The short, sharp life of 'Chinese century'
By Nick Ottens
If there is to be an Asian century, it won't be China's alone. While it still
has hundreds of millions of people living in poverty, the country is losing its
cheap labor advantage to East Asian competitors while more industrialized
nations in the region are far more receptive to international trade.
The Chinese economy is expected to overtake the United States as the world's
largest in sheer size by the middle of this decade but the ruling Communist
Party has ample reason to be worried about perpetuating China's impressive
growth rates for another generation.
As China's middle class expands in the urban east, it is expecting more than
just growth but in the western hinterland, a lack of development and, perhaps
even more frustrating to the people there, a lack of political accountability
fuels unrest and
discontent. The party will be increasingly hard pressed to meet the aspirations
of both these peoples. Economic and political openness, as desired in the
coastal provinces, would weaken the state's grip on industrial development,
which could exacerbate the existing imbalance between cities and countryside.
Chinese labor is already becoming too expensive for some manufacturers who are
taking their business to countries as Indonesia and Vietnam while Malaysia,
Thailand and Taiwan are more attractive for technology companies that require
an educated workforce and a business climate that isn't too burdened by
regulatory restrictions and corruption.
Labor laws and tax regimes in the rest of South and Southeast Asia are
generally more flexible. These countries welcome international trade and
investment whereas China seeks to protect its "infant industries" from free and
fair competition on the global market. This policy enables the ruling class in
Beijing to build high-speed railways across China but the cost, which is less
clear, could be hugely detrimental to its economy in the future.
Foreign investors in China have to cope with laws and regulations that are
inconsistently enforced - sometimes arbitrary. The Chinese legal system cannot
guarantee the sanctity of contracts, which is vital to a market economy.
Capital account transactions are tightly regulated.
This is a system that thrives on cronyism where businesses that are connected
with local and state officials prosper and companies that aren't could see
their investment go up in smoke when a magistrate determines that factory wages
should increase by a third, overnight.
China does attract huge amounts of foreign direct investment. In fact, it takes
in every month what India assumes in a year. Yet China grows at a rate just two
percentage points faster than India. And even there, corruption is endemic.
At its most recent congress in March of this year, the Communist Party affirmed
the need to improve "balanced growth", which should translate into increased
welfare spending, including subsidies for farmers and the urban underclass.
Western stereotypes notwithstanding, the Chinese state is not sitting on an
infinite amount of cash however. It cannot simultaneously build a proper
welfare state and allow the subsidizing of companies, especially in real
estate, to continue unabated. If it wants to expand social programs and thus
prevent civil unrest, it has to challenge vested interest with allies in the
With major changes in political leadership expected next year, it may not be
until 2013 before a comprehensive social agenda is implemented. That could be
two years wasted while necessary economic reforms to further open up China to
world markets are delayed.
There is another, less immediate concern that could put a stop to this Chinese
century before the world has a chance to recognize that it's living in one.
By the middle of the 21st century, 400 million Chinese will have retired.
That's more than America's total projected population by that time. India,
which is set to overtake China as the world's most populous nation by 2030, is
expected to have nearly 400 million people more in 2050 than China.
How is China going to pay for all these old people? China doesn't have an
expansive public pension system, which means that many Chinese in their prime,
often without siblings because of their government's "one child" policy, will
have to provide not only for their parents but, as life expectancy rises, their
grandparents as well. Naturally, wages will have to rise to accommodate this
unprecedented level of dependency which can only happen if Chinese labor
becomes much more productive and skilled - fast.
The party has to manage this while not only dealing with internal pressure to
democratize; it is also expected to finance American and European deficit
spending when these continents blame China for its "colonialist" scramble for
resources, including water, in Africa and Central Asia - resources it
desperately needs to continue to grow; to invest in its future industrial base
and to alleviate hundreds of millions of people out of poverty.
If despite this all, China somehow ends as tomorrow's superpower, "owning" the
21st century, that will be quite a feat.
Nick Ottens is an historian from the Netherlands and editor of the
transatlantic news and commentary website Atlantic Sentinel. He is also a
contributing analyst with the geopolitical and strategic consultancy firm
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