Challenges and Opportunities in China’s Turbulent Future

The system-wide transformation already well underway in China will bring rapid change over the next decade—in society and culture and eventually in politics also. As WTO-related reforms are introduced, the process of change will be highly complex, even chaotic at times. We need to look beyond the superficial headlines about China as a threat to U.S. interests and see both the sober challenges faced by its government as well as the needs of the people.

WTO as China’s Next Revolution

China has been trying for one hundred years to “catch up” with the modern West and Japan and, more recently, with its fast-developing neighbors in Asia. However, the target keeps moving no matter how much progress is made. For example, during the past two decades, China’s economy has been growing at 10 percent while others, including the US’s, grew much more slowly. Nevertheless, the net growth in China was still less than that in the developed economies due to the differing base for growth. Only in 1993 did China’s share of world trade reach the level it held prior to the 1940s decade of war.

Today, China faces an external environment of fierce competition as the entire world undergoes a restructuring of institutions to accommodate “globalization.”  This term constitutes a shorthand for a historic process involving the spread of new technologies, a new level of economic integration across borders, and an unprecedented speed of change. The global turbulence it produces affects China unevenly and unpredictably.  In addition, there is growing turbulence inside China. The reform process has a hybrid quality whereby rapid economic restructuring from a socialist to a market economy produces uncoordinated social change while the government resists political change. This causes an uneven distribution of economic benefits and risks as well as an explosion of new social groups with more mobility (both economically and geographically). The result is disequilibrium of the whole system. How to manage all the problems as change continues to occur, and still keep making progress, is the challenge facing not only the Chinese government and citizenry but the entire world.

The Chinese government’s decision to join the WTO (World Trade Organization)—thus accepting new international limits on PRC sovereignty as well as influence over its economy—came out of recognition that this is the only option for a positive future for either the regime or the nation. It also sets a precedent for further integration of China into noneconomic international regimes, from nonproliferation to human rights.

China’s new Five Year Plan (2001–2005) and Ten Year Plan (to 2010) are intended to support phased compliance with the conditions of WTO membership. They mark the start of another peaceful revolution, like the opening of China twenty years ago. This next wave of reform will fully open up not just the economy but the whole of society.

What Will Be New Over the Next Decade?

Given all the complexities of change underway, there will be inevitable failures in predicting specific events, but we can identify some of the drivers and parameters of change.

Population pressure on resources drives reform.

The central imperative that is driving change in China is the need for jobs. The government’s legitimacy rests heavily on its ability to produce continued economic gains. However, the population pressure on resources of all kinds is nearly intolerable. Ponder the statistics:  the population will grow from 1.3 billion in 2000 to at least 1.6 billion by 2050—300 million more mouths to feed. Every year, there are more than 20 million urban jobseekers, 80 million migrant workers and another 120 million surplus rural workers, most of whom want to head for the big cities.

China will experience the greatest migration in world history as 300 million people move to the cities over the next ten years. Over half the population will be urban by 2030, rising rapidly from just 30 percent in 2000. The expansion of social services to meet their needs in education, housing and health services must come through private enterprise and nonprofit organizations. The financial and banking sector will be overhauled to serve the private sector and build consumer and investor confidence.

Slower growth brings challenges.

Chinese leaders are having to rethink economic and social policies as the economic growth rate has been slowing (6–7 percent/year after 20 years of 10 percent annual growth); 6 percent is the minimum required to match population growth. Rural incomes have been dropping for several years.

Grievances over inequality of income and opportunity were manageable when the economic pie was growing rapidly, but now rural and urban labor unrest, as well as tensions involving ethnic and religious groups, are surfacing in spontaneous mass protests, riots and sabotage.

The government has seen the limits of state-guided capitalism and dependence on foreign investment (80 percent from overseas Chinese) and now is looking more to domestic consumption as the main engine of sustainable growth. That has prompted a massive government investment program in nation-wide transportation and communication infrastructure, which will produce a fully integrated national economy for the first time. The new development strategy will also require more rapid growth of the private sector, as well as a change in the long standing anti-migration policy to allow farmers to move to the cities, both to boost consumption and mitigate rural unrest. The new Five Year Plan aims to entice foreign investment to develop poverty stricken west China, both to dampen separatist sentiment and to localize labor migration and urbanization so everyone does not move to the coast.

Public opinion and action have impact.

Positive social change by 2010 will include rapid growth of China’s urban middle class as an educated, creative work force is developed. China plans to boost high-tech knowledge-based industries, quickly create an information highway and expand its higher education system, partly through private schooling. Internet usage (now around 23 million) doubles twice each year. This middle class is already demanding quality of life—not just more income; they want China to become “a normal country,” with the global norm now being democratic capitalism.

More worrisome social change includes growing inequity whereby the poorest segment of society is losing not only income but all means of subsistence, while the political and economic elites are increasingly corrupt, diverting state assets to line their own pockets.  In the 1990s, the richest Chinese expanded their share of the economic pie from 25 percent to almost 40 percent. New waves of job losses in industry and agriculture may overwhelm retraining and education for the new service jobs.

Cultural competition is spurred by a search for meaning.

China’s new openness is creating a market of ideas as well as of goods and services. In the swirl of competition and corruption, people need hope for the future and a loving community. Often, they are finding these in religious faith along with practical help such as healing of illnesses for which medical help is too expensive. A plurality of beliefs is emerging with four main competitors to fill the spiritual vacuum:  commercial pop culture from Taiwan and Hong Kong; Western secular democratic and scientific values; traditional philosophies and folk religion; and the global wave of evangelical/charismatic Christianity. Despite the interest in Western values, including Christianity, there is widespread resentment of American attempts to impose human rights values. People believe these efforts reflect U.S. political interests more than genuine concern for the Chinese people.

Social and political reform is inevitable.

Economic growth and government legitimacy both require more efficient, honest and accountable government— and this is widely recognized in China. In 1998, a goal was set to create “small government; big society” through downsizing government at all levels by 50 percent and developing a more autonomous Third Sector (nonprofit social organizations) to help take up the burden of social services that governments no longer can or will perform. Well over 200,000 nonprofit organizations are up and running. Meanwhile, other incremental improvements to increase efficiency and honesty in government continue, such as hot lines and T.V. talk shows that reveal corruption cases. Pragmatic younger, better educated officials, who are moving into positions of influence in all sectors, will further promote such changes in coming years.

This positive momentum has met with a major setback since mid-1999 as the government has over-reacted to the rapid growth of the Falungong (FLG) spiritual movement. The government banned FLG, put a freeze on political reform and established highly restrictive policies for the non-profit sector and religious organizations. Nonetheless, more liberal social policies and political transition to a post-communist authoritarianism are very likely to resurface by the second half of the decade, though democratic and cultural institutions will take much more time to build.

An internationalist foreign policy will prevail.

For twenty years, Chinese leaders have pursued a real-politik approach to foreign policy, convinced that the ideological confrontation of the Cold War only left China poor and marginalized. Pragmatism in a globalist era has meant the gradual opening up of China to multi-layered interactions of all types with the outside world. This opening will speed up under WTO-related reforms and with the active support of younger generations who have had a positive exposure to the personal and national gains possible through the open policy.

This trend will be inhibited mainly by great sensitivity to perceived unequal, unfair treatment of China, especially by U.S. political actors. U.S. dominance of global institutions will spur Chinese alignments with other international actors to try to counter dependence and vulnerability to U.S. pressure. Any Chinese government, communist or democratic, will react strongly to outside support of separatist movements, especially in Taiwan.

Our Response to Uneven Change in China

The prospect of a fully open Chinese economy and society ten years from now abounds with opportunities for both the Chinese and the West if the transition is managed well. Nevertheless, it will come through the zigs and zags of competing “sunset” and “sunrise” forces in all sectors of Chinese society. I believe it is foolish for Americans to overreact to each wave of change in China out of an exaggerated sense of the power of American influence and a spirit of fear that China will use its growing economy to challenge U.S. strategic dominance in Asia. While there will continue to be episodes of competition or even confrontation, these should be managed realistically with a view to the long term.

We need to see the truth beneath surface appearances:  China’s economic prosperity is fragile and has a weak moral and social base. We need to have a sense of solidarity with this needy nation of people who must struggle with a wrenching, confusing “future shock” for which they are not prepared.

It is profoundly important that China’s next revolution be a peaceful one, without internal violence and regional military conflict. We need to be patient regarding the timeframe needed for social and political change and pay attention to Chinese opinion. The majority of Chinese—including democrats and Christians on the mainland, in Hong Kong and Taiwan— know that only peaceful, gradual change through socio-economic progress—not political revolution— will bring about more democratic governance in China.

China’s Achievements Prior to the 10th Five-Year Plan (2001-2005)

GDP

• Annual growth rate: 8.3%
• GDP by 2000: 8.9404 trillion yuan
• Ratio of GDP to residents’ consumption: 45-50% (as opposed to 60-65% in developed countries)

Profits

Profits state-owned industrial enterprises and industrialized enterprises with a controlling share held by the state reached by 2000: 239.2 billion yuan (a 190% increase over the 1997 figure)

Unemployment

Unemployment rate in 2000:  3.1%^[1]

Trade

• Imports and exports volume in 2000: US$474.3 billion (69% rise over 1995 figures)
• Trade value during period of 9th Five-Year Plan: US $1.7 trillion (an increase of 74.9%)
• Dependency of national economy on trade in 2000: 43.9% (up from 40.2% in 1995)
• Exports: US$249.2 billion (67% rise over 1995 figures)

Foreign Exchange

Reserves at the end of 2000: US$165.6 billion (US$92 billion more than 1995)

Living Standards

• Per capita net income of rural residents in 2000: 2,253 yuan (US$272)(4.7% annual increase)
• Per capita disposable income by urban residents in 2000: 6,280 yuan (US$759)(5.7% annual increase)
• Average annual increase in volume of retail sales: 10.6%

Information Technology

• Spending on IT products in 2000: US$19.9 billion (US citizens spent US$561 billion on same products)
• Telephone users: 215 million
• Internet users: 22.5 million

Projected Goals for the 10th Five-Year Plan

Economic Growth

Annual average: 7%

Agriculture

Number of farmers transferred to nonagricultural industries: 40 million

Unemployment

Rate at which China will try to maintain unemployment: 5%

Source

 “NPC Statistics: BigPicture Statistics of Today and Tomorrow’s China,” People’s Daily Website, http://english.peopledaily.com.cn/features/lianghui/all.html , March 30, 2001. (NPC=National People’s Congress)

Compiled by Josh Snyder.

Image credit: Bustle by Jamison via Flickr.