

Sunday, August 15, 2010

Great game in East Pacific - US vs China at sea

Asia is beginning to stand up to China — with US help
Interview with Gordon Chang
By Venkatesan Vembu
DNA, Daily News Analysis, Saturday, Aug 14, 2010

Mumbai - This week, US aircraft carrier George Washington sailed into the South China Sea for military drills with Vietnam, which has recently been badgered by China over territorial disputes in the South China Sea. The US decision was a symbol of its power projection in east Asia, and a “push back” to Chinese muscle-flexing in the region for months, says Gordon Chang, noted China-watcher and author of The Coming Collapse of China. In an interview with DNA in Hong Kong, Chang points to an emerging grouping of states in east and south-east Asia who “don’t want to be dominated by Beijing” and are “standing up to China”.
India’s move to prospect for oil off Vietnam, in an area that China claims as its own, could create friction with China, but India shouldn’t flinch from defending its interests, he adds.

China and the US are testing the waters in the South China Sea with rival ‘war games’. What’s going on?
It started with the sinking of a South Korean naval vessel in March by North Korea, and China’s unwillingness to have Pyongyang brought to account. It also relates to territorial disputes in the South China Sea, and China’s attempts to restrict sea lanes. Countries in the region are, for the first time, standing up to China. They don’t want to be dominated by Beijing, and have asked the US to exert leadership. The US is doing that.

In a speech in Hanoi in July, US secretary of state Hillary Clinton declared that peaceful settlement of disputes in the South China Sea is in the US’ “national interest”. It was a striking departure in US foreign policy, and China felt ambushed. Foreign minister Yang Jiechi said Clinton’s words were “an attack” on China.

When US president Barack Obama visited China last year, he was seen to be soft on China. Has that changed?
The Obama administration tried to be accommodating to China, but it didn’t work. Starting with that disastrous summit in Beijing in November, 2009, there were a series of hostile events. People in Washington decided they’d had enough. I think Obama still wants to be nice to China, but he finds his policy isn’t working. Various elements in Washington want a change in China policy, and it’s happening — fast!

Is the Obama administration signalling that the US is ‘back in Asia’?
It is, or at least Hillary Clinton is. There are two foreign policies in Washington: the Clinton policy and the Obama policy. Her policy seems to be working, and his is not. But in general, people in Washington are fed up of the arrogant Chinese.

China argues that it’s in fact the US that’s overreaching into China’s neighbourhood and ‘provoking’ it…
The US has been there since the end of World War-II. It has guaranteed freedom of sea lanes, which China is trying to restrict. The US has adopted a very low profile in Asia. It certainly isn’t overreaching.

If that’s the case, what’s China signalling, and to whom?
China is signalling that it won’t back down. You’d think that faced with a united coalition, Beijing would step back and divide the coalition. Instead, the Chinese are becoming more hostile. The reason: there’s been a militarisation of Chinese politics. The People’s Liberation Army had been losing ground in the political system in the last three decades; fewer and fewer generals and admirals were holding posts in top Communist Party organs. But since the middle of this decade, flag officers are gaining ground, and they’ve been pushing

China to adopt tougher positions. That’s created resistance in the region. China’s civilian leadership probably realises that the tack they’re on is wrong, but they can’t change because the generals and the admirals have a big influence. The forces that pushed China into a more assertive direction are preventing the country from adjusting and doing what should be done.

India is bidding for oil assets in Vietnam, and China has warned oil companies against operating in what it claims is disputed territory in the South China Sea. Could this spark tension between India and China?
There could certainly be friction, but if there’s going to be a conflict, it’s going to be in the contested border areas.

But hasn’t the Sino-Indian border tension died down since 2009?
Neither country is willing to admit what’s going on, but the Chinese are becoming much more aggressive in their border patrols of Indian-controlled territories.

India, like many other countries, doesn’t want to have a conflict with China; its response is very mild, and that’s understandable; but Beijing realises this and presses its advantage. Yet, it will eventually overstep, and push India too far.

When India objects to Chinese projects in Pak-occupied Kashmir, China claims they’re commercial interests, not strategic. Can’t India take the same line in Vietnam?
India wants oil and gas, and it really is a commercial project in Vietnam. It hasn’t been using it as a strategic lever on China. But Beijing’s relations with Islamabad are strategic. When China helps Pakistan develop nuclear weapons, it doesn’t have ‘commercial relations’; it has a long-term strategic plan to keep India off-balance.

Critics of your book say that China hasn’t ‘collapsed’ in the time frame you set, and you’ve been proved wrong. How do you respond to that?
We’ve to wait until August, 2011, to say for sure. But right now, it’s hard to be optimistic about China’s economy or its political system. I know many people have a bullish view of China, but you also see a lot of investors — Jim Chanos, Marc Faber — who are figuring out how to short-sell China. They’re not political persons, they have no incentive to upset Beijing. They’re like me: they call them as they see them. People are becoming concerned about the Chinese economy, and there are signs that things won’t turn out the way the optimists read it. I’m deeply sceptical: the closer you look at it, the worse it looks.

What do you expect to happen between now and August, 2011, that hasn’t happened until now?
What we will see in China is a prolonged, sharp economic contraction; for a couple of quarters in end-2008 and early 2009, we did have zero growth in China — and probably even negative growth. What we’ll see is a more prolonged contraction.

The Chinese think they’ve solved their economic problems. They temporarily bridged a difficult period, but they did so at the cost of creating problems that are more difficult to solve. They’re going to pay an enormous price. They can postpone the inevitable, but they’re going to make the final reckoning even worse. A year from now you’re going to see a very different economy in China.

Thursday, August 12, 2010

The Economist debate: China model - Is there such a thing?

China Model:
This house believes China offers a better development model than the West.
The Economist, Economist Debates, Thursday August 12th 2010

Addendum, in parenthesis, in August 13, 2010: Closing the debate and Winner Announcement:

August 13, 2010
James Miles

Given we argued so much over the motion's meaning, it is hard to declare a "winner". The numbers point to a victory for the motion's opponent, Susan Shirk. But congratulations are also due to Stefan Halper, who pointed out right at the beginning that, even though proposing the motion, he believed (as Ms Shirk argued) that there was no model to speak of. That muddied the waters! If the vote was really about the main points of contention between the two debaters, then the majority of you agreed with Ms Shirk that other countries would not be seduced by authoritarian state capitalism just because of China's achievements, and that China itself is in any case evolving in ways that could open the door for considerable change in the way it works politically.

But many voted in favour of the motion, and it is likely that some, if not many, did so out of a genuine belief that China does in fact have a better model to offer (with which Mr Halper, though the motion's proposer, disagreed). If I am right, this has been an interesting result. It is, I suspect, very different from what the outcome would have been had we been able to conduct this exercise 20 years ago. And it could be evidence of what Mr Halper has argued, namely that China is "shrinking the idea of the West". Undeniably, both he and Ms Shirk, as well as our expert contributor Michael Pettis, deserve enormous thanks for putting themselves in the firing line.

From the August 12, 2010, edition:

Rebuttal Statements:

Against the motion
Susan Shirk - Director, Institute on Global Conflict and Cooperation, University of California

Stefan Halper agrees with me that China has no distinctive model of development that other countries could adopt. He also acknowledges that China's breakneck growth has produced severe inequality, corruption and environmental pollution, and that in many respects, China is a fragile superpower. Then he shifts the ground of the debate to argue that China is engaged in a "battle of ideas" with the West and is winning. [More below]
Defending the motion
Stefan Halper - Senior Fellow, Politics and International Studies, University of Cambridge

Susan Shirk opens her argument with a curious claim: she seems to say that Americans who worry about the decline of the West and who "overestimate the strengths of the Chinese system" suffer from distorted vision. But then, pointing to Japan's breakaway growth two decades ago, she says that indeed, China's economic performance is even "more impressive" than Japan's was in the 1980s. [More below]
Audience participation
Comments from the floor.
Featured guest: Michael Pettis

There is nothing especially Chinese about the Chinese development model. It is mostly a souped-up version of the Asian development model, and shares fundamental features with Brazil during the "miracle" years of the 1960s and 1970s. While it can generate tremendous growth early on, it also leads inexorably to deep imbalances, and ironically just as we are debating its superiority, China may be on the verge of a difficult transition into a different growth model.

At the heart of the model are subsidies for manufacturing and investment paid for by households. In some cases, as with Brazil in the 1960s and 1970s, the household costs are explicit—Brazil taxed household income heavily and invested the proceeds in manufacturing and infrastructure. The Asian variety relies on less explicit mechanisms to accomplish the same purpose.

There are primarily three such mechanisms. First, wage growth is constrained to well below the growth in worker productivity, forcing workers to subsidise employers. Second, the exchange rate is undervalued. This reduces the real value of wages by raising import costs, while subsidising manufacturers in the tradable goods sector. Third, and most powerful, is financial repression. Most savings in these countries are in the form of bank deposits, and the banks are controlled by the monetary authorities, who determine the direction of credit, socialise the risks, and set lending and deposit rates.

Very low lending and deposit rates create a powerful mechanism for using household savings to boost growth by heavily subsidising the cost of capital. In the case of China, every year well over 5% of GDP is transferred from household savers to banks and borrowers in the form of repressed interest rates. As an aside, the resulting low cost of capital explains the seeming paradox of China's capital-intensive, rather than labour-intensive, growth—labour may be cheap, but capital is almost free.

The result of this enormously successful model is so much investment-driven and employment-generating growth that even with massive transfers from households, household income nonetheless surges. In China, for the past decade, as the country was clocking in growth rates of 10-12% annually, household income, and with it household consumption, grew 8-9% annually.

But there are at least two constraints to this model. In the early stages, when investment is low, the diversion of household wealth into investment in capacity and infrastructure is likely to be economically productive. The longer heavily subsidised investment continues, however, the more likely it is that cheap capital and socialised credit risk fund economically wasteful projects. At some point, rather than create wealth, capital users begin to destroy wealth, but nonetheless show profits by passing more than 100% of the losses on to households.

The second constraint is that policies that force households to subsidise growth are likely to generate much faster growth in production than in consumption-growth in household consumption being largely a function of household income growth. In that case, large and growing trade surpluses are needed to absorb the balance.

This is what happened in China in the past decade. And as long as the rest of the world—primarily America and the trade-deficit countries of Europe—have been able to absorb the rising trade surplus, the fact that domestic households absorbed a declining share of Chinese production did not matter much.

But by 2007 China's trade surplus as a share of global GDP had become the highest recorded in 100 years, perhaps ever, and the rest of the world found it increasing difficult to absorb it. To make matters worse, the global financial crisis sharply reduced the ability and willingness of other countries even to maintain current trade deficits.

China has hit both constraints: capital is wasted, perhaps on an unprecedented scale, and the world is finding it increasingly difficult to absorb excess Chinese capacity. For all its past success China now needs urgently to abandon the development model.

The sooner it does so the less painful the adjustment will be, but it will be difficult anyway. China must raise wages, interest rates and the value of the currency. If it does so quickly, it could cause severe financial distress to businesses and projects heavily dependent on subsidised costs, and the resulting surge in unemployment could cause consumption to decline just as Chinese competitiveness abroad deteriorates. If it does so slowly, it will need accommodation from the external sector, but it is not at all clear that the rest of the world, most importantly America and the trade-deficit countries of Europe, will allow their trade deficits to shrink so slowly.

The historical precedents for this kind of adjustment are not encouraging, and the adjustment China needs to make dwarfs those of its predecessors. Like it or not, China must change its growth model. It is unlikely that we will be debating this topic in five years' time.

The moderator's rebuttal remarks
James Miles
Aug 9th 2010

Some of our debate is stumbling over the basic premise—whether or not there is a "China model" in the first place. Contributors disagree on the ingredients of China's successes, the extent to whether what it has achieved is sustainable, and the applicability of these successes to other countries. I agree the motion contains assumptions that deserve argument, but I also think that just as few of our commentators challenge the ill-defined notion of what "the West" entails, there can also be a consensus on certain ingredients of the Chinese experience that, in combination, could be described as distinctively Chinese.

Authoritarianism, one-party rule, a strong state hand on the economic tiller (including control over strategic industries) and a vigorous engagement with the global economy are certainly components. Other fast-developing Asian economies shared most, if not all, of these elements during their takeoff periods. But they also sooner or later adopted varying degrees of democracy. Of China's forerunners in Asia—Japan and the four tigers of South Korea, Taiwan, Hong Kong and Singapore—none is as stubbornly resistant to any form of opposition as China today. That makes China's experience stand out in Asia, as well as among its fellow BRICs. A decade ago, some observers predicted that China would follow the Asian model as it developed, and become at least somewhat more open politically as it grew richer. Holding the Olympic Games in 2008, optimists thought, would help usher in the kind of changes that staging the event helped catalyse in South Korea and Mexico. It did not.

The question to answer, it seems to me, is whether the Chinese-style combination of the above-mentioned ingredients is attractive to some other countries to the extent that "western" notions of democracy and free markets are less likely to take root in them. Part of the answer depends on how stable you believe China's balancing of these components to be. Susan Shirk says in her rebuttal that in today's China, "rulers have turned to the toolkit of democratic governance in order to maintain credibility". If so, that would imply that China is evolving as other Asian countries have, and that the components I have described may change within the next few years. As one of our commentators put it, "the system seems to be evolving to cope with the challenges".

Stefan Halper appears less sanguine about the pace of this evolution. He speaks in his rebuttal of China's "promotion of authoritarian values". These, he says, "challenge and marginalise the values that have informed western progress for centuries". In other words, he implies, authoritarian leaders who take heart from China's successes do not see a democratic China taking shape in a way that could soon wrong-foot them.

One contributor notes that "we somehow forget Taiwan", whose takeoff preceded that of China "and probably was responsible to some extent for what we see now in China". Taiwan, this commentator says, is closer to the western model. In my experience, the Taiwan model is one of particular fascination to many people in China. Some admire its openness, but some also worry about its corruption and what they regard as the chaos of its politics. I do not often hear Chinese express a yearning for their country to be like it.

What seems particularly interesting to me is that voting in this debate appears relatively evenly balanced. My guess is that some of those voting in favour of the motion are Chinese who do genuinely feel that their country is rising and the West is in decline. If the party enjoys strong legitimacy, is it possible that the components of the model are balanced, at least in the eyes of middle-class urban citizens, just about right? Might pride in China's growing global influence overcome their desire for possibly risky change?

There is another essential ingredient to consider, however. That is whether China can maintain its trajectory of rapid economic growth. The concerns Mr Halper raises in his rebuttal suggest a degree of confidence that it will continue for the foreseeable future. But there are some who worry that China has, in effect, picked the low-hanging fruit and will find it hard to make the transition it seeks to a more domestically driven economy. One commentator frets about a "demographic time bomb" as the labour-force peaks in the coming decade and the proportion of retirees rapidly expands. A slowdown of economic growth, and the social tensions this could push to the surface, could rapidly reduce some of the concerns raised by Mr Halper. I look forward to more of your views.
The proposer's rebuttal remarks
Stefan Halper
Aug 9th 2010

Susan Shirk opens her argument with a curious claim: she seems to say that Americans who worry about the decline of the West and who "overestimate the strengths of the Chinese system" suffer from distorted vision. But then, pointing to Japan's breakaway growth two decades ago, she says that indeed, China's economic performance is even "more impressive" than Japan's was in the 1980s. Pardon me if I seem confused, but "more impressive than Japan" would indicate that Chinese economic planners must have been doing something right and that we ought to be concerned with a rising new China, not to mention its promotion of authoritarian values and its expanding support in the world beyond the West.

But let's begin with the "decline of the West":

• If growth means jobs, wealth, power and better quality of life, why should Americans not be concerned about China's unprecedented 10-11% annual growth (compared an American average of 2.8% over the past decade)?
• Why should we not be concerned about China's relentless acquisition of energy and mineral resources throughout the developing world—a determined march which has sustained authoritarian governance in innumerable fragile and/or failing states, and both distorted local development and driven up global prices for copper, oil, steel, zinc and timber, and hence consumer prices worldwide?
• Should Americans not be concerned about the decline of western power in the UN and the WTO, where China's "cheque book diplomacy" enlists an expanding bloc of supporters and admirers when America's and China's interests clash?
• Should Americans ignore China's recent claim of "indisputable sovereignty" over the South China Sea, which, if allowed to stand, would reverse the principle of freedom of navigation and open access to Asia's maritime commons. China's bald attempt to unilaterally seize undersea mineral and gas deposits claimed by nine nations makes this even more alarming?
• Should Americans not ask why China has increased funding for its 2.3m strong military (the world's largest) at such a rapid rate—17.8% last year compared with America's 3.4%?

And, while Ms Shirk worries that we are "overestimating the strengths of the Chinese system", let's take a quick look at China's actual economic performance during the dark days of the recession. When American and European economic growth slowed—the American economy actually contracted by 6.2% in the fourth quarter of 2008—China's economy grew by 9% in 2008.

China's towering trade surpluses with America and Europe have, over two decades, helped it generate more hard currency reserves than any other nation—now over $2 trillion. This, together with the highest savings rates in the world, has provided economic planners with the capacity to maintain employment, expand housing, invest in heavy industry, build roads and rail and subsidise an export sector hit hard by the collapse of demand in America. Meanwhile, there have been real challenges. Chinese planners have had to contain violent demonstrations in Tibet and in Xinjiang province, the "angry young online", workers' demands for wage increases and disputes with a range of international corporations over business conditions, privacy issues and intellectual property rights. If the issue at hand is to compare Chinese and American governance, China's achievements are impressive.

Though China provides an example of what a developing nation can achieve, it does not offer a model that can be replicated. Ms Shirk underscores this point when she references the more than "70% of the population of working age or the massive domestic market" to explain China's remarkable economic progress. Here we agree that China is unique; such large numbers of workers and domestic markets are unavailable in other developing nations.

Unfortunately, the debate motion, as worded, has deeply confused this exchange by presenting a false choice. It is not a question of China offering a better or worse model than the West. China's governance is unique. It cannot be reproduced any more easily than American democracy can be reproduced in France, Iraq or Venezuela. It is a variant of the Asian model first developed by the Japanese in 1932 in Manchukuo, then refined by the Koreans, the Taiwanese, the Singaporeans. It is characterised by high savings rates, good education, Confucian values emphasising family and harmony, and an emphasis on export driven growth. There the similarities end; the Asian authoritarian governments mentioned above have evolved towards pluralism. China, after 60 years, has not. Its complexity, its size, the all-powerful Communist Party make it impossible to replicate. So the notion of presenting China's experience as a "model" is simply a misapplication of the term.

What is more important is that the failure of the Washington Consensus (the western development model) in the 1980s left the door open for the Chinese in the developing world—and what that has meant for the spread of authoritarian government. While the Washington Consensus (implemented through the World Bank and the IMF) offered loans in return for government reform, deregulation and transparency, too often conditions failed to improve in participating countries. Moreover, not only has China's support been forthcoming without reforms, but it also pledges non-interference in internal affairs and undertakes to protect its partners in world bodies from ethics-based sanctions. But what you see is only a part of what you get.

The more enduring impact of China's largesse is the promotion of concepts of governance that challenge and marginalise the values that have informed western progress for centuries. Faced with the choice of instituting democratic or authoritarian governance, most developing-country leaders choose the latter as less complicated and providing greater longevity. Democratic virtues are thought to pale when compared with China's support and protection.

Sadly, Ms Shirk, comforted by America's massive military and economic strength, has neglected the real challenge presented by China, namely the battle of ideas about governance—which China's authoritarian embrace is winning in the "world beyond the West".
The opposition's rebuttal remarks
Susan Shirk
Aug 9th 2010

Stefan Halper agrees with me that China has no distinctive model of development that other countries could adopt. He also acknowledges that China's breakneck growth has produced severe inequality, corruption and environmental pollution, and that in many respects, China is a fragile superpower. Then he shifts the ground of the debate to argue that China is engaged in a "battle of ideas" with the West and is winning. According to him and to Joshua Cooper Ramo, there is something called a "Beijing consensus" consisting of "market authoritarianism" which competes with western values.

Contrary to the simplifications of authors like Halper and others, there actually is no consensus in Beijing, or elsewhere in China, on an alternative set of political ideas. To the contrary, norms like transparency, rule of law and democracy are on the ascendance inside China. And internationally, there is no sign that China is waging a Soviet-style ideological contest with America or subverting popular commitment to the values of freedom and democracy around the world.

At home, China's Communist Party leaders know that economic success alone will not maintain popular support in a highly mobile, educated and well-informed society. Chinese consumers are just as outraged about tainted food and medicine as are foreign consumers. Farmers have turned violently against local officials who collude with developers to buy up their land at unfairly low prices. Urbanites march against industrial projects that would endanger the health of their families by spilling poisonous wastes into rivers.

China's leaders do not dare stand for election, but they have introduced democratic-style mechanisms for monitoring and disciplining local officials who fail to protect the public welfare. The commercial media and the internet, although censored, have been unleashed to expose product quality and environmental problems. Large projects require public hearings to review their environmental impacts. Government agencies must solicit public comment on draft regulations. And citizens have the right to sue the government in the courts.

Are these methods as effective as elections? Almost certainly not, so long as the Communist Party insists on choosing all the government officials (including the judges). But they show how in today's China, the communist rulers have turned to the toolkit of democratic governance in order to maintain credibility.

The same is true when it comes to values. Chinese politicians bolster their legitimacy not just by appealing to nationalism and Confucian tradition, but also by celebrating the values of transparency, rule of law and democracy. Just search for these terms on a Chinese search engine, and you will be amazed at how frequently they are referenced in official speeches and articles. (Incidentally, moderator James Miles, Chinese statements reference these concepts more frequently than they mention a "Chinese model".)

In the international arena, China has emerged from its cocoon to become a significant and controversial player on every continent. But China's presence in Africa, Latin America and the Middle East has nothing to do with ideas and everything to do with its economic interests. As a latecomer to the international energy game, China has located oil and gas investments in states that have been shunned by western governments and companies because of their bad governance. To sweeten the deals, China builds roads and power plants; merchants and arms exporters follow to take advantage of the new commercial opportunities. But contrary to Mr Halper's claim, there is no evidence that the government is "mentoring" dictators to help them suppress democratic challenges or that China's presence is reducing the prospects for a genuine civil society from emerging in these countries. It is just as likely that Sinophobia could feed anti-regime citizen movements in these countries.

China, moreover, has no inclination at all to engage in a "battle of ideas" with the West. As the moderator notes, what is striking about China's foreign policy is how cautiously it has sought to avoid an ideological cold war with America by emphasising commonalities instead of highlighting differences.

Finally, Mr Halper's sweeping assertion that China's rise is reducing the support for western values around the world has no basis in fact. International surveys of public opinion show no erosion of support for democratic ideals among people in non-western countries during the past decade while China's strength and global influence were growing. Surveys by the Pew Center for People and the Press show that to the contrary, even in predominantly Muslim countries, a majority or plurality of those surveyed continue to favour democracy. Pew surveys also show that people in countries like Brazil and Egypt desire "honest elections with at least two parties". People are impressed with China's economic success, but evidently few of them want to live in a country like China.

Comments from Readers:

MieczyslawJerzy wrote:

Dear Sir, How can one refer to CHINA MODEL? The unique evolution of communism into an entrepreneurial powerhouse in the most populous Country in the world has no model. The intellect, foresight and disciplines as well as adaptability of the Chinese Leadership cannot be boxed into an HBS model! Looking at the Chinese achievements in arts sports and science has no model. The slow and steady growth of the economy in spite of many pitfalls of the vastness of the population, ethnic and regional old traditions, lack of sources of energy, etc. China has built up resources which have and will have even greater and more profound effects on our over-ripened and indulgent opinionated complacencies.

posted on 11/08/2010 21:51:18 pm Recommended (3) Report abuse

Texas Transplant wrote:

Dear Sir,

Most of the points on both sides of this arguments are valid; but both sides miss the most important factors resulting in rapid growth in emerging economies. The first and most important is simply that they are emerging; starting from scratch. They have no old, decaying infrastructure in need of replacement. And they have no bloated management structure unwilling and unable to keep up with changing technology and management practice.

The United States came out of World War II with probably more industrial capacity than the rest of the world combined, and no war damage. As a result, we prospered for at least one generation. Then Germany, Japan, and to some extent Briton and France began to recover. Ten years or so later Korea, following their war joined this group. Since they came out of their wars having lost most of their industrial capacity (or having none to start with) they then had the advantage of new infrastructure built to the latest concepts of production. And they had lean management structures. In the 1980’s General Motors had 5 levels of management for every level at Toyota. And the emerging economies did not suffer from the old saw that “everyone will rise to the level of their incompetence”.

The BRIC countries have gone even further with their efforts to make production more efficient. Brazil, for example, has ethanol refineries co-located with their sugar cane fields. China has their button and thread factories co-located with their clothing industry. In time the BRIC’s will also reach middle age.

But none of the comments above address the real problem that will eventually affect all of us. That is the simple fact that what is happening in manufacturing today is exactly what happened to farming 100 years ago. Technology produced machines that reduced the need for humans in most aspects of farming, especially grains. Technology is now reducing the manpower requirements in industry. The result is loss of millions of jobs in the developed economies and an eventual limit in the growth of emerging economies. People working in part time service jobs simply do not earn the wages of a skilled person in manufacturing. Thus they have less to spend the economies of the developed countries are stagnant or declining. Without the excess credit that was pumped into the developed economies over the past 30 years, the current economic situation would have been apparent sooner.

Therefore, my point is that this whole argument is moot. In the end the “China” model will produce no better, nor worse results than systems in place in other economies. But, because they started later, the results should become apparent sooner.

John Ott

posted on 11/08/2010 21:31:30 pm Recommended (1) Report abuse

Charles Tang wrote:

Dear Sir,

Rather than debate a Chinese model, or the existence of such a model, I would like to point out some important notions from the undergoing debate that form Chinese viewpoints. Most China bashers, chronic China doubters, Sinophobia outlook, and Western views have difficulty to comprehend some basic Chinese notions in any model:

Over the last quarter of a century, successive Chinese governments since Deng Xiaoping have made the greatest achievement of human rights in the history of mankind as it lifted over 450 million people out of poverty. Surely the right to live with a minimum of human dignity is the essence of human rights. Many millions of people from other countries were likewise benefitted from Chinese growth and imports.

All Chinese feel the pride that China is now a stronger and respected country that can defend itself against humiliations imposed by Western Powers that divided Chinese territory and imposed unfair treaties.

Successive Chinese governments who have made this economic improvements since Deng have earned the respect and trust of the Chinese People.

For these and other reasons, the ruling party in China should be able to win any election in China, should it choose to hold them.

While democracy is to be admired in the United States and in some other advanced Western democracies, in many of the emerging nations, we find that they are by the people, from the people and for very few of the people. The reference to Egypt as an example of democracy seems to be exaggerated.

China is country of continental dimensions, with over 150 dialects and 57 ethnic races. Over 7000 years of Chinese history has clearly shown that only a strong central government can hold the country together.

China is not trying to compete with the West, nor is it trying to promote its economic or ideological model, if such exists. It is clear that China’s main ideology today is prosperity for its people and for the country.

Although some of the prescriptions of the Washington Consensus are irreprehensible, for many decades it has been a formula for the sustained poverty of many emerging nations that needed IMF bailouts.

The USA was fixated by Iraq for the duration of the Bush Presidency, and for the foreseeable future will have to concentrate much of its energies to repairing the US economy.

China’s formula for interacting with the world has achieved positive results. China does not share the US missionary zeal of attempting to convert the world to its own image or to send in the marines to achieve this.

Unlike US “pocket book” diplomacy, China imposes no strings to its dealings with the world. China simply wants to do business with the world in harmony and does not wish to interfere into the internal affairs of any country.

China’s defense budget is a pittance compared to the US defense budget.

Many China critics prefer to ignore that the 200 years of European industrial revolution created comparatively more pollution, offered slave like working conditions, low salaries, and almost total disregard for safety and justice for the poor.

The major cities of China such as Shanghai, Beijing and others are a pleasure to live in. They are modern, clean, safe, and international with many options for entertainment, culture and dining. These cities offer all the comforts of modern life where most people are pursuing their goals of richness certain of a better future. I believe that Ms. Susan Shirk has probably never lived in China.

Chinese model, if such exists, is to initially, like all the “Asian Tigers”, use a well tried mercantile theory of low cost manufacturing and prosperity through export based income. This is coupled with non interference in other countries internal affairs to secure the strategic resources it needs for its sustained development and to feed its people.

China does not match European and even American history in imposing unfair treaties and colonization that depleted the colonies of their riches and resources.

Charles Tang

Chairman, Brazil China Chamber of Commerce

posted on 11/08/2010 19:04:17 pm Recommended (5) Report abuse

BryceNoble wrote:

Dear Sir,

I cannot, for the life of me, understand how this question would have any answer other than 'no.'

I see Mr. Halper's comment about the boom that was Japan's 1980's. Does he not realize what has happened since? Does 'The Lost Decade' ring a bell?

If China's economic growth is 'more impressive' than Japan's, then they are all the more likely to have a bigger bust.

America's system is the better system for the freedom of the individual. And, in so being, it is also, necessarily, better for the country as a whole.

China has had a recent rise in productivity and wealth within their country. But the only way China will reach it's potential is if it embraces the free-thinking ways of the West. China has a chance to topple our system over only because the political leaders of our nation for the past century have made so many missteps from the origin of our political system. The only good parts have been acknowledging freedoms for individuals that previously had it denied to them.

China may be gaining on America, but it is not because the authoritarian nature of their political structure is superior. On the contrary, it is due to the fact that our economy marches down that path more and more everyday.

If China embraces freedom, and quits funding our crazed spending...we will become a distant second to them. However, that is assuming quite a bit.

posted on 11/08/2010 18:28:49 pm Recommended (0) Report abuse

cyberoid wrote:

Dear Sir, the Chinese have revealed themselves to be highly pragmatic, even -- to stretch the term -- Taoist in their pursuit of economic success.

While we in the West may praise ourselves for being equally objective, on closer examination our economic system is riddled with biases.

For example, there is the Lutheran Doctrine that those with the most are blessed and therefore the best suited to exercise their financial will for the rest of us not so endowed. Holy of Holies.

We proclaim and amazingly, also believe that a "free" market -- actually, one dominated by wealthy individuals and large institutions, corrupted to serve their purposes -- will necessarily enrich the commonweal. How silly.

We pretend that the government elected "by the people" -- but in truth, by the machinery of electioneering, funded by powerful interests -- somehow represents the people's interests. Pollyannish.

The Chinese, at least as I know them, don't harbor such religious beliefs. They simply want to develop their economy and society. While we revisit our limiting mythologies over and over, the Chinese, bit by bit, are overcoming theirs. Organized labor, gay rights, democracy where it truly works -- these and many other reforms are coming to pass.

China isn't perfect, but what we can see is that it is improving, always improving; while we are stuck in our own mud.

posted on 11/08/2010 17:57:02 pm Recommended (3) Report abuse

ZvQF33ZfHM wrote:

Dear Sir,

With the fast and stable development of the all aspects of China, we can see the developing country China is stepping into the developed one. The whole world witnessed its fast growth in recent years, the Olympic Games in Beijing, the Expo in Shanghai. There were also bad things happened, (as the cruch crisis, the catastrophic earthquake)but China still can solve these hard difficulties well. Compared with other westen countries which influenced heavily by similar difficulties, China with much more canny rather than clumsy. Aparrently the present growing China could be a better choice for west countries,if the west can not find another good development model by themselves.

posted on 11/08/2010 17:19:40 pm Recommended (1) Report abuse

Jason in Chicago wrote:

Dear Sir, unless China develops a culture for individual rights, especially intellectual property laws, the central-planning model will always restrict growth. We've seen an immense growth in manufacturing in recent decades, but the kind of high-tech innovation and advances in productivity that lead to true economic power will remain elusive until personal freedoms are improved. A personal anecdote: as a student in China this last year, I saw the culture of academic dishonesty (i.e. cheating) which is another symptom of the broader problem with intellectual property.

posted on 11/08/2010 14:15:12 pm Recommended (0) Report abuse

Rainy Day Miracle wrote:

Dear Sir,

China’s market authoritarian system might not be following a definite “model” but its own legitimacy rests on its large-scale, sustained economic development. Most authoritarian regimes, however, aren’t economically dynamic, and as a result of their poor economic performance, they frequently face crises of failure, which often lead to political instability or worse. Historically there is no correlation between authoritarian systems and economic growth: for every East Asian Tiger there were five or six non-democracies around the world that did not experience a rags-to-riches story, such as the one now being felt in China.

How can China’s market authoritarian system win a war of ideas when the whole basis of its legitimacy rests on its economic performance--something that no authoritarian state-market or not-can promise? In this way, Stefan Halper’s argument, while intriguing, is short on nuance.

posted on 11/08/2010 14:03:13 pm Recommended (0) Report abuse

Top Analyst wrote:

Dear Sir,

I think the question is not the "either-or" but it is more of which one is more suitable for which social structure and within which time frame. "China Model" is more of a "capitalist economy on steroids"; whereas "West model" is genuine development ground up. China model is copying solutions from West Model and implenting them in a quicker fashion. How can there even be comparison of such two things? China model would not exist without innovation from the West. With regards to the slowdown in the West, its a temporary phase; may be it will prolong a bit more, but at the end of the day, its the innovation that will fuel the economy and it can come from any sector. There was Manufacturing in 50-70s and there were computers from 70-till 2007. It will be something else in next decades. The obvious one is the Energy sector. As long as China Model is not providing substantial innovations it is doomed to have same fate as any other model. Thus it is no better or worse in that manner.

posted on 11/08/2010 12:08:32 pm Recommended (1) Report abuse


Dear Sir,EIGENBEGRIFFE is a german word very useful. This is an attempt to judge things from the standpoint of the actor , not the one who observes . For example , the historic time of china is 2010 or perhaps 1950? . Does the chinese language manage the european BEGRIFFE "development" , "progress" ... or even "democracy". Even more , Does the average chinese care for this or only we watching?

posted on 11/08/2010 11:49:56 am Recommended (0) Report abuse

taibeijing wrote:

Dear Sir,

It may sound too aggressive or even negative to say that, the using the term of “model” or “Beijing Consensus”, simply fell into what I called “a fallacy of conceptual framework”. Reproducible or not, “model” implies a somewhat autonomous mechanism and the Chinese practices are heavily manipulated and can hardly be described as a “model”. And the term “Beijing Consensus” implies the Chinese had reached some kind of conclusion about how the country’s development should proceed. But it is definitely not true. Chinese traditions dictate dynamic flexibility in policies, what we saw in these past years might look like a “consensus”, but are actually a collection of impromptu decisions that in many occasions contradictory to each other.

I am sorry to say that, the West needs a different set of concepts, or a different conceptual framework, in order to make real sense about China’s “economy” and politics. For example, some people still like to call China an “authoritarian regime”, but they are at the same time puzzled by the seemingly quasi “democratic” processes that the “rulers” introduced. And some people feels that China is moving into a more “democratic and plural” society, while angered by the frequent heavy-handed depressions that the “government” exert on its people and institutions.

Contradictory, eh? NOT AT ALL! All contractions disappeared IF WE LOOK AT CHINA AS A FAMILY OWNED, MONOPOLIZED CORPORATION with a strong sense of mission. The constitution is the company charter, the polibureau the Board of Directors, the 75 million party members the minority shareholders, and the rest of 1.2 billion people the captivated customers.

The economy, and politics in China, is being mostly run like such a corporation. The directors in the board fight each other sometimes, and they all appeal to the minority shareholders for support if necessary and as a last resort, they will bring the cases to the customers. Whoever controls the “marketing department” has a greater chance of winning an internal fight, of course. Although not without conflicts, the Board members share an ultimate goal that is to keep the monopolized status of the company. Customers are captive, but without their certain level of support, this monopolized status might crack. So the Board must exercise displinary actions, or implementing a “performance system”, upon its workers, therefore the anti-corruption campaign. Then of course, the board members do not forget to use these campaigns as tools to remove the unfriendly elements in the corporation. To win over the support of its customers, again, the board members have to come up with “marketing programs” that keep the general customers in tame.

All this happened in the grand picture of international framework. So the corporation not only has to deal with its domestic market, but also with any potential international competitors, such as the United States and its value appeals. While the corporation’s domestic “marketing programs” are mostly offensive in nature, its international programs are mostly defensive. There is no necessary logical links between the two; therefore, it would be incorrect to derive conclusions about its international presence based on its domestic strategies, and vice versa.

China is mystical only because the Western world keeps trying to understand it with the Western conceptual frameworks. Instead of talking about the competing “value”, we should spend more time and effort in discussing the competing “conceptual framework”. That is, even when the Chinese people share the general value of election and freedom of speech, they can still act “very strangely and contradictory” from a Western point of view, because of the inner logic of their different conceptual framework.

The issue of depicting the Chinese conceptual framework is a task for a book or at least a long article, which is beyond the scope of this short comment. However, it is an essential task, if America and the NATO bloc takes the future impact of China seriously.

Kenneth Chou

A columnist and business consultant stationed in Beijing

posted on 11/08/2010 11:29:22 am Recommended (2) Report abuse

Zhouzhou_2 wrote:

Dear Sir,

I strongly disagree with the motion, in every sense of how it could be interpreted. However, I see even Mr Halper is careful about its exact words.

In short: China has seen economic growth by approaching capitalism, while staying strongly protectionist for its own market, and authoritarian in politics. None of this comes as a surprise, and part of it cannot be done again by other countries.

Having strong economic growth when coming from a weak base, in a time of peace, infrastructure and education investment and in a market system is not uniquely chinese, of course.

What is uniquely chinese is the strong protectionist part of the chinese economy, that prevents foreign companies to do trade the easy way there. China could allow to do so only because of its massive size, and after slowly convincing investors that they're still getting something worth the investment, while taking control and knowledge from them. I believe that no other country, maybe with the exception of India, is in the position to negotiate like this with global investors. Because it cannot be repeated, it cannot serve as a model for other countries.

As to the one party rule, I believe it did not help development at all, other than avoiding internal trouble. Any stable democratic system could have achieved better results under similar circumstances.

posted on 11/08/2010 06:46:11 am Recommended (0) Report abuse

ms.chico wrote:

Dear Sir,

Is it so easy to simplify development into clear-cut models? I'm not really sure how China's recent development can be compared directly with that of the West. Is it possible to qualify the differences in history, social values and geo-politics between East and West?

posted on 11/08/2010 06:32:59 am Recommended (0) Report abuse

mcleancr wrote:

Dear Sir,

The Chinese Model thus far demonstrated will not become a new model of development in any other country; no other country can match China's combination of cheap labor and centrally-guided, totalitarian government. In the earlier days of this economic revolution, the guidance of the government was necessary to unlock the power of the Chinese labor force. Through strategic infrastructure investments, national incentives for workers to migrate closer to factories and opportunities for foreign companies to manufacture goods, the government provided the essential spark China needed. But today, the government's heavy hand is more stifling to the long-term growth of China than it is supporting it. The government's role in directing growth is limiting innovation and entrepreneurship of the rising middle class and nouveau riche. China's strength lay not only in its sheer number of laborers, but potentially in its number of creative and nimble minds. Unless the government becomes willing to allow these minds to innovate and lead the next phase of economic growth I believe China is nearing the end of its period of growth. Thus, the Chinese model of state led economic growth will only be followed by the least developed countries. For sustained economic growth the government must instead foster the creativity and innovation of a country's citizens and immigrants.

posted on 11/08/2010 05:41:29 am Recommended (1) Report abuse

roran wrote:

Dear Sir,

I agree with Halper when he states that China offers an alternative model of governance, which has been unique in its surprising ability to deliver economic growth.

If we were to take this model of governance as purely "authoritarian", it would imply that china could have gone either ways. China could have ended up like North Korea, or it could have followed the path to prosperity.

My own take on China's success is that they got a few things right, which enabled them to compete in the 21st century:

1) Education: Building eductional infrastructure from scratch to educate a 500 million plus workforce!! Massive achievement.

2) Attracting Foreign Direct Investment: The Communist regime mastered the concept of arbitrage of taxes and labor costs across borders while shying away (initially) from short term capital flows.

3) Building the Hardware of China: Roads, ports, cities, railway lines, airports, etc. at an unheard of speed and precision.

the key concept of their success that i want to bring to light is their government's will and ability to execute relentlessly.

therefore, in my view, the battle of ideas of china vs. the west is that western ideology explicitly implies that democracy forges accountability, which inturn guides government towards inclusive development, governance and execution of plans and, coversely, implies that authoritarian governments lack the necessary checks and balances which make it likely for them to be lax in execution of policies that are most important to the nation.

China has proven itself to be unique by any measure in this framework.

however, i have voted "NO", because, i believe that china is heading towards a time bomb of instability. I donot think it possible for one regime to effectively manage the growing aspirations of 1.4 billion people who are now aware of the world around them. The 'Docile' workforce has already started baring its fangs. China is past the point in history where a single tiannamen can subdue a mammoth nation. Kudos to the leaders of china for not going the North Korea way, but in a decade, the chinese regime as we know it, will not exist.

posted on 11/08/2010 04:37:59 am Recommended (1) Report abuse

roran wrote:

Dear Sir,

I agree with Halper when he states that China offers an alternative model of governance, which has been unique in its surprising ability to deliver economic growth.

If we were to take this model of governance as purely "authoritarian", it would imply that china could have gone either ways. China could have ended up like North Korea, or it could have followed the path to prosperity.

My own take on China's success is that they got a few things right, which enabled them to compete in the 21st century:

1) Education: Building eductional infrastructure from scratch to educate a 500 million plus workforce!! Massive achievement.

2) Attracting Foreign Direct Investment: The Communist regime mastered the concept of arbitrage of taxes and labor costs across borders while shying away (initially) from short term capital flows.

3) Building the Hardware of China: Roads, ports, cities, railway lines, airports, etc. at an unheard of speed and precision.

the key concept of their success that i want to bring to light is their government's will and ability to execute relentlessly.

therefore, in my view, the battle of ideas of china vs. the west is that western ideology explicitly implies that democracy forges accountability, which inturn guides government towards inclusive development, governance and execution of plans and, coversely, implies that authoritarian governments lack the necessary checks and balances which make it likely for them to be lax in execution of policies that are most important to the nation.

China has proven itself to be unique by any measure in this framework.

however, i have voted "NO", because, i believe that china is heading towards a time bomb of instability. I donot think it possible for one regime to effectively manage the growing aspirations of 1.4 billion people who are now aware of the world around them. The 'Docile' workforce has already started baring its fangs. China is past the point in history where a single tiannamen can subdue a mammoth nation. Kudos to the leaders of china for not going the North Korea way, but in a decade, the chinese regime as we know it, will not exist.

posted on 11/08/2010 04:37:56 am Recommended (0) Report abuse

Skepticpolitico wrote:

Dear Sir,

A few points:

First, the debate as to whether or not China's development model is superior to that of Western countries is tainted by the fact that many Westerners know very little about what a 'western growth model' actually entails. While it is commonly believed that the West developed via free trade, free markets and lasseiz-faire economic policy, the historical reality is that truly free markets had very little place in their development. Take the US, for example. Alexander Hamilton, the first Treasury Secretary was himself a strong advocate of protectionism, and during the industrial revolution the northern states employed strong tariffs in the interests of protecting domestic producers from British competition. Furthermore, even the rise of Britain was assisted by free trade by the Navigation Acts, which sought to restrict competition through tough regulations enforced by the then-massive British navy. In short, what western countries have preached in terms of economic policy is far different from what they have practiced, democracy aside.

This brings me to my second point- if we decide to make the comparison between the West and China based upon the policies the West has preached, then the dynamic of this discussion changes quite a bit, because liberalized trade and financial markets have often brought instability and import dependency to the developing countries that have implemented it- see for example, Argentina (who had a financial crisis) Mexico (the tequila hangover), The Philippines (who had a disastrous stint selling flowers at the behest of the IMF). This is not to say that markets are necessarily bad, or that trade is necessarily bad, but in the case of fragile developing economies, neoliberal policies have their problems.

Finally, if we make the comparison between the Chinese and the Western models based upon what Western policies actually entailed, then the discussion gets a lot more interesting. But this approach can also be troublesome. The circumstances surrounding China's development project were quite unique in ways that really do matter. When it came to industrialization, China did not have first-mover advantage, unlike the Western nation-states. Its history is also very different; in structuralist parlance, the country has gone from being a core country during the monarchy, to the periphery during colonialism and through WWII, and then back to being a core country today (or so it has been argued). The point of all of this is that if one even decides to make this comparison at all, one is intellectually obligated to introduce a truly frustrating level of complexity.

posted on 11/08/2010 00:58:44 am Recommended (9) Report abuse

Colombia is passion wrote:

Dear Sir,

Simply put, if any country wants to import the China Model, most likely that country will end up like Cuba when tried to import the Russian Model. Model are not copy-paste ideologies. Each country has its own model. Cuba tried to copy-paste the Russian Model thinking that the friendly Caribbeans were like the cold Siberians. Models are so depended of its own circumstances and own environment that no even the European Union can create one that can be exactly replicated on every single country. Like we say in Latin America...Each Parrot on its own branch.


posted on 10/08/2010 22:39:20 pm Recommended (3) Report abuse

RXj5WvVpbK wrote:

Dear Sir,

A friend from mainland China, who's a sociology professor at Guangdong U., says the Chinese want to be more American than the Americans are, especially in flaunting their material possessions.

posted on 10/08/2010 21:15:30 pm Recommended (0) Report abuse

Nguoiphanbien wrote:

Dear Sir,

My comments are here directed at other commenters because I have long given up on this so called debate. And I'd like to address three issues:

1) China is not afraid of criticism. What they (and by 'they' I mean the Chinese public) object to is a sense of being unfairly singled out and bombarded with 'attacks', NOT, 'criticisms', day in and day out by the 'west'. And the 'west' here means the media from the usual suspects in the US/UK and western (not eastsern) european countries. From my personal experience, when I raised development issues with Chinese officials even in a very critical way, their usual response was: "tell me more about it" or "why did you say or what made you think that?"

2) Some commenters on this forum are quite delusional in terms of good and evil. It's ALWAYS easy, way too easy, to criticize others when you can do that in the comfort of an air-conditioned room, sipping nice imported coffee or whatever exotic drink there is, with no worry for basic survival such as hunger and diseases because in the worst case scenario, there is government welfare even if one has exhausted his/her unemployment benefits. The majority of Chinese citizens don't have this kind of luxury so their priorities are different and their government is responding to the citizens' priorities. It's that simple.

3) Most developed countries that can afford their citizens a very generous social safety package do so because they can afford it. China can't, at least not now. These social programs started when the US/Western European countries dominated the world in terms of technology and operated in a world without competition. Without the Internet revolution and free trade, it took decades before any new technology/product could 'travel' and be adopted and improved upon in foreign lands. So the west could afford paying their workers much more than what can reasonably be justified by the workers' productivity. Remember, there was little to no competition from the rest of the developing world. Now that the world is wide open and competition is fierce, companies can no longer afford to pay their workers more than their productivity increases which have been stagnant anyway, hence the resentment towards countries like China. On one hand people like the cheap goods, but on the other hand they want to remain overpaid beyond the productivity benchmark. Don't blame China, there are lots of countries from the developing world and Eastern Europe, Russia, are eager and happy to take the place of China. And workers in the west will still be left with the same challenges and conundrum - how to get overpaid and cheap goods at the same time?

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