Rising power, anxious state

15 Pages·2011·3.06 MB·English

Special RepoRt
CHINA
June 25th 2011
Rising power anxious state
,
SRchina.indd 1 13/06/2011 14:45
Issue Date: 25-06-2021 Zone: UKPB Desk:SR Output on: 15-06-2011----10:12 Page: SR1 Revision: 0
SPECIAL REPORT
CHINA
Rising power, anxious state
In less than a decade China could be the world’s largest economy. But
its continued economic success is under threat from a resurgence of
the state and resistance to further reform, says James Miles
AT THE HEIGHT of the Qing dynasty, back in the 1700s, China enjoyed a
golden age. Barbarians were in awe of the empire and rapacious foreign-
ers had not yet begun hammering at the door. It was a shengshi, an age of
prosperity. Now some Chinese nationalists say that, thanks to the Com-
munist Party and its economic prowess, another shengshihas arrived.
Last year China became the world’s biggest manufacturer, displacing
America from a position it had held for more
than a century. In less than a decade it could be-
come the world’s largest economy. Foreigners are
again agape.
China’s rapid recovery from the global (cid:2)-
nancial crisis, and the West’s continuing malaise,
have had a profound psychological impact on
many Chinese. Emotions ranging from pride to CONTENTS
Schadenfreude permeate o(cid:3)cial rhetoric. Dip-
lomats treat their Western counterparts with a 3 China’s new leaders
tinge of condescension. What is great about so- The princelings are
cialism, crowed the prime minister, Wen Jiabao, coming
in March last year, is that it enables China (cid:4)to
5 Growth prospects
make decisions e(cid:3)ciently, organise e(cid:5)ectively
Beware the
and concentrate resources to accomplish large
middle-income trap
undertakings(cid:6). In the eyes of some Chinese, and
even some foreigners, authoritarianism has 7 Urbanisation
gained a new legitimacy. Where do you live?
Abig parade of missiles, tanks and goose-
9 Local politics
stepping soldiers in central Beijing in October
Deng & Co
2009, the capital’s (cid:2)rst such display in a decade,
was described in o(cid:3)cial reports as a (cid:4)grand cere- 10 Government’s role
mony of the shengshi(cid:6). A group of generals and in industry
senior o(cid:3)cials enlisted 60 artists to commemo- The long arm of
rate the party’s 60th year in power that year by the state
painting a 120-metre-long scroll called (cid:4)A Picture 11 Demography
of a Chinese Harmonious Shengshi(cid:6). The panora- Getting on
ma depicted the soaring skylines of China’s great
13 Ideological battles
ACKNOWLEDGMENTS cities, interlaced with the mountains, rivers and clouds beloved of tradi-
Universalists v
tional painters. There were ethnic minorities dancing joyously in Tianan-
In addition to those named in the exceptionalists
men Square, a rocket taking o(cid:5), a wind farm and even a mist-wrapped
text, the author would like to thank
the following for their generous help: Taiwan. In the past couple of years the shengshihas brought the recalci-
Bai Gang, Daniel Bell, Kerry Brown, trant island closer, with cross-strait (cid:7)ights and a free-trade deal.
Cai Xia, Cui Zhiyuan, Dang Guoying, To some observers in an insecure West, the balance of global power
Gao Yu, Eric Harwit, Hu Biliang, Hu
is shifting inexorably in China’s favour. Recent book titles capture the
Guangwei, Jia Kang, Jin Canrong, Lei
Yi, Li Chunling, Li Guoqiang, Li Ling, mood: (cid:4)In the Jaws of the Dragon: America’s Fate in the Coming Era of
Liu Zhi, Chris Murck, Anthony Saich, Chinese Hegemony(cid:6) (by Eamonn Fingleton, 2008); (cid:4)When China Rules
Mao Shoulong, Pan Wei, Qiu Feng, the World: The End of the Western World and the Birth of a New Global
Ren Jianming, Song Guojun, Wang
Order(cid:6) (by Martin Jacques, 2009); (cid:4)The Beijing Consensus: How China’s
Xuetai, Joerg Wuttke, Yu Keping,
Zhang Ming, Zheng Bingwen, Kate Authoritarian Model Will Dominate the Twenty-First Century(cid:6) (by Ste-
Zhou and Wu Guoguang. The author is fan Halper, 2010). As William Kirby of Harvard University notes, anxious
also very grateful for advice given by books about China’s rise have a long history in the West. There was a
others on condition of anonymity.
spate of them in the early 20th century: (cid:4)New Forces in Old China: An
Unwelcome But Inevitable Awakening(cid:6), by Arthur Brown, set the tone in Alist of sources is at
Economist.com/specialreports
1904. But other rising powers(cid:8)Japan, Germany and America(cid:8)got even
more attention. Today China is the chief object of worry. An audio interview with
the author is at
Chinese publishers have been cashing in too. Bookshops (which
Economist.com/audiovideo/
stock only works of which the party approves) are stacked with volumes 1 specialreports
The EconomistJune25th2011 1
Issue Date: 25-06-2021 Zone: UKPB Desk:SR Output on: 15-06-2011----10:12 Page: SR2 Revision: 0
SPECIAL REPORT
CHINA
2 on the (cid:2)China model(cid:3) and the failure of liberal economics. The get has overtaken that on defence for the (cid:4)rst time. The govern-
Chinese Academy of Social Sciences struck a rare note of modes- ment has been reviving a Maoist system of neighbourhood
ty in a report last October. It rated China a mere 17th in a global surveillance by civilian volunteers. In the past few months the
league of (cid:2)national competitiveness(cid:3). But it pointed out that the police have launched an all-out assault on civil society, arresting
country had risen from 73rd place in 1990 and had left India, dozens of lawyers, NGOactivists, bloggers and even artists. The
which was ranked 42nd, in the dust. China’s aim, the report said, Arab revolutions have spooked the leadership. From its perspec-
should be to reach the top (cid:4)ve by 2020 and be second only to tive, the system looks vulnerable.
America by 2050. Its universities are producing swelling legions Chinese leaders have other reasons to fret. Late next year,
of scientists, but it seems there are still not enough of them to al- probably in October, the party will hold a national congress, the
low the country to join the top ranks just yet. 18th since its founding 90 years ago. This meeting, a smaller one
of the party’s central committee immediately afterwards and a
All change session of the legislature in March 2013 will endorse the biggest
For all the chest-thumping, though, China’s leaders are shu(cid:5)e in China’s leadership for a decade. The president, Hu Jin-
more cautious than either their underlings or the state-con- tao, and Mr Wen will step down from the pinnacle of power, the
trolled publishing industry. They avoid the term (cid:2)China model(cid:3) nine-member standing committee of the Politburo. A younger
and do not publicly boast of a shengshi, eventhough they allow generation will begin to take over. Leadership changes on this
their media to talk of one. Indeed, they appear more nervous scale always make o(cid:6)cials anxious. Although the most recent
now than at any time for over a decade. They have massively in- one, in 2002, passed without incident, earlier such transitions
creased spending on domestic security, which in this year’s bud- triggered dramatic events: a coup in 1976, debilitating power 1
2 The EconomistJune25th2011
Issue Date: 25-06-2021 Zone: UKPB Desk:SR Output on: 15-06-2011----10:12 Page: SR3 Revision: 0
SPECIAL REPORT
CHINA
2 struggles in 1986-89 and mass unrest in 1989. Just because the last CHINA’S NEW LEADERS
one went well does not mean this one will. The princelings are
The new leadership will not have such an easy ride with
the economy, which on average has grown by over 10% a year
coming
since 2002, despite the trauma of the global (cid:2)nancial crisis. Chi-
na’s demographic advantage(cid:3)an abundant supply of labour in
the countryside(cid:3)is beginning to wane. In a few years the work-
ing-age population will peak. Without huge and politically risky Next year’s changes in the leadership will bring on a
policy changes it will become increasingly di(cid:4)cult to maintain
new generation of privileged political heirs
the rapid rate of urbanisation that has been one of the main driv-
ers of growth. Looking towards the 2020s, many Chinese econo- THE RUGGED REMOTENESS of Chongqing, a region in
mists worry about falling into a (cid:5)middle-income trap(cid:6): losing south-western China about the size of Austria, made it an
competitiveness in labour-intensive industries but failing to gain ideal temporary home for the government during the Japanese
new sources of growth from innovation. invasion in the 1930s-40s. In the 1960s Mao Zedong moved strate-
China’s leaders will (cid:2)nd it enormously di(cid:4)cult to rebal- gic industries there to protect them from a feared Soviet invasion.
ance China’s economy so that growth is led by consumption Recently Chongqing has become a stronghold of something
rather than by exports and investment. Their e(cid:7)orts will be ham- rarely seen in China since Mao’s day: charismatic politics.
pered by the growing clout of state-owned businesses. In the The region’s party chief, Bo Xilai, is campaigning for a place
past decade these have risen from the ashes of tens of thousands on the Politburo Standing Committee in next year’s leadership
of government-owned enterprises dismantled in the 1990s. shu(cid:9)e. He looks likely to succeed. Like every other Chinese poli-
Their numbers are now much smaller, but their economic and tician since 1949, he avoids stating his ambitions openly, but his
political in(cid:8)uence is enormous and growing. courting of the media and his attempts to woo the public leave
Banks are still almost entirely in government hands. Their no one in any doubt. Mr Bo’s upfront style is a radical departure
pro(cid:8)igate lending to other parts of the state empire, in order to from the backroom politicking that has long been the hallmark
keep the economy booming after the (cid:2)nancial crisis, will revive of Communist rule and would seem like a refreshing change,
abad-debt problem that China thought it had licked years ago. were it not that some of his supporters see him as the Vladimir
Many of the descendants of those who led the party when it Putin of China. Mr Bo is a populist with an iron (cid:2)st. He has
came to power in 1949(cid:3)the likely big winners in next year’s re- waged the biggest crackdown on ma(cid:2)a-style gangs in his coun-
alignment(cid:3)have strong ties with state-owned (cid:2)rms. try in recent years. He has also been trying to foster a mini-cult of
China is likely to disappoint those who believed that the Mao, perhaps in an e(cid:7)ort to appeal to those who are disillu-
country’s embrace of globalisation would usher in greater politi- sioned with China’s cut-throat capitalism.
cal freedoms over the next few years. James Mann, an American He does not appear to be aiming for the very top. Hu Jin-
journalist, gave warning of this in a 2007 book, (cid:5)The China Fan- tao’s posts of president, party chief and military commander are
tasy: Why Capitalism Will Not Bring Democracy to China(cid:6), sug- almost certain to go to Xi Jinping, the vice-president, and Wen Jia-
gesting that a quarter of a century from now China’s (cid:5)current bao’s job as prime minister is likely to be taken by Li Keqiang, his
system of modernised, business-supported repression could senior deputy. But Mr Bo could well be o(cid:7)ered the portfolio of
well be vastly more established and entrenched(cid:6). A lot can hap- China’s internal security chief, currently held by Zhou Yong-
pen in 25 years, but the line-up for next year’s change of leader- kang, with whom he is believed to have close ties. This would
ship does not give cause for optimism. 7 give him huge clout in the new line-up. Xinhua, a government-1
The EconomistJune25th2011 3
Issue Date: 25-06-2021 Zone: UKPB Desk:SR Output on: 15-06-2011----10:12 Page: SR4 Revision: 0
SPECIAL REPORT
CHINA
2run news agency, in December named Chongqing as China’s world is conscientiousness,
(cid:2)happiest(cid:3) city, in a hint that Mr Bo is destined for great things. and the Communist Party is
Both Mr Bo and Mr Xi belong to an emerging political force most particular about being
in China commonly known as the taizidang, or (cid:2)party of prince- conscientious.(cid:3) Tens of thou-
lings(cid:3). These are the o(cid:4)spring of senior o(cid:5)cials, including Mao’s sands of Chongqing o(cid:5)cials
old comrades-in-arms. Mr Xi is the son of Xi Zhongxun, a hero of are now required to spend a
the epic Long March of the 1930s. Mr Bo’s father, Bo Yibo, was week every year living and
also a Long Marcher. Both fathers held senior positions under working with a peasant family.
Deng Xiaoping. In the 1990s the princelings were viewed with Chinese leaders may shy
great suspicion by many in the party who resented their use of away from claiming to have
blood ties to secure top positions, but in more recent years party found a (cid:2)China model(cid:3), but
leaders appear to have rallied around them. They probably cal- Chongqing’s leaders are not so
culate that people like Mr Bo and Mr Xi are the safest bet for up- bashful. Piled up in the foyer of
holding the party’s traditions, and crucially for holding on to its the city’s main government-
monopoly of power. owned bookshop are volumes
Mr Xi (who adores Hollywood movies about the second of a new work called (cid:2)The
world war, according to a WikiLeaks cable) and the Jaguar-loving Chongqing Model(cid:3). Written by
Mr Bo exude the sort of self-con(cid:6)dence that comes with a privi- three leftist scholars, it reads
leged upbringing. Like Western celebrities, they excite much tat- like a manifesto for Mr Bo. The
tle, albeit not in the party-controlled media. Mr Xi’s wife, Peng Li- authors say the anti-ma(cid:6)a cam-
yuan, is a glamorous folk-singing star in the People’s Liberation paign will help prevent a (cid:2)col-
Army. A foreign businessman calls Mr Bo China’s (cid:2)best-dressed our revolution(cid:3) of the kind ex-
person(cid:3). His son, Bo Guagua, is now studying at Harvard Univer- perienced by numerous former
sity after a stint at Oxford where his ra(cid:5)sh behaviour, caught on communist states and by some
camera, became an internet sensation in China (notwithstand- Arab nations in recent years.
ing the censors’ best e(cid:4)orts). They speak of the (cid:2)original sin(cid:3)
of private entrepreneurs who
The new left got rich by shady means. The
Despite such diversions, Mr Bo is a darling of China’s (cid:2)left- anti-ma(cid:6)a drive, they quote the
ists(cid:3). These include diehard Maoists (who are a marginal force in city’s mayor, Huang Qifan, as
Chinese politics, but still enjoy some appeal among retired o(cid:5)- saying, helped restore order to
cials and workers laid o(cid:4) from state-owned enterprises) as well (cid:2)an economy of scoundrels, an
BO XILAI AND PENG LIYUAN
as social democrats who want a fairer distribution of wealth. economy of rascals(cid:3). Ma(cid:6)a-
ADD A TOUCH OF GLAMOUR TO THE
Many in this camp believe that China is far from enjoying the WORLD OF XI JINPING (CENTRE) controlled businesses, the writ-
golden age now being proclaimed by some. The country is too di- ers say, employed 200,000 peo-
vided between rich and poor to be experiencing a shengshi. ple. By stepping in and assum-
Mr Bo’s Maoist revival has included a campaign to encour- ing (cid:2)trusteeship(cid:3), the government ensured that none of them
age the singing of (cid:2)red songs(cid:3), especially classics from the Mao lost their jobs.
era (one o(cid:5)cial newspaper cited Chongqing residents’ enthusi- Liberals in Beijing worry that Mr Bo’s campaign has shown
asm for this as one reason for its (cid:2)happiest(cid:3) award). Mr Bo him- little regard for legal process, much less the independence (how-
self has taken the stage with fellow o(cid:5)cials to croon a few num- ever notional) of the judicial system. Police and judges have
bers, and has issued a list of 27 favourites (including (cid:2)I Am a been instructed by party cadres whom to target and what pun-
Soldier(cid:3), from the early days of Communist rule, and (cid:2)China, ishments to mete out. A prominent defence lawyer hired by one
China, the Bright Red Sun Will Never Set(cid:3), from 1977, the year alleged ma(cid:6)a boss was himself jailed for allegedly attempting to
after Mao’s death). In Chongqing, party cells in universities, persuade his client to lie in court. Some independent lawyers in
schools, government o(cid:5)ces and state-owned businesses organ- Beijing say Mr Bo’s real motive was to deter lawyers from acting
ise red-song clubs and competitions. The Chongqing govern- for accused gangsters. Liberals fear that the crackdown on dis-
ment has even been encouraging citizens to send (cid:2)red instant sent in China in recent months will continue even after the
messages(cid:3) on their mobile phones. Mr Bo took the lead by send- princelings have taken power because the new leaders will be
ing one citing the Great Helmsman: (cid:2)What really counts in the fearful of challenges to their authority.
The authors of the (cid:2)The Chongqing Model(cid:3) would like to
steer the economy onto a di(cid:4)erent path. They speak scornfully
IN THE 1990S THE
of Shenzhen, a freewheeling (cid:2)special economic zone(cid:3) bordering
PRINCELINGS WERE on Hong Kong beloved of China’s liberal economists. They
prefer a bigger role for the state. Chongqing o(cid:5)cials proudly note
VIEWED WITH GREAT
that the municipality, which ranked 19th among Chinese prov-
SUSPICION BY MANY inces by value of its state assets in 2003, has since moved up to
number four, thanks to a more than sevenfold increase in their
IN THE PARTY, BUT
worth to 1.25 trillion yuan ($192 billion).
RECENTLY PARTY But Mr Bo’s predilection for state-owned enterprises has a
populist streak too. Whereas most such (cid:6)rms in China hand over
LEADERS APPEAR TO
little of their pro(cid:6)t to the state, causing widespread resentment,
HAVE RALLIED o(cid:5)cials claim that Chongqing’s state businesses have been sup-
porting projects for the less well o(cid:4). These include a huge one
AROUND THEM
launched in 2010 to build 800,000 subsidised apartments with-1
4 The EconomistJune25th2011
Issue Date: 25-06-2021 Zone: UKPB Desk:SR Output on: 15-06-2011----10:12 Page: SR5 Revision: 0
SPECIAL REPORT
CHINA
2in three years, at a cost of 120 billion yuan ($18.5 billion). Even though investment as a proportion of GDPis high, China’s
This housing scheme has been widely praised in the accumulated investment in (cid:4)xed assets is still low. Real wages
national media. But as this special report will argue, if China’s have been rising strongly, which should help boost consump-
state-owned enterprises enjoy a renaissance under China’s new tion. Standard Chartered, a bank, says that although China’s
leaders, it will be to the detriment of competition and increased public debt is considerably higher than the 17% of GDPo(cid:5)cially
consumption as a new driver of growth. Politically, their grow- cited, it remains manageable. Even after allowing for bad loans
ing power (along with the salaries and bene(cid:4)ts enjoyed by their to local-government investment companies, it runs at 80% of
employees) is likely to exacerbate social tensions, especially if GDP, the bank estimates, about the same as Britain’s last year
China’s growth falters, forcing private companies to scale back. and well below Greece’s.
Mr Hu at least will be able to point to a legacy of his Chinese leaders are perennial worriers about in(cid:6)ation, not
decade in power that makes many Chinese proud: double-digit least because of its role in fuelling the discontent that led to the
annual growth and a much higher global pro(cid:4)le. Mr Xi’s rule Tiananmen Square protests of 1989. But even though it rose to
could be far more troubled. 7 5.5% in May, considerably above the government’s 4% target for
the year, it shows little sign as yet of returning to previous highs
of about 20% in 1988 and more than 25% in 1994. It also has a use-
ful political side-e(cid:7)ect, easing some of China’s tension with
GROWTH PROSPECTS America over the value of its currency. America’s Treasury says
Beware the that because of the higher in(cid:6)ation rate in China, the yuan is in
e(cid:7)ect appreciating against the dollar by more than 10% a year.
Chinese leaders have been debating whether to push interest
middle-income trap
rates higher, but Mr Kuijs says Chinese policymakers have be-
come more tolerant of medium rates of in(cid:6)ation.
Yukon Huang of the Carnegie Endowment for Internation-
al Peace, a think-tank in Washington, DC, says doomsayers are
wrong to be so concerned about the fall in the ratio of household
China’s roaring growth cannot last inde(cid:2)nitely
consumption to GDP. True, it has dropped from around 50% two
CHINA’S LEADERS ARE usually shy of telling things as decades ago to 35% today, among the lowest levels in the world,
they are, but the prime minister, Wen Jiabao, put it bluntly whereas investment is among the world’s highest; but such a de-
when he described China’s economy in 2007 as (cid:2)unstable, un- cline, he says, is not unusual for an industrialising country. The
balanced, unco-ordinated and unsustainable(cid:3). Some foreigners e(cid:5)ciency of stimulus spending may be questionable, (cid:2)but how
may extol China’s handling of the global (cid:4)nancial crisis, but Mr e(cid:5)cient do you expect stimulus money to be?(cid:3) He thinks growth
Wen has stuck to his guns. The phrase even crops up in China’s could remain at 7-8% for a long time.
recently adopted (cid:4)ve-year economic plan, standing out as an in-
The bears’ grumbles
direct admission of the failings of his own administration and
as a marker for the next. But many analysts are far less sanguine. Some worry that
For all its problems, China in the coming 10-15 years is still China could be approaching a Japanese-style crisis: a boom in
likely to reach several symbolic milestones. The IMFpredicts exports and investment along with bubbly property markets,
that in 2016 it will become the world’s largest economy on a pur- followed by many years of stagnation. In China’s case the added
chasing-power-parity basis. The Economist Intelligence Unit, a sting would be that it has not yet got rich. O(cid:5)cials and experts
sister organisation of this newspaper, reckons that on the basis debate endlessly whether the country is slowly heading towards
of market exchange rates China will attain that glory in 2020. By a(cid:2)middle-income trap(cid:3). China was already a lower-middle-in-
the end of this decade, according to Daiwa Securities, GDPper come country last year, with a GDPper person of around $4,400.
person in Shanghai, China’s richest city, could be almost the The fear is that it might su(cid:7)er the same stagnation and turbu-
same as the average for America in 2009. lence as Latin American economies in the 1980s and 1990s.
And for all the bubbliness of China’s property market and The drafters of the new (cid:4)ve-year plan adopted in March
the reckless spending of local governments, the country will were clearly hoping to head o(cid:7) such a calamity. Five-year plans
probably avoid a crippling debt crisis. China has foreign-ex- have evolved since the Mao era when they were used by the gov-
change reserves of more than $3 trillion and ran a modest bud- ernment to micromanage the economy, but they are still meant to 1
get de(cid:4)cit of 2.5% of GDPlast year. Its worries are longer-term.
The economy will certainly begin to slow in the next few years
after three decades of nearly 10% average annual growth. Ex- Too much of a good thing 1
ports will be constrained by depressed Western markets, and in- China’s household saving as % of: GDP disposable income
vestments in (cid:4)xed assets will produce diminishing returns. But
30
the slowdown will be less pronounced if the government suc-
ceeds in boosting consumption as a new growth engine. 25
Arthur Kroeber of GKDragonomics, a consultancy, says
20
the country still enjoys a considerable tailwind from urbanisa-
tion and a huge potential for productivity gains as it adopts new 15
technology. He says a scattering of white-elephant projects (in-
cluding the odd ghost-town of uninhabited new housing and 10
o(cid:5)ce developments) does not concern him: (cid:2)There’s no ques-
5
tion that there are excesses, but the basic thing they are doing is
sensible.(cid:3) Louis Kuijs of the World Bank agrees. He sees the 0
trend growth rate easing over the coming decade, but not dra- 1993 95 97 99 2001 03 05 07 09
matically. New infrastructure is generally being put to good use. Source: IMF
The EconomistJune25th2011 5
Issue Date: 25-06-2021 Zone: UKPB Desk:SR Output on: 15-06-2011----10:12 Page: SR6 Revision: 0
SPECIAL REPORT
CCHHIINNAA
BUT WILL THEY CONSUME ENOUGH?
2play a crucial role in setting the economic tone. (cid:2)China model(cid:3) (cid:2)more complicated(cid:3). In other words, markets abroad do not look
fans love them because, at least in theory, they commit leaders to promising. It calls for a (cid:2)strategic readjustment(cid:3) in China’s
an economic strategy that will not be undermined by the chop- growth model, putting even more emphasis than its predecessor
and-change policymaking of democracies. When Mr Wen’s suc- on domestic demand, especially consumption. It still envisages
cessor takes over in 2013, the current plan will still have more big investments, but in the hope that these will boost household
than two years to run. It calls for faster change in the (cid:2)pattern of consumption in the longer term. It promises 36m new (cid:2)a(cid:5)ord-
economic development(cid:3) to address the imbalances, and sees able housing(cid:3) units, more than Britain’s entire housing stock.
boosting consumption as critical to this. The hope is that cheaper homes will make it easier for the Chi-
Mr Wen himself is no touter of a China model. His previous nese to get into the housing market without having to save quite
(cid:4)ve-year plan, which took e(cid:5)ect in 2006, was also intended to so much. And the government has pledged to ramp up spending
shift the economy away from too much reliance on exports and on health, education and other social-welfare programmes.
investment. It set a target of 7.5% annual growth in GDPfor the Eventually too this could encourage people to save less and con-
plan period, against 8% for the previous one. Instead, the rate ac- sume more.
celerated to about 11% a year, compared with an average of 9.5% The government also wants the high-speed railway net-
in the (cid:4)rst half of the decade. Household consumption as a pro- work, already the world’s longest at 8,300km, to quintuple in
portion of GDPfell sharply. And China’s 4 trillion yuan stimulus length by 2015. Beijing, having completed one of the world’s larg-
programme (about $620 billion at current exchange rates), est airport terminal buildings in 2008, will get a whole new air-
launched in November 2008, allowed banks to lend almost at port. So will 54 other cities, increasing the total number with air-
will, mostly to state-owned enterprises, raising the prospect of a ports by nearly one-third. These
(cid:6)ood of new bad debt. investments, o(cid:7)cials hope, will
Despite Mr Wen’s calls for more evenly shared prosperity, Could be worse 2 help to boost urban growth, and
the gap between rich and poor and between cities and country- China’s consumer prices with it consumption. Infrastruc-
side has continued to widen. Since he took o(cid:7)ce in 2003, abso- % change on year earlier ture targets are usually met in
lute poverty has dropped markedly. But the number of people in 30 China because governments
relative poverty (with 50% or less of the median income) grew have little trouble with not-in-
25
from 12.2% of the population to 14.6% between 2002 and 2007, ac- my-backyard protests.
cording to research by Terry Sicular of the University of Western 20 But some economists be-
Ontario and Li Shi and Luo Chuliang of Beijing Normal Universi- 15 lieve this is all too much. Among
ty. By the end of the plan period the goal of establishing a (cid:2)har- the bears is Michael Pettis of Pe-
10
monious socialist society(cid:3), a favourite catchphrase of Mr Wen’s king University, who believes
5
and Mr Hu’s, appeared even more remote than at the beginning. that investments are becoming
+
Protests over local injustices, already running at tens of thou- 0 increasingly ine(cid:7)cient and that
–
sands a year, were becoming ever more frequent. 5 China is heading towards a
The new (cid:4)ve-year plan adopted in March notes that the 1985 90 95 2000 05 10 (cid:2)brick wall(cid:3) of government
(cid:2)external environment(cid:3) for China’s development has become Source: CEIC debt. Growth, he says, will re-1
6 The EconomistJune25th2011
Issue Date: 25-06-2021 Zone: UKPB Desk:SR Output on: 15-06-2011----10:12 Page: SR7 Revision: 0
SPECIAL REPORT
CHINA
2main high in the early half of the decade but could drop o(cid:2)
sharply thereafter as loans turn sour. Even in the best case, he It depends how you count them 3
says, growth will fall below 5%. Victor Shih of Northwestern Uni- China’s population, bn
versity also points to a looming debt problem, exacerbated by Actual* rural Rural hukou
the recklessness of local governments during China’s stimulus- Actual* urban Urban hukou
spending spree. Not being allowed to borrow directly, many of 1.4
them set up companies to borrow on their behalf, using land as 1.2
collateral. (cid:3)There is a hidden danger of an asset bubble and [we]
1.0
are facing a certain (cid:4)nancial risk,(cid:5) wrote Yu Peiwei of the party’s
Policy Research O(cid:6)ce in January. If the bubble bursts, land 0.8
prices could plummet, leaving the banks dangerously exposed. 0.6
0.4
Bingeing on investment
0.2
Nouriel Roubini of New York University, a chronic bear, is
in this camp. In a recent article he argued that the brick wall will na na 0
1997 99 2001 03 05 07 0910
most likely be hit between 2013 and 2015. He noted that China
was spared a recession in the wake of the (cid:4)nancial crisis because Source: CEIC *Resident for six months or longer
investment in (cid:4)xed assets, such as transport infrastructure and
factories, increased from an already very high 42% of GDPin where Liu had allegedly kept disobedient farmers. Another was
2008 to nearly 50% in 2010. No country, he says, could be produc- aseries of life-size sculptures of peasants and their vicious op-
tive enough to invest 50% of GDPin new (cid:4)xed assets without pressors. A politically disfavoured curator from Beijing’s Forbid-
eventually facing (cid:3)immense overcapacity and a staggering non- den City who happened to look like Liu was forced to stand next
performing loan problem(cid:5). to the sculptures as a (cid:3)living Liu Wencai(cid:5) so that visitors could
It is not just foreigners who worry. Ge Zhaoqiang, a senior shout and (though not strictly permitted) spit at him, according
researcher at China Merchants Bank, gave warning in May that to Geremie Barmé of Australian National University.
China’s economy had become (cid:3)seriously distorted(cid:5) by pro- The sculptures are still there, but in recent years a wave of
longed dependence on high levels of investment. There was revisionism has been sweeping across Dayi. Local o(cid:6)cials were
now a risk, he said, of an economic downturn (cid:3)unprecedented already having second thoughts by the early 1980s. But it was a
in the past 30 years(cid:5) with possibly damaging consequences for book reassessing Liu’s life published by an outspoken journalist
China’s social and political stability. in 1999 that (cid:4)nally convinced many that the man was really not
If China is not to stagnate, it will have to make a bigger ef- that bad. His water dungeon was a government fabrication, the
fort to persuade rural dwellers to keep coming to the cities as its museum now points out. He spent a lot of money on local
population ages ever more rapidly. In 1980 one-(cid:4)fth of China’s schools and paid for a road to be built from Chengdu to Dayi.
people lived in urban areas. Today the (cid:4)gure is 49.7%. Very soon Last year a grandson organised a get-together in Dayi for the ex-
the country will become predominantly urban, with over 51.5% tended Liu clan, whose members would once have been terri-
forecast to be living in urban areas by the end of the (cid:4)ve-year (cid:4)ed of revealing their ties. More than 1,000 turned up.
plan. This implies a slower pace of urbanisation than in the past The slaughter of many thousands of landlords (not includ-
decade. For once, however, the government is not setting its goals ing Liu, who died of natural causes) by o(cid:6)cials and vengeful
too low. In future urbanisation will indeed become harder. 7 peasants shortly after the communist takeover resulted in pro-
found changes in the system of rural land ownership. Peasants
got the land Mao promised them, but only brie(cid:7)y. In the late
1950s the party took it back again and forced farmers into collec-
URBANISATION tively owned (cid:3)people’s communes(cid:5). The legacy of that disas-
Where do you live? trous decision, which contributed to a famine that left tens of
millions dead, still weighs heavily on rural China. So too does a
decision to confer hereditary status on peasants, who would be
all but barred from cities to stop them rushing in to (cid:4)nd work.
The curse of the hukou
Town- and country-dwellers have radically The hukousystem, as this one-time apartheid is commonly
known, applied to urban as well as rural dwellers, but peasants
di(cid:2)erent prospects
got a worse deal because they received hardly any welfare bene-
IN DAYI COUNTY, a couple of hours’ drive down a motor- (cid:4)ts, and job prospects in the countryside were dismal. The sys-
way from the city of Chengdu, the capital of Sichuan Prov- tem has been much eroded since the Mao era because of the
ince, Chinese tourists stroll through the meandering courtyards need for cheap labour to fuel China’s manufacturing boom. But
of a rural mansion. In the 1950s, soon after Mao seized power, the its lingering impact, combined with the still collective owner-
mansion was turned into a museum, intended as a showcase of ship of rural land, will retard China’s urbanisation in the years
evil. It once belonged to Liu Wencai, a landowner supposedly ahead just when the country is most in need of its consumption-
notorious for ill-treating his tenant farmers. Liu embodied a class boosting bene(cid:4)ts. Two researchers from China’s (cid:4)nance minis-
despised by Mao, who came to power on the back of a promise try, Chen Xiaoqiang and Liu Ling, wrote in March that it was time
to give land back to the peasants. to start returning land to the peasants, both to spur consumption
In its Maoist heyday the museum was a place of pilgrimage. and to help defuse growing rural unrest. Most o(cid:6)cials dare not
Red Guards swarmed there for ritual denunciations of Liu and say this so bluntly, but they admit that change is needed.
his ilk. A high point of their visit was a trip to the (cid:3)water dun- In 2007 Chengdu, and Chongqing to its south-east, were
geon(cid:5), a room with several inches of water covering the (cid:7)oor given licence to experiment. The principle of collective owner-1
The EconomistJune25th2011 7
Issue Date: 25-06-2021 Zone: UKPB Desk:SR Output on: 15-06-2011----10:12 Page: SR8 Revision: 0
SPECIAL REPORT
CHINA
tive persists, the system is wide open to
abuses. Local o(cid:3)cials have considerable
incentives to force farmers to give up
housing land and move to more compact
dwellings in order to create land for di-
piao trading (some of the proceeds of
which also go to village authorities). The
dipiao markets in Chongqing and
Chengdu have done little more than add
a layer of complexity to a widespread
trend in many parts of China that has of-
ten added to peasants’ grievances.
In the name of building a (cid:4)new so-
cialist countryside(cid:5) (a slogan launched
in 2005), local governments have been
corralling farmers into new apartment
blocks in order to free up land which
they can use for pro(cid:2)table purposes. Of-
(cid:2)cials have justi(cid:2)ed the practice as a way
of reducing incentives for local govern-
ments forcibly to appropriate farmland
and sell it to developers. Two million
peasants a year have lost their land this
way in the past (cid:2)ve years, a senior gov-
ernment adviser in north-east China
RUS IN URBE
said in March. The new strategy often
means the farmers are crammed into
2ship could not be changed, but farmers’ rights could be clari(cid:2)ed apartments with no backyards to raise chickens or store tools,
and rural land markets of sorts could be established. In Chengdu, and they face a longer journey to their (cid:2)elds.
which is responsible for a large rural area including Dayi county, Though o(cid:3)cially sanctioned, the dipiao markets are
o(cid:3)cials spoke of initiating a (cid:4)new land reform(cid:5) (hinting at simi- viewed warily by the central leadership. Late last year
larities to the great land reform that divvied up the estate of land- Chengdu’s market was suddenly closed down. No clear expla-
lord Liu). They began a drive to ensure that farmers at last got nation was given, but a Chinese scholar says higher-level o(cid:3)-
long-promised certi(cid:2)cates showing the exact boundaries of cials worried that dipiaowere being traded without land having
their (cid:2)elds and housing as well as con(cid:2)rming their rights to use (cid:2)rst been converted to agricultural use. The risk, central o(cid:3)cials
them (farmland is subject to a 30-year renewable contract). feared, was that it would never happen at all. The market re-
Without such documents a market could not take o(cid:6). Regu- opened in April, but the central government remains cautious.
lations dating back at least to 1997 have obliged o(cid:3)cials to issue In Chongqing only 10% of the government’s annual sales of un-
them. But Landesa, an American NGO, says a survey it conduct- developed rural land are subject to the dipiaosystem.
ed in mid-2010 in 17 provinces, along with Renmin University Thoroughgoing land reform, of the sort that would enable
and Michigan State University, found that only 44% of respon- farmers to cash in on the value of their farmland and establish
dents had a complete set of certi(cid:2)cates. One in three had no doc- permanent and prosperous lives in cities (and at the same time
uments at all. In April the central government urged the whole encourage larger-scale farming), thus remains stuck. One obsta-
country to (cid:2)nish issuing the certi(cid:2)cates by the end of 2012. Dayi cle is ideological: for all their economic pragmatism, many in the
county, chosen by Chengdu as a trailblazer for land reform, says party still regard collectivism as a sacred principle. Privatisation
it got the job done by the middle of last year. But one peasant remains a dirty word. A more practical worry is that reform
fumes that o(cid:3)cials never bothered to give her any documents might quickly be exploited by the very forces it is meant to con-
and seized her house and farmland a few months ago for a devel- strain: rapacious local governments and developers. These, it is
opment project. (cid:4)Liu was a great landlord,(cid:5) she says. (cid:4)I wish o(cid:3)- feared, would take advantage of any changes to persuade farm-
cials today were like him.(cid:5) ers unaware of land values to sell their holdings at less than mar-
Both Chengdu and Chongqing have gone a step further. ket rates. The numbers of poor, landless peasants would soar,
They have set up markets for rural land derivatives, allowing creating huge instability.
farmers who create new land for agricultural use (by giving up Reformers in Beijing argue that most farmers are far cannier
some of their housing plots, for example) to sell the right to use than o(cid:3)cials suspect. But the global (cid:2)nancial crisishas strength-
an equivalent amount of rural land for urban development. ened the case for caution in the minds of party leaders. As many
Thus a developer who wants to build on a green(cid:2)eld site that has as 20m workers returned to the countryside when the crisis
already been approved for urban construction bids (cid:2)rst for a broke in 2008 and China’s exports slumped. Having farmland to
(cid:4)land ticket(cid:5), or dipiao, which certi(cid:2)es that such an area of farm- go back to, many o(cid:3)cials believe, kept the unemployed migrants
land has been created elsewhere. The regulations say farmers get from taking to the streets. As o(cid:3)cials often say in China, (cid:4)stabil-
85% of the proceeds: good news, in theory, for those in remote, ity trumps everything.(cid:5)
dirt-poor areas who would otherwise have no chance of cashing Prospects for reform of the hukousystem are only slightly
in on the value created by urban expansion. better. Both Chengdu and Chongqing have been experimenting
This is hardly revolutionary. Especially for Chongqing’s with this. They have declared that holders of rural hukouin the
Mao-loving party chief, Bo Xilai, doing good by the peasantry countryside surrounding these cities can move into urban areas
would seem a canny move. But because the notion of the collec- and enjoy the same welfare bene(cid:2)ts as their urban counterparts 1
8 The EconomistJune25th2011
Issue Date: 25-06-2021 Zone: UKPB Desk:SR Output on: 15-06-2011----10:12 Page: SR9 Revision: 0
SPECIAL REPORT
CHINA
2without giving up their land entitle-
Deng & Co
ments. This was an important step.
Though the hukoudivide is widely resent-
ed, peasants have often been reluctant to
give up their rural status for fear of losing In both town and country, clans are as important as ever
their land, as well as the added bene(cid:2)t in
the countryside of being able to have two YANTIAN IS STILL called a village, but these to one clan, in this case the Dengs. Today
children rather than one. In e(cid:3)ect, days it is an urban sprawl on the outskirts of there are 3,000-odd of them, out of a pop-
Chongqing and Chengdu have created a Dongguan, a southern Chinese city famed ulation of around 100,000. They enjoy the
new class of urban residents who enjoy for its labour-intensive factories and sleazy dividends of Yantian’s wealth in the form of
the best of both worlds. But grand plans nightlife. Almost all of Yantian’s inhabitants land rent: tens of thousands of yuan per
for hukoureform have fallen by the way- are migrants from other villages: young men person a year. A Deng can live a comfortable
side before as o(cid:4)cials tot up the price. The and women whose toil helped create an life on that without lifting a (cid:2)nger. Every
cities of Guangzhou and Zhengzhou industrial boomtown in a former expanse of factory has to appoint a recognised Yantian
abandoned reform e(cid:3)orts several years paddy(cid:2)elds. As migrants, almost all of them villager as a (cid:4)manager(cid:5) to handle liaison
ago because of worries about the cost. are in e(cid:3)ect shut out from the best schools with local o(cid:6)cials, so there are plenty of
Chongqing’s plans are ambitious. and hospitals, as they are from local politics. sinecures for Dengs who want them.
Local o(cid:4)cials estimate the cost of convert- Yantian is ruled by the Deng clan. The Dengs have celebrated their
ing 3m people at around 200 billion yuan Critics of the hukousystem often fortune by building themselves a grand
($30 billion). But the municipality says it see it as a form of discrimination against ancestral shrine on a hillside overlooking
wants to double the number of urban hu- people from rural areas by a privileged class the village. The ornate complex, opened in
kouholders by turning 10m of its rural citi- of urbanites. But it is a problem for migrants 2005, includes a pavilion dedicated to Deng
zens (some of whom already live in urban of any kind: from big city to big city, from Xiaoping who they claim was descended
areas) into card-carrying urbanites over smaller towns to bigger ones or, as for most from another branch that linked with theirs
the next ten years. It has made a rapid of Yantian’s residents, from village to vil- half a millennium ago.
start. Since it relaxed its policy in August lage. The OECDnoted in a report last year Chinese o(cid:6)cials like to boast
last year it has given urban hukou to more that wage di(cid:3)erences between cities in the that the country is developing village-level
than 1.7m people. There are conditions: same Chinese province are much bigger than democracy. The law was changed last year to
they must have been working in urban ar- in OECDcountries. It said this was due to allow migrants to vote in their adopted
eas for at least three years, or for (cid:2)ve years distortions in the labour market caused by home, but the village still has to agree. The
if they want to transfer their hukouto the barriers to migration between cities, not Dengs have not. So it was no surprise that
centre of Chongqing. just between rural and urban areas. when the Deng who had been village chief
The reform remains only partial. The In Yantian, the (cid:4)real(cid:5) villagers for 30 years stepped down in April, he was
bene(cid:2)ts of being a Chongqing urbanite are those who lived there before it began its replaced by another Deng.
still cannot be transferred to any other industrial transformation a couple of de- Hereditary city-dwellers often
part of the country. And if implementing cades ago. The descendants of such people, pour scorn on rural clannishness, but Chi-
such measures nationwide means raising no matter where they are born, are also nese cities are in some ways Yantians writ
more taxes, urbanites will dig in their included. As is common in rural China, most large. Urban Chinese are just as reluctant as
heels. Local governments (cid:5)don’t really of Yantian’s original inhabitants belonged the Dengs to share their wealth more widely.
have the incentives and they don’t have
the resources(cid:6) to encourage greater inte-
gration of migrants into urban life, says
the World Bank’s Mr Kuijs. wanted to go back to the countryside when they got older.
Although Chinese o(cid:4)cials de(cid:2)ne the population as being For the past two decades or more, urbanisation in China has
already nearly 50% urban, the number of urban hukouholders is come relatively easily. As the country proudly claims, slums and
only around 35%. Zhang Zheng of Peking University says many of shantytowns are rare compared with other developing coun-
those who have moved to urban areas in recent years are wrongly tries. But ensuring a continuing net in(cid:7)ow of migrants into the cit-
seen as permanent migrants. Having reached their 30s or 40s, ies as the youngest cohort shrinks will mean giving workers from
the countryside more incentives to stay
permanently (such as a(cid:3)ordable housing
REFORM MIGHT QUICKLY BE
and schooling). More money is being spent
EXPLOITED BY THE VERY FORCES IT IS on these, but not yet enough. Too much re-
sponsibility is devolved to local govern-
MEANT TO CONSTRAIN: RAPACIOUS
ments that usually try hard to shirk it.
LOCAL GOVERNMENTS AND Cities say they welcome migrants,
but some (cid:2)nd roundabout ways of keep-
DEVELOPERS
ing them from settling. Beijing recently
launched a set of extraordinary measures
when they can no longer do mind-numbing, fast-paced and (cid:2)n- to tame property prices and ease tra(cid:4)c congestion that included
icky work on production lines, they will often go back to the all but banning migrants (one-third of the city’s population) from
countryside. Late last year the National Bureau of Statistics asked buying homes or cars. In the name of improving safety, it has
rural hukouholders in the north-eastern province of Jilin whether started closing down basement dwellings where migrants
they wanted to switch to urban status. (cid:5)The results were surpris- (known as the rat tribe) often live. China says it wants urbanisa-
ing,(cid:6) one of the bureau’s researchers wrote. The majority said no, tion, and it certainly needs it. But even as some obstacles are re-
and most young people who had moved to urban areas said they moved, new ones spring up. 7
The EconomistJune25th2011 9