China Survey: Coming out

Coming out

Mar 23rd 2006
From The Economist print edition

China hopes to use the 2008 Olympics in Beijing to mark its emergence on the world stage. But, says James Miles, it still has plenty of things to fix at home

“CHINA is a second-rank middle power that has mastered the art of diplomatic theatre: it has us willingly suspending our disbelief in its strength.” So argued the late Gerald Segal, a British scholar, in 1999 as the country reeled from the Asian financial crisis and fumed impotently as NATO attacked Serbia. China was then merely “a theoretical power”, and seriously overrated in terms of international trade and investment. Mr Segal made a powerful case that China mattered far less than many believed. Today it is hard to dispute that China matters far more than it did seven years ago.

Yet there is no other important country whose likely trajectory over the next 20 years is more uncertain than China's. Possibilities include:

•An economy that continues to boom as the political system gradually becomes more liberal and China becomes an increasingly positive force in the world;

•A fast-growing economy, a surge of vengeful nationalism and an attempt by China to displace American power in Asia, regain Taiwan and challenge Japan;

•A country in disarray, engulfed by social and political crises as its economy slumps.

All are plausible. Much will depend on choices made by China itself and by other powers, especially America.

That China does matter is evident from its impact on the global economy. Since 2000, China's contribution to global GDP growth (in purchasing-power-parity terms) has been bigger than America's, and more than half as big again as the combined contribution of India, Brazil and Russia, the three next-largest emerging economies. China's massive build-up of American Treasury bonds affects American interest rates and thus Americans' willingness to spend. Its low-priced manufactures give western consumers more buying power. Its thirst for energy has helped push oil prices to record highs. Its entry to the World Trade Organisation in 2001 has speeded up the opening of the world's biggest market. Whereas a few years ago it might not have mattered much to the West if China's growth had faltered, today it would be a very different story.

China's growth and increasing confidence is also beginning to affect the way it behaves on the world stage. If only tentatively so far, it is beginning to act like a big power. A country that once preferred to stay clear of multilateral diplomacy is now at the centre of multilateral efforts to persuade North Korea to abandon its nuclear-weapons programmes. It has formed a club of central Asian powers to deal with security threats. Its secretive armed forces are reaching out to other countries by staging joint manoeuvres (though not yet with the Americans or the Japanese). And China's burgeoning demand for oil and other commodities has made it cosy up to countries whose unsavoury behaviour matters to the West, such as Iran.

Over the next few years China's Communist Party leaders will face a series of challenges. Abroad, perceptions of China will change as the country's surging economy affects the lives of people around the world. In places that are important to China, from Tokyo to Taipei to Washington, DC, there will be changes in political leadership. At home, rapid growth will bring social and economic turbulence. And next year there will be an important quinquennial party conclave, followed by the Olympic Games in Beijing in 2008.

The world is expecting more of China, and so are its own people. This will become increasingly clear in the build-up to the Olympics. For China, these will be about far more than sport. They will be much the biggest international event ever staged on its soil: a coming-out party of huge symbolic importance. They will mark China's full rehabilitation in Western eyes after the bloody suppression of the Tiananmen Square protests in 1989. They will also be a chance to show off what the chief day-to-day organiser of the Beijing Olympics, Liu Jingmin, calls “an industrial revolution on a much bigger scale than Europe's”. Ambitiously, in a country that has one of the world's smoggiest capitals, Mr Liu says he wants a “green revolution” too.

A property-owning non-democracy
Accompanying China's industrial transformation has been another revolution of profound significance. Since the late 1990s, urban China has privatised housing, a commodity once exclusively in the hands of the state. A property-owning middle class is not only fuelling a surge of consumption but also developing a keen desire to protect its property. Few see much benefit in trying to overthrow the party: that, they fear, could cause chaos and an even bigger threat to wealth. But many want better governance and a legal system that protects them. And all but the very richest complain bitterly about a government that, despite strong and growing revenues, has presided over the collapse of affordable health care and education.

Farmers want change too. The past few years have seen an upsurge of peasant protests, many of them about the rapid encroachment of cities into rural land. As this survey will argue, China needs another ownership revolution, this time in the countryside. One of the most damaging and socially divisive legacies of Maoist economics is the control of rural land by village “collectives”. The rights of farmers in these collectives are ill- defined. In practice, rural governments regard the land as theirs and use it to fill their coffers. Many millions of farmers have been pushed off their fields with little if any compensation, and anger is growing.

President Hu Jintao, who in 2004 assumed full authority in the communist country's first ever peaceful handover of power, has set his sights high. Abroad, he wants to convince the world that China's rise poses no threat to other countries. At home, he hopes to create a “harmonious society”. This means one less obviously riven by huge disparities in wealth and access to services such as schools and hospitals, and one less troubled by protests.

The party conclave late next year, known as the 17th Congress, will be the first such gathering with Mr Hu in undisputed command (insofar as anyone can tell in China's opaque political system). It will be an important opportunity for him to indicate how a still unreformed and dictatorial party can give the public a greater say in addressing these growing social problems. And it will be a chance, less than a year before the Olympics, to show the world that against the background of China's remarkable economic change, the party is changing too.

Political reform matters. Without it, it is hard to imagine how China could make the kind of stable transition to democracy that Taiwan has achieved; and an unstable China is more likely to pose a threat to the outside world. The past few years have seen signs that the party wants to use nationalist sentiment to bolster its legitimacy. The dangers of this approach became evident in 1999, with an explosion of anger across urban China about the accidental bombing of China's embassy in Belgrade by American warplanes. Last year similar outrage was directed at the Japanese, with sometimes violent protests in several cities triggered by territorial disputes and Japan's wartime history. Such unrest worries other countries, and it worries China's Communist Party too, even though it plays a large part in fuelling it.

The Bush administration is trying to cajole China away from seeing the global balance of power in zero-sum terms and persuade it instead that a rising China and a strong America could not only coexist but thrive together. In September last year, Robert Zoellick, America's deputy secretary of state, said he hoped that China would be a “responsible stakeholder” in the world community. That has now become one of America's favourite terms in its discourse with China. It means that America wants China, a veto-wielding member of the United Nations Security Council, to look beyond its narrow self-interest in its international dealings. China's handling of the nuclear crisis in Iran will be an important test. Reassuringly, at least in its relations with America, China for now seems to be guided more by pragmatism than by competition. And just as reassuringly, America is encouraging it in this.

Barring a sharp slowdown in the global economy or some huge crisis at home, China is likely to maintain strong growth for the remainder of this decade. This gives its leaders more leeway to sort out its banking system, deal with the land-ownership problem, fix health care and education (which will involve big changes in the country's fiscal system) and set up a credible social-security safety net. If it fails to do so in the next few years, it will store up potential crises for the decade beyond, when China's working-age population will begin to decline and a rapidly ageing society will loom closer.

Beware of Latin Americanisation
Efforts to tackle such issues are motivated by fear of unrest. Officials are well aware of China's vulnerability to the sort of sudden political crisis that caused the collapse of communist governments in Russia and eastern Europe less than two decades ago. In the official media, a fashionable new topic is the potential “Latin Americanisation” of China: the possibility that growing income inequalities and an ill-regulated rush to privatise could precipitate economic and political upheaval. Just as the implosion of communist regimes elsewhere encouraged the late Deng Xiaoping to launch wealth-generating market reforms in the early 1990s, fears of instability caused by today's inequalities at home are prompting the government to try to find ways to help the marginalised.

This survey will argue that such fears are sometimes exaggerated by a party that until 15 years ago controlled almost every aspect of its citizens' lives. The party is finding it hard to adjust to what many developing countries would regard as normal teething troubles. China's rapid economic growth endows it with a critical mass of people who expect their lives, or at least those of their children, to get much better in material terms than seemed possible until quite recently. Reports of protests here and there have become part of the background noise of urban life.

But rapid economic growth cannot be expected to last forever, and the party is acutely aware that, apart from its ability to deliver wealth to some, it lacks a strong legitimising force. Conscious of the country's volatile history, it is especially alarmed by the growing unrest among a rural population (still the majority) that has benefited far less from China's economic rise than have many urban residents. It was after all, a peasant rebellion that helped the communists to power. And although it is safe to rule out another such revolution, rural discontent is nevertheless a big political challenge for Mr Hu.