Sun, Apr 14, 2019 - Page 7 News List

Despite its impressive looks, China might have feet of clay

By Joseph S. Nye

Chinese President Xi Jinping (習近平) seems to be on a roll. He has sent a rocket to the dark side of the moon, built artificial islands on contested reefs in the South China Sea and enticed Italy to break ranks with its European partners and sign on to China’s Belt and Road Initiative.

Meanwhile, US President Donald Trump’s unilateralist posture has reduced the US’ soft power and influence.

China’s economic performance over the past four decades has been truly impressive. It is now the main trading partner for more than 100 countries, compared with about half that number for the US.

Its economic growth has slowed, but its official 6 percent annual rate is more than twice the US rate. Conventional wisdom projects that China’s economy is poised to surpass that of the US in size in the coming decade.

Perhaps — but it is also possible that Xi has feet of clay.

No one knows what China’s future holds, and there is a long history of faulty predictions of systemic collapse or stagnation. While I do not think that either is likely, the conventional wisdom exaggerates China’s strengths.

Westerners see the divisions and polarization in their democracies, but China’s successful efforts to conceal its problems cannot make them go away. Sinologists who know much more than I do describe at least five major long-term problems confronting China.

First, there is the country’s unfavorable demographic profile. China’s labor force peaked in 2015, and it has passed the point of easy gains from urbanization. The population is aging and China will face major rising health costs for which it is poorly prepared. This would impose a significant burden on the economy and exacerbate growing inequality.

Second, China needs to change its economic model. In 1978, Deng Xiaoping (鄧小平) wisely switched China from Maoist autarky to the East Asian export-led growth model successfully pioneered by Taiwan and Japan.

However, today, China has outgrown the model and the tolerance of foreign governments that made it possible.

For example, US Trade Representative Robert Lighthizer is focusing on the lack of reciprocity, subsidies to state-owned enterprises (SOEs) and coerced intellectual property transfers that have allowed China to tilt the playing field in its favor. Europeans are also complaining about these issues.

China’s intellectual property policies and rule-of-law deficiencies are discouraging foreign investment and costing it the international political support that such investment often brings. China’s high rates of government investment and subsidies to SOEs disguise inefficiency in the allocation of capital.

Third, while China for more than three decades picked the low-hanging fruit of relatively easy reforms, the changes that it needs now are much more difficult to introduce: an independent judiciary, rationalization of SOEs, and liberalization or elimination of the hukou (戶口) system of residential registration, which limits mobility and fuels inequality.

Moreover, Deng’s political reforms to separate the party and the state have been reversed by Xi.

That brings us to the fourth problem. Ironically, China has become a victim of its success. The Leninist model imposed by Mao Zedong (毛澤東) in 1949 fit well with Chinese imperial tradition, but rapid economic development has changed China and its political needs.

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