Asia's Real Challenge: China’s
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Asia's Real Challenge: China’s "Potemkin" Rise

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If one looks only at the explosive growth of China’s Gross Domestic Product (GDP) since the country began to embrace capitalism and global integration more than thirty years ago, it is impossible to deny that China’s rise is both real and breathtaking.  In 1978, China’s GDP was US$214 billion in purchasing power parity (PPP).  By 2012, it was, unadjusted for inflation, roughly 40 times bigger (US$8.3 trillion in PPP).  Of course, there are other measurements of China’s economic rise, such as its share of global steel production (it is now the largest producer, with an output of more than 700 million tons in 2012), energy consumption (it has surpassed the United States to become the world’s largest consumer of energy), and foreign trade (its total imports and exports in 2012 were $2.84 trillion, second only to the U.S.’s $3.85 trillion).

To be sure, given the Chinese officials’ fondness for fudging numbers, many people both inside and outside China (including Mr. Li Keqiang, the new prime minister) are justifiably skeptical about the credibility of China’s GDP data.  In some cases, such skepticism can become so extreme that it leads many to conclude that China’s rise is more likely a statistical fiction, cooked up by the Chinese ruling elites to aggrandize their power and glory.

Vigilant obsession with the accuracy of the Chinese growth data may expose, from time to time, minor acts of fraud. Chinese provincial officials habitually report growth numbers that, when added up, significantly exceeded the total calculated by the Chinese National Statistics Bureau.  But such fastidiousness comes at a great cost: we may overlook a problem far bigger than fake GDP data.  The real scandal in China’s rise is not its exaggerated speed, but the shockingly low quality of its growth.  Low-quality growth has  undermined China’s social fabric and individual welfare.  It also makes China look far stronger on paper than in reality.

To understand why this is the case, we must ask a different question. Instead of harping on Chinese GDP numbers, we should instead scrutinize the quality of China’s rise.  Quibbling whether the Chinese economy has been growing at double-digit or not is uninteresting since one undeniable fact is that whatever measurements of speed we use, the Chinese economy has grown many times larger. 

The real issue today is not the size of the Chinese economy and the rate of its growth, but its inner strength and quality.

Without a deeper appreciation of the reality and consequences of China’s low-quality growth, gullible observers will likely be as impressed with China’s rise as Empress Catherine the Great was with Potemkin Village.

The most evident sign that China has sacrificed quality for speed in its economic growth is its catastrophic environmental degradation.  This year’s air pollution crisis is just one reminder that Beijing’s single-minded pursuit of GDP growth has been an unmitigated disaster.  It is not an exaggeration to argue that China’s long-term survival as a civilized nation is now at risk because of water pollution (two thirds of Chinese rivers are severely polluted) and contamination of soil by heavy metals (studies show at least 10 percent of the arable land was tainted with heavy metal in the late 1990s; a government-sponsored national survey of soil conditions conducted a few years ago yielded such alarming data that they are now classified as state secret).

Comments
57
Peacedog
May 20, 2013 at 22:25

The real issue is the PRC's system of governance. Communist/authoritarian governments are fairly good at building large amounts of low tech infrastructure quickly and creating a nation state out of bunch of previously unaligned groups. Their willingness to utilize violence and subjegate the will of locals in oppostion to the two items mentioned above is the key.

That said, this same style of government cannot run a truly modern society. All of the processes that make up a true first world country (financial systems, power generation, IT, medical research, etc.) require large numbers of people thinking independently all making large numbers of decisions independently.

Authoritarian regimes cannot allow this to happen, as once people start making decisions on their own regarding their profession this naturally leads to making idependent political decisions.

Hence, the PRC is stuck at a crisis point. It has developed quickly to a low level based off of the ability of the Politburo to force through certain changes and reforms. But this same method cannot be used to bridge the gap to the first world. Russia is a telling example in this regard. No one will mistake the Russian Federation for a first world country and it is unlikely to make that leap any time soon.

The coming Chinese demographic crisis and internal debt held by the state owned enterprises will severely challenge the PRC to even maintain its current level of development in the mid-term.

China will continue to be the "country of tomorrow" for a long time to come.

Sunyata
May 12, 2013 at 20:35

“…what happens to the Communist Party’s rule when the ill-effects of low-quality growth accumulate and produce a systemic crisis?….”

The fact everyone is overlooking is that China is the last of the great empires and is not a “nation state” as defined by Western developed world understanding!

This is where the real fault lines lie and where massive social corruption and environmental catastrophe is most likely to force change.

All empires have their day and a breakdown of empire into a collection of commonwealth states may be a more practical solution under the circumstances, given the massive problems governing a population the size of China creates!

Perhaps such a scenario could enable the beginnings of an historically unprecedented Asian Community along the lines of a Europe or ‘United States’?

Observer
May 12, 2013 at 03:09

For those that brag about the mystical 100 trillion USD economy of china, read this.

 

http://www.cnbc.com/id/100726172

 

As I said before, the empty drums are the loudest ones. Indeed.

Kim's Uncle
May 11, 2013 at 04:03

As time goes by the Chinese model of industrialization looks more unattractive as more informed people understand the new problems the model creates such as the massive environmental degradation and unchecked corruption that an authoritarian government creates. Professor Pei has articulated an informative well reasoned argument about the limitations of china economic model built by china’s authoritarian rulers. It would be wise of china rulers to listen to what critics have to say instead of dismissing them reflexively!

Tarun
May 9, 2013 at 20:27

China's biggest problem is that it is a civilization in a historical time warp. It Communist Leadership considers itself as a successor of the manchu dynasty and other preceeding dynasties which are like a father figure to all chinese people and its minorities and is ingrained in Chinese culture. That depends on high degree of top down control particularly information control. However for a services based economy and even a knowledge based economy like America that can take China to the next level  free flow of ideas and information is necessary which challenges top down control on which communist power is based. Mikhael Gorbachov understood that in Soviet Union so he allowed USSR to peacefully implode. Chinese leader also understood the implication of the implosion of USSR for China and resolved to maintain control as much as possible even if it means aggressively bullying its neighbours to divert its people's attention. Ultimately the Chinese model and its impossibility to evolve from its current resource guzzling model would force them to bump against America and other Asian democratic nations. In that the Chinese have an ally in Islam which also faces the same problem. This would eventually lead to a global conflict of terryfying proportions between US, Europe on one end and Islam and China on the other with Russia and India as fence sitters or swing forces. Chinese leadership also knows that conflict in western pacific and middle east faultlines is inevitable which is why they are sweettalking to Russia, armtwisting Israel which is holding out against Islamic power, tying down US with NoKo and applying a combination of threats and sweet talk with India which can act as a swing state. It is only US leadership which does not realize this.

Mazepa
May 9, 2013 at 18:18

They lack rule of law he say. Lets bring some of the western democracies to teach them about this. From what i can see the rule of law is a facade both in USA and UK where rule of law is disregarded due to "national security", international treaties like Geneva convention is disregarded, torture is allowed, bribery, corruption, nepotism the way of life.

The world order as of today will change, USA might not like it and feel free to underestimate the rest of the world. This will make it much easier to end the Pax Americana.

Kim's Uncle
May 9, 2013 at 15:49

China’s rise is only because it adapted basic free market capitalism which Mao and his commies rejected in the first place. The West went into a period of growth that dislocated society and alienated portions of society also but because the West had political process and institutions to alleviate the excesses of economic growth Western countries were able to resolve distortions created by industrialization. China has no such mechanism so; therefore, Chinese leaders will reap the whirlwind!

davida
May 9, 2013 at 14:51

if this guy wants to write this based on nothing but made-up facts and drummed-up charges, he should have decency to admit of his crimes. whats ppp- purchase power parity, and china's gdp is only 8.2 trillion in ppp? how is china supposed to overtake usa in 2016, at the least on paper if china's gdp is only half as much as that of america?

gaia
May 9, 2013 at 12:49

mare02, hey, you've got some nice points there. Also, you are just right. But why is Russia not willing to cede Kurile Islands to Japan? An alliance with Japan would give Russia the much dreamed growth in the eastern part of the motherland. That would be the real Pivot to Asia. 

tw_overseas
May 9, 2013 at 12:07

Maybe Taiwan does have more freedom comparitively. The "democracy" is a farce too, people dont care about politics, and then whichever party gets the stage. The same problems are there too, just in a different form. Take for example the tech industy, which is staying afloat through tax benefits, lower cost of power, and even lower wages. Both sides of the strait moved on to the global market with cheaper manufacturing at passable quality, and they are still doing it. Sustainable development of any kind is not part of the brass's mentality, milking the cash cow is however, and to top that off, most larger firms are bed-partners with the government. Boil it all down, nobody gives a (insert obscenity) when they can make money(enough or not) and is still alive, wellness and development/improvement is not an issue.

There is a Chinese saying: "Other people's sons will never die out",

Tom F
May 9, 2013 at 10:36

@TDog – "All in all, the crux of my argument is this: most Western and Western-style observers tend to believe that there is only one way to do things and that if you do not do as we say, you're not doing it differently, you're doing it dead wrong.  I don't agree with that line of logic."

For the most part, the western world do not exhibit the kind of behaviour and attitude you're referring to. At international diplomatic level, a majoritty of Asian nations do not subsribe to your view. It is an 'underDog' view often cited by China and North Korea, but it quite a chasm from reality. Asia and the world implicitly and explicitly subscribes to: peace, observance of international laws, economic prosperity, and a progressive society. 

China on other other hand has quite a different message for the world, ie you've had your turn, now it's our turn (ignoring all matter of context and contemporary norms), and even if it means: instability, disregard for international laws, subjective economic stagnation and subjugated societies.

This is the kind of message that leave adversaries with no other choice than to respond defensively, and we have all seen defensive responses emmanating from nearly all Asian countries bordering China. It's a zero sum game being played here, the only outcome is instability. For the US, even ignoring the responsibility of global leadership, its vast commercial interests in the region ought to prompt it to response (sooner rather than later).

I also think you're forgetting that it's through peace and stability in the region that has enabled China to prosper, despite ideological and political clash with western democracy. Peace and stability is the path favoured by Asians and the rest of the world, the path China wants us all to follow is vastly different, and it is being expressed now. Japan has made their response economically, it won't be long before they make a response of another kind. Escalation is the operative word here.

Australia has had to make a response in its latest defense white paper, a drastic and dramatic reversal of policy from its last position and one that paints it into a corner with little or no possibility of an exit strategy, and if you look at it objectively, even the US is having to make a response (and urgently re-align strategy). I know as an Australian that something is brewing when despite severe fiscal constraint and broad budget cuts, our defense strategy has had to be re-aligned with specific refferences to China and the defense budget increased.

IMO, it's not a matter of only one way of doing things, it's a matter of trying to achieve the one thing that the world desire, in what you say, and what you do. China seems to struggles with what's it's saying, and what's it's doing is entirely different again. You can use the excuse China is not very good at diplomacy only for so long, and only for as long as mistakes in discretion are corrected. However, prolonged, concerted  and manipulative efforts to generate instability on the other hand are symptoms of a government loosing its grip internally, or strengthening its grips externally.

 

Liang1a
May 9, 2013 at 07:41

China's exports sector must be reduced because there is no sustainability to develop exports forever.  It is not possible to export $5 trillion, let alone $50 trillion.  And even if China did export $5 trillion the benefit to each Chinese is very little and no more than $3,500.  Therefore, in order to give each Chinese an income of $50,000 the same as the US, China must turn inward to produce services through the urbanization of the rural residents until some 75% or more of the Chinese economy is in the services with 5% agriculture and 20% manufacturing mostly for domestic consumption.  Exports should be no more than 5% of the total GDP.

Chinese leaders must change their mentality from trying to make money to raising the standard of living of the Chinese people through increasing services such as medical services, educational servives, financial services, culture-sports-entertainment services, etc.  Only by increasing more services can the Chinese people enjoy their life more fully while expanding their economy to the biggest in the world.  And manufacturing should be made efficient through mechanization, automation and robotization to allow the Chinese human workers to be the most productive in the world.  Agriculture should also be mechanized, automated and rototized so that each farmer can produce 20 times more than he can now to earn 20 times higher incomes.  That is the way to make China rich by concentrating on making them productive to produce more goods and services for themselves to consume.  Obsessed with exports to make money will ultimately keep the Chinese people poor by miring them in the middle income (lower income) trap.

Liang1a
May 9, 2013 at 07:29

China's exports based on domestically produced products totals about $1 trillion – as opposed to the so-called processing trade which consist of importing parts and then assembling them into exported products which generate very little value added.  This could be expected to generate $2 trillion more of multiplier effect.  So that's already some 20 trillion yuan.  Domestic consumption of goods and services could be expected to be at least 2 times that.  That is already a total of some 60 trillion yuan.  The official GDP is some 52 trillion yuan ofr 2012.  So that is not excessive.  If anything, China's real GDP is probably closer to 60 trillion yuan than to 50 trillion yuan.  Much of the domestic consumption of goods and services are not counted.  So example, the street vendors' output of services are certain not to be counted because there is no way to count them.  Since a large part of China's economy is still not counted, the real Chinese GDP is almost certainly bigger than the official figure.

gngottawa
May 9, 2013 at 03:27

It's easy to resort to the GDP to measure progress.  It's quantitative, benchmarkable, and easily understood.  But the GDP fetish really does nothing to promote those institutions that will sustain growth and raise the quality of life–civil society, independent academia, rule of law, etc.  China doesn't have to mimic the West, but it does have to reform politically to really let loose China's ascendency.

 

Andao
May 8, 2013 at 21:03

Like the Greater East Asian Coprosperity Sphere

Andao
May 8, 2013 at 20:55

It'd be nice if they did focus more on the hospitals and dams instead of oh, i don't know…hosting the most expensive Olympics in history, shooting people into space, building a high speed rail network that few can afford while normal speed train tickets on Chinese New Year are nearly impossible to find.

 

There has been some improvement to quality of life only because the starting point was so low.  But nowadays the money is being wasted by the truck load.  I would be happy to show you half a dozen unused stadiums in Shenzhen, doing literally nothing but gathering rust and running up a power bill that my taxes are paying for.  The Chinese quality of life could and should be much better than it is now.

Charles
May 8, 2013 at 20:22

there's one part of china where there's no potemkin fakery: free china, a.k.a. taiwan. the scaredy cats in beijing should give up their stupid farce and just become democratic. taiwan represents china's future, not beijing.

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