3. In a recent interview on Charlie Rose, you explained that a major issue confronting China’s leadership is it must govern what effectively constitutes two different China’s: the more wealthy, urbanized and coastal China on the one hand and the relatively poorer, more rural, inland China on the other. Each segment of society has very different aspirations and goals. How can China’s new leaders devise policies and programs to help these two very different groups?
China’s leaders can help these two very distinct groups if they are willing to be more flexible in enacting true liberalizing reform with that wealthier group. That means a more accountable, more transparent government, with more autonomy given to local leaders. Like Chinese leadership did originally with special economic zones more than 30 years ago, there needs to be special accounting zones, special judicial zones, and special banking zones, where norms and values are more in line with the international community. Short of that, governance is going to become increasingly problematic. Unfortunately, when you look at the new group of leaders coming out of the recent transition, we’ve seen a consolidation of the status quo. The standing committee has condensed from nine members to seven, and it’s clear the government is moving in a more unified direction. It seems like a government distinctly less likely to experiment and take the necessary gambles.
4. As yourself and many other commentators have pointed out, China faces a demographic challenge in the coming decades. After 2015, China’s workers will become increasingly older and the burden of taking care of this ‘graying’ population will rise. Some have speculated that China’s rise may in fact be peaking. Can China reverse this trend in your view by say scrapping its one-child policy? In what way will demographics shape China’s geo-strategic goals in your view? Could it limit its rise as a true global power?
It’s certainly true that demographics are not on China’s side. Today there are three workers for every pensioner in China. By 2030, there will be just two. And demographics are just one piece of the riddle. China is not only going to run out of cheap labor, but cheap labor won’t be the advantage it used to be. It’s about robotics. It’s about 3-D printing. As technology makes labor-intensive manufacturing a relatively more expensive option, it’s going to put huge pressure on the decision making processes of Chinese State-Owned Enterprises, if they want to be efficient. After all, China is a state capitalist nation, where leaders’ desire for economic growth only exists insofar as it can keep them in power. If growth means restructuring huge sections of the economy and contending with a related spike in unemployment, don’t expect Beijing to take on these reforms lightly. The overall labor force dynamics—including demographics, labor cost and technology—are certainly going to limit China’s rise.