The 21st century is often hailed as China's century. Indeed, after centuries of
exploitation, abuse and impoverishment, a great resurgence of international
acclaim and respect for the country is perhaps well deserved. While the country
triumphantly marked last week's centenary of the 1911 Xinhai Revolution that
overthrew the Qing Dynasty and led to the establishment of the Republic of
China, inexorable challenges remain that raise questions over which direction
the great nation is headed.
Even the current leadership in Beijing recognizes a critical need for reform.
Incumbent Premier Wen Jiabao has gone as far as to say current economic
policies are unsustainable, and has emphasized a need for political reform.
This point has been promoted by several overseas China analysts since the rise
People's Republic to economic prominence.
Three major recommendations seem to be ubiquitous: first, the Chinese Communist
Party (CCP) should make a serious effort to breakup the state monopoly; second,
Chinese industries must better safeguard the environment; third, relations with
the United States need to be vastly improved.
At the Global China Summit at the United States Institute of Peace in
Washington DC on September 27, 2011, Daniel Rosen, a member of the Council on
Foreign Relations, noted that people are far too distracted by China's gross
domestic product (GDP) growth and the amount of debt owed by the United States.
He pointed out that China is not heavily involved either upstream or downstream
along the value chain of the global economy.
In short, China does not design nor retail the products it manufactures, thus
limiting growth opportunities in a global market increasingly driven by
innovation and cutting-edge technology. This disparity is evident in China
controlling only 3.5% of net global foreign direct investment (FDI) flows
despite constituting 9% of the world's net GDP and 70% of the world's net GDP
With India quickly becoming a new source of low-cost manufacturing, China
cannot depend on a demographic dividend or lax regulations to secure economic
growth. Beijing must ensure an environment suitable for greater innovation and
global entrepreneurship. In 2010, 8.9% of the population held college degrees,
a remarkable rise from 0.4% in 1982. This also means that the annual addition
of 10 to 13 million jobs, comprised mostly of low-wage manufacturing positions,
will not be enough to supply the some six million new graduates entering the
job market each year.
A large reason why diversification of economic activity has been slow in coming
is a restrictive state monopoly that both stifles free enterprise and
mismanages intellectual property. Although reform remains a clear priority,
dissent against moving China into this direction is evident in statements from
high ranking members of the Communist Party.
One such comment from Chairman Wu Bangguo of the Standing Committee stated that
China will have "no multiparty elections, no diversity in guiding thought, no
separation of powers, no federal system and no privatization". The inflexible
attitude permeating from the upper echelons of power hurts prospects for the
development of an innovative and competitive economy more suited to China's new
The current focus of the CCP is on redistributing the wealth gained from the
economic expansion and closing massive income disparities. While this is
important in ensuring a more stable society, without real structural change,
the country is bound to face debilitating shocks in the near future.
Another area that needs greater attention is the environment. The poor air
quality of Beijing is well known and the infamy it received during the 2008
Olympics has prompted the government to implement safeguards. While great
strides have been made, more must be done and with greater speed if China does
not wish to be overburdened with immense blowback from its days of intense
Air quality is one thing, but a water crisis may require more immediate
attention. The declining health of the population aside (though most
important), water pollution endangers the key driving force behind China's
industrial boom: the ability to generate energy. According to Isabel Hilton,
the founder and editor of China Dialogue, 12% of China's entire surface water
has been rendered unusable in any form or fashion. This includes its use in
power plants for giant manufacturing centers which remain the foundations of
While the 12th Five-Year Plan stressed the issue of water contamination,
short-term fixes of the like implemented in the past will not work. Only a
comprehensive reform of environmental regulations and intensive government
enforcement can soften the inevitable long term consequences of decades of
To be fair, the Chinese government has shown sincere effort in stemming further
degradation of natural assets by establishing administrative structures
studying these problems (recognition alone has been a great leap forward).
However, change may not come fast enough.
Elizabeth Economy from the Council of Foreign Relations in Washington DC stated
that 27% of Chinese who hold assets greater than $1 million have emigrated
because of concerns surrounding social welfare and health. The number of people
hoping to leave China is even greater. Their worries are undoubtedly
exacerbated by appalling environmental conditions and the low prospect of
seeing any visible changes in the near future. Even if Chinese cities do not
suffer from massive water shortages and blackouts, the brain drain and losses
in investments will definitely be felt.
Many of the problems facing China, both economic and environmental, will be
difficult to resolve autonomously. Therefore, closer ties and cooperation with
the international community, and in particular with the US, are in the nation's
best interest. After all, the problems facing China have worldwide
It is no secret that both Chinese and American politicians and other persons of
influence have frequently expressed open resentment towards the other country.
Nonetheless, both states are integral to the welfare of the other. In 2010
alone, the US invested $20 billion in China while China invested $6 billion in
the United States.
These figures, already constituting a significant exchange of capital, are only
expected to grow with Chinese investments expanding as more corporations
establish business opportunities with their American counterparts. This offers
a lucky break to the struggling American economy and a chance for Chinese
businesses to become more diversified in the global economy.
The level of hostility and distrust holds back both countries from deepening
this crucial economic relationship. Restrictive US policies on visa
requirements for Chinese citizens and vocal denouncement of Beijing's
human-rights records are just a few of the issues that (rightly or wrongly)
China's actions have also often not been remotely considerate of Washington's
interests. Beijing's staunch defense of North Korea in the wake of the sinking
of the South Korean corvette Cheonan last March and the aggressive
economic embargo of rare earth metals to Japan during the Senkaku Island
dispute last October only intensified Washington's apprehension of China's
political and military designs.
Former US Trade Representative to China, Charlene Barshefsky, assessed that
China's World Trade Organization accession in 2001 relieved Asian economies
from undue reliance on the United States as "the market of last resort". While
nothing short of war will undo the integration of the western Pacific Rim into
the global economy, shaky political conditions could severely delay further
At the same time, neither side of the Pacific Ocean has the time to sit on
their assets, in particular China as returns from its economy have already
begun to diminish.
Washington has to play its part, but so does Beijing. According to Daniel
Rosen, China's FDI in the United States is growing 130% per year. Doing
business in the US is clearly important and cooperation between the two
countries in developing green technology cannot be ignored either.
Enhancing public diplomacy and pursuing a more considerate foreign policy in
the region can improve American perceptions on China and result in significant
long-term returns that better ensure the prosperity of both nations.
China will go through a crucial leadership transition in 2012 and the route the
new leaders take may very well determine the future prosperity of the nation
and the direction of globalization as a whole. They will face an assortment of
problems beyond the few listed here, but with enough political courage to make
genuine reforms and changes, they can continue the Chinese miracle far into the
young century. But political stagnation and retrenchment must not be an option.
Yong Kwon is a Washington-based analyst of international affairs.
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