Asia's Real Challenge: China’s "Potemkin" Rise (Page 2 of 2)

Another measurement of China’s low-quality growth is the deterioration of social cohesion.  Instead of producing a “harmonious society,” low-quality growth has spawned high levels of inequality and official corruption.  Social mobility has declined. Trust has practically evaporated.  The government has lost its credibility.  The most worrisome evidence of deterioration of China’s social fabrics is the spread of corruption from the officialdom to the rest of society.  Today, ordinary citizens often have to bribe doctors and teachers if they want high-quality care and schooling.  Unscrupulous vendors peddle tainted or fake food (the latest scandal is the sale of rat meat as mutton in Shanghai).  Food safety has become a crisis.

A third piece of evidence that low-quality growth has undermined the wellbeing of average Chinese citizens is the lack of a social safety net.  The ultimate mark of a modern civilization and successful economic development is not measured in aggregate GDP data, but in the extent to which the state protects its citizens against unemployment, sickness, and old age.  Compared with the more developed parts of the world, China’s social safety net remains threadbare.  The majority of the Chinese population (mainly rural residents and migrants) has no pensions or meaningful healthcare insurance.  Even for those lucky enough to have such protections, the rapid ageing of the Chinese population as a whole means that their benefits are unlikely to be guaranteed since the Chinese state will not have the resources to finance them.

To further understand why China’s rise has been one-dimensional (in terms of GDP growth only), we need to examine whether economic development has also led to the rise of more sophisticated institutions and organizations that are essential to future economic dynamism.  On this measurement, China’s shortfall is astonishingly worrying.  Despite more than three decades of rapid GDP growth, China today still does not have a sophisticated market-driven financial system.  As a result, capital is misallocated and wasted.  Because of the ruling Communist Party’s fear of losing its political monopoly, China continues to lack the rule of law, another guarantee of prosperity and individual rights.  China may have some of the world’s largest companies and banks, such as China Mobile, PetroChina, Sinopec, China Construction Bank and others, but except for a handful of non-state companies (such as Lenovo, Huawei, and Haier), none is considered innovative or world-class.  For all the money Beijing has ploughed into “indigenous innovation,” the sad truth remains that, today, China continues to be an imitator, stuck in the lower half of the value chain.  Given the decay of China’s higher education system (another open secret), it is unlikely that the country can ascend the value chain as rapidly as its leaders have hoped, if at all.

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Unfortunately, most outside observers are poorly informed of both the reality and the consequences of China’s low-quality growth.  As a result, two things happen.

First, they have become overly optimistic about China’s role in the global economy and governance.  They count on China to do more than it is capable of doing (regardless of Beijing’s willingness).  They simply do not realize that China is a giant who, to use a Chinese phrase, “looks strong from outside but is hollow inside.”

Second, they are poorly prepared if things in China start to unravel because of its low-quality growth.   Here we are not talking about the economic consequences of a Chinese slow-down (although they will be severe, particular to those countries and companies dependent on commodity prices, which are very sensitive to the marginal demand from China).   Intellectuals outside China should pay some attention to the effects of China’s worsening environmental degradation and food safety crisis on global food supplies.  Clearly, if the destruction of the environment and Beijing’s lack of institutional capacity to ensure food safety continue, China will have to import a lot of food from the rest of the world (Chinese tourists are already snatching up baby formulas wherever they visit).  China’s newly affluent, a demographic group most sensitive to quality, are voting with their feet in unprecedented numbers.  They are either emigrating themselves or sending their children or spouses abroad.

Of all the potential consequences of China’s Potemkin rise, one that has received the least amount of thought abroad is the durability of the political regime that is responsible for such low-quality growth.  At the moment, despite mounting evidence of China’s low-quality growth and lack of sustainability, few are asking the inevitable question: what happens to the Communist Party’s rule when the ill-effects of low-quality growth accumulate and produce a systemic crisis?

Now is the time to ask it.

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