Why China Won’t Slow Down

For China today, the questions on everybody’s lips are: Can the People’s Republic survive so much change? Can China’s performance sustain its pace? What steps are needed next? Minxin Pei addresses the first two of these three questions, and his answers are not flattering. Actual conditions on the ground in China, however, suggest there is little reason to be so pessimistic.

China’s gross domestic product (GDP) growth has now outperformed other Asian "miracle" economies. Last year’s economic census, conducted after several decades of improvement to China’s statistical system, presents a clearer picture of the country’s economic performance than was available a decade ago, when Western scholars "improved" official statistics by shaving them. China grew, on average, 10 percent a year during the past 15 years. World Bank and Organisation for Economic Co-operation and Development data show that the best 15-year average performances for South Korea, Singapore, and Taiwan never reached 10 percent. Furthermore, China’s growth potential is huge. Its per capita GDP is just 5 percent of the U.S. level. South Korea had roughly the same growth gap with the United States in the 1960s, and continued rapid growth is even more likely in China today than it was in Korea then, thanks to new technologies.

Can China continue this incredible pace? Five factors suggest it can. First, China is good at investing in things that feed its growth. It gets roughly the same growth bang for its investment buck as India. But China’s financial system mobilizes more money than India’s, and it allocates a much larger share to private-sector-friendly infrastructure such as roads, ports, and sewage systems. Second, China has created incentives that reward hard work, knowledge, and risk-taking. Fifty million layoffs eased urban workers out of their cradle-to-grave jobs. Rural workers can now move to towns and compete for urban jobs. Compulsory education was extended to nine years, and China’s high literacy rate underpins its increasing worker productivity. Third, China’s daring openness to global commerce has enhanced its economic flexibility and financed new technologies, while judiciously managing key areas such as foreign investment. Japan and Korea never risked opening this fast. Fourth, foundations for a lasting middle class have emerged, thanks to land reforms, improvements in education, and new social safety nets. Lastly, China is a relatively low-crime society, where unthreatened physical safety enhances economic opportunities. Corruption exists, but at levels lower than those in India, Indonesia, and the Philippines — and it is vigorously prosecuted.

This performance suggests that Chinese officials are leading an agile, energetic government. It is implementing a wide range of reforms and adjusting well to unexpected developments. Social unrest is a good example. Discontent is guaranteed in any country converting privilege to productivity as quickly as China. The issue is how to manage that unrest. China’s approach is to compensate displaced people, discipline losers who cause trouble, and punish local governments’ malfeasance. That process is hardly perfect. But speech and assembly critical of government are widespread and largely peaceful.

The regime does crack down harshly on political movements that threaten government authority, social stability, or continued reform. These are policies of a confident leadership implementing a sophisticated and balanced policy. Hardly frail, China’s government has peacefully refreshed its ranks with younger, better-educated leaders who increasingly make decisions based on practical compromise.

Could a crisis sink China’s ship of state? It hasn’t so far. Both the Asian financial crisis and the sars epidemic had the potential to do so. In both cases, the government learned from its mistakes and recovered quickly. Yes, China must continue expanding the choices available to ordinary citizens about where they work and live, and it must increase the number of ways people can seek redress for their grievances. But China is already a hive of reform proposals, test projects, and nationwide rollouts. The expansion of local nongovernmental organizations, for instance, is being encouraged to help care for the needy. The government is also pursuing higher educational standards, new approaches to rural poverty, and the modernization of its tax system. Consumer credit for homes and cars is just one example of the new opportunities available to its citizens.

Pei says China is a "neo-Leninist state" and condemns it to frailty. The facts on the ground, however, suggest a political system that is far more nimble and robust.