This week, Derek Scissors answers questions submitted by readers about China's economy.
Beijing's ongoing efforts to promote growth are infringing on people's economic and political rights. In order to survive, the Chinese government will have to start allowing ordinary citizens to take part in the political process.
In a bid to end its dependence on foreign intellectual property and become a global power in science and technology, China is attempting to foster indigenous innovation. Are the U.S. government and business community right to be worried about threats to free trade and intellectual property rights?
China, which invests heavily in Iran's energy sector, is the linchpin of the sanctions regime against Iran. If Washington wants to prevent Tehran from acquiring nuclear weapons, it must transform Beijing from a silent, subordinate partner to a vigorous ally.
Significant groups in both China and the United States claim that a contest for supremacy between the two countries is inevitable and perhaps already under way. They are wrong. Beijing and Washington may not, in the end, be able to transcend the forces pushing them toward conflict. But they owe it to themselves, and the world, to try.
China's spectacular economic rise is challenging both the international order and the discipline of economics. Four questions, in particular, span the concerns of various communities of China-watchers: Why has China's economy grown as it has? How exceptional is the Chinese case? Is the growth sustainable? And what kind of capitalism is China developing? The readings below provide a good overview of these debates.
This is the best single-volume primer on the modern Chinese economy, with chapters on every aspect of China's development -- from geography, the pre-1949 economy, and urban and rural development to industry, innovation, finance, trade, and investment. Barry Naughton recounts how between 1979 and the mid-1990s China "grew out of the plan" by gradually introducing market incentives, an approach distinct from the "big bang" price-and-property-rights-reforms associated with Eastern European transitions. Through both the text and annotated references at the end of each chapter, he gives a balanced introduction to the major academic and policy debates on China's economy.
Justin Yifu Lin is a leading Chinese economist and currently the chief economist of the World Bank. He argues that China's pattern of growth is attributable to its particular political institutions as well as the ideas that influenced Chinese leaders. In Lin's account, ideas and political possibilities dominate choices, but the experiences of China and other Asian economies offer general lessons for development economics. Technological innovation is the most important driving force for growth in any economy. Market incentives are also critical for success, encouraging efficiency and helping to maximize welfare. By drawing together observations about what is -- and what is not -- unique about China's economy, Lin moves beyond recent discussions over whether the country's experience can be distilled into a "Beijing Consensus." His ideas help identify not only the sources of China's successes but also its challenges going forward.
"The Great Leap Backward?" By Elizabeth C. Economy. Foreign Affairs (September/October 2007): pp 38-59.
Environmental, economic, and sociopolitical concerns raise questions about the sustainability of China's recent growth trends. Elizabeth Economy's article brings into sharp focus both the causes and consequences of China's environmental crisis, an issue she took up in her 2005 book, The River Runs Black. By highlighting policy choices and social ramifications, Economy provides a useful complement to other work on China's energy-environment crisis, such as that by Vaclav Smil, which focuses on the material constraints on China's options. Sustaining economic growth requires a more balanced development model, since China's economy currently exhibits excessive reliance on investment (versus consumption), excess industrial capacity (particularly in heavy industry), persistent weaknesses in technological innovation and intellectual-property protection, and a financial system dominated by state banks lending primarily to state industry. Sociopolitical problems -- including rising levels of inequality, along with corruption and repression -- are the dark underside of China's growth story. China will need to institute additional social and political reforms if it is to avoid further conflicts that could undermine development.
Many of the all-stars of China studies are represented in the Loren Brandt and Thomas Rawski volume. Two chapters in particular are worth special mention. In "Forecasting China's Economic Growth to 2025," Dwight Perkins and Thomas Rawski examine "which economic choices matter" if China is to double GDP per capita from today's level of about $7,000 (adjusted for purchasing power parity [PPP]). They also offer an introduction to the intense debate over productivity growth in China. Nicholas Lardy and Lee Branstetter's essay, "China's Embrace of Globalization," meanwhile, describes the role of foreign trade and investment in China's growth, as well as China's growing impact on global markets. Their analysis reveals China's limitations as an international trade and financial player, indicating that it is premature to speak of China and the United States forming a G-2. Though Beijing now wants more say within international economic institutions, China's growing stake in the liberal global trade and financial system is a stunning reversal of its pre-1979 isolation and ideological opposition to markets and competition. The analyses of China's economy in this volume prompt questions that may help advance economic methods more generally, such as: Is it possible to improve on GDP per capita as a proxy for individual wealth? Beyond comparing relative living standards, is it appropriate to use PPP-adjusted figures to compare relative international economic capability in trade, finance, or defense spending? How should twenty-first-century trade balances be measured -- by final shipments of products or by the value added at each step in global production?
Studies in the Economic History of Late Imperial China: Handicraft, Modern Industry, and the State. By Albert Feuerwerker. University of Michigan Press, 1996.
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Capitalism With Chinese Characteristics: Entrepreneurship and the State. By Yasheng Huang. Cambridge University Press, 2008.
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Albert Feuerwerker's essays, written between 1958 and 1990, provide historical perspective on the priorities of those who shaped Chinese capitalism. Decisionmakers cared more about preserving regime power and confronting the West on equal terms than about maximizing welfare or perfecting market institutions as ends in themselves. These priorities have remained remarkably consistent across late-imperial, republican, and (post-1979) Communist regimes -- and might inform any future post-Communist regime as well. Some see Feuerwerker's analysis as overemphasizing the role of the state and underplaying local dynamism in the pre-1949 economy. However, the tension between state influence and the entrepreneurial capabilities of China's people is a recurring theme in debates about Chinese capitalism. Yasheng Huang argues that a shift in reform priorities in the 1990s privileged the state sector and urban elites, resulting in a stunted private sector and a financial system skewed in favor of state firms and their patrons. Huang believes that China's capitalism is at its most entrepreneurial in rural, not urban, areas.
"Formal and Informal Lobbying Practices in China: The Capital's Ambivalent Embrace of Capitalists." By Scott Kennedy. China Information (July 2009).
Chinese Negotiating Style: Commercial Approaches and Cultural Principles. By Lucian W. Pye. Quorum Books, 1992.
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What characters will populate China's changing capitalism? Leslie Chang has written of the emerging human cost of China's development model, especially for have-nots such as women and migrants. Margaret Pearson, Kellee Tsai, and Bruce Dickson have described how new business and political elites are forming alliances that strengthen the economic and political status quo. In his China Information essay, which builds on his 2008 book, The Business of Lobbying in China, Scott Kennedy takes a different approach, underscoring the effects of shifting business alliances and increasingly diverse business-government relationships. Foreigners interested in maneuvering successfully amongst these characters would do well to absorb the lessons of Lucian Pye's classic account. Some of his descriptions and analysis have been overtaken by events -- for example, Chinese managers are more professional and profit-oriented than ever before, and many Chinese firms now want to do deals even faster than foreign partners -- but his basic guidance remains invaluable: be sensitive to other cultures but do not succumb to moral pressure. It is possible, in other words, to stick to both your value proposition and your values.