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China’s Rise: Dynamics, Trends, and Implications

Swiss Global Economics. The China File. May 21, 2012. China’s Rise: Dynamics, Trends, and Implications. Annual Growth of the Human Development Index and Per Capita GDP since 1990, selected Asian Nations.

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China’s Rise: Dynamics, Trends, and Implications

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  1. Swiss Global Economics The China File May 21, 2012 China’s Rise: Dynamics, Trends, and Implications

  2. Annual Growth of the Human Development Index and Per Capita GDPsince 1990, selected Asian Nations Source: GDP figures are from the World Bank, World Development Indicators 2011, tables 2.1 and 4.1, except for Myanmar, which uses ADB/official data and Ash Center estimates. HDI data are from the UNDP website, or for Myanmar, are Ash Center estimates.

  3. http://info.worldbank.org/governance/wgi/mc_countries.asp World Bank Governance Indicators Percentiles in 2010

  4. World Bank Governance Indicators/Income Per Capita (PPP)

  5. Barriers to China meeting its objectives • Externally—depends on not only general health of the global economy but also how countries in the region and major trading partners interpret China’s growth • Internally— • Can the economy continue to grow at the necessary rate and can alternatives be developed to substitute gradually for the pro-active fiscal policy? • Can the political system deal with the social tensions that have arisen from the transition? • With the easier parts of reform completed, there will be significant opposition from powerful bureaucracies and the coastal areas to the politics of redistribution • Need to complete the transition of governing structures from those that oversaw a communist state and planned economy to those that can run a modern market economy and accommodate the pluralistic society.

  6. China and Democratic Transition • Six sets of ideas that may suggest democratic transition in China is possible • GNP or GDP per capita rising above a threshold level • Rise of a middle class • Mass discontent leading to democratic breakthrough • Functional needs of an advanced modern economy • International integration leads to broad acceptance of international norms • Development of civil society provides support to democratization

  7. China and Democratic Transition • GDP per capita– Prezeworski and Limongi: Boix and Stokes • Whether economic growth leads to political change has policy consequences for US foreign policy—Clinton’s foreign policy premised on the idea of constructive engagement • James Mann—”The Starbucks fallacy” • China has become the second largest economy BUT per capita GDP paints a more nuanced picture • Projected 2017 GDP per capita PPP for China = $14,640—roughly = South Africa (13,842) and Brazil (15,510) but well above India (5,801) and Indonesia (6,971)—all democracies • A little below former EE states– Romania (16,902), Bulgaria (18,787) and significantly below Hungary (24,164) and Czech (34,531) and EA democracies South Korea (43,787) and Taiwan (51,473) • PWC (constant 2004 $) in 2050 China = $35,851 around level of Czech in 2017 but still below South Korea and Taiwan. Roughly equal to Brazil (34,448) but well above Indonesia (23,686) and India (21,872) • US in 2050 = 88,443; South Korea =66,489

  8. China and Democratic Transition • Growing middle-class—Barrington Moore • CASS = 19% of population in 2003 and will be 35% by 2020 • Mckinsey: lower middle class by 2011 = 44% of urban population and by 2025 upper middle class = 50% of urban population with a disposable income of $1.98 trillion • If economic growth persists, they should exert a stabilizing influence • Can they be co-opted effectively? • Will they push for an expansion of civil and political rights? • Quality of life protests on the rise

  9. China and Democratic Transition • Economic development might be a pre-condition for democratization (Lipset) but marketization provides the foundation for democracy by introducing choice, competition and public accountability (Ravich) • Ravich on East Asia concludes: • economic development might be a precondition of democratization but marketization provides the foundation by introducing choice, competition and public accountability • society experiences an increase in prosperity, introduction to concepts of competition and choice (greater individualism), reduction in level of corruption (greater accountability) • rise of a private sphere to balance government • These = the foundations for democracy • Deeper markets create practical reasons for political liberalization--requires secure property rights, freedom of association, stable, just and rational rule of law, minimization of government’s role • Democratic “learning” may arise from marketization • Builds the foundations for democracy

  10. China and Democratic Transition • Arguments against a democratic breakthrough • Potentially divisive issue among the elite with respect to degree of urgency • Reform might lead to collapse of CCP power • Foreigners might exploit openings to overthrow CCP • Legitimacy rests on economic growth, maintenance of stability and territorial integrity • Not much indication of popular pressure for change • Fusion of political and economic power at the local level • Authoritarian advantage? • Civil society is weak • Is the political culture conducive to democratization?

  11. Scenarios for Future Development • 1) Muddling Through—short to medium-term • Essentially technocratic policy-making • Maintenance of an authoritarian political structure combined with growing economic liberalization • Weak national consensus, continued corruption and lack of social cohesion • Flirtation with more strident nationalism to bolster the national consensus • Relations with US and Japan manageable but frictions will persist • Policy will harbor the tensions of appeasing the new economic elites and trying to support those who have been left behind by reforms • Fits with ideas of Leninist adaptation, authoritarian resilience etc. • 2) Xenophobic nationalism combined with a domestic inefficient authoritarianism • CCP dominated by new elites who would resist any political opening • Rule by new economic elites backed by the military in the name of preserving social stability and national sovereignty • Strident nationalism to provide a minimal level of social glue • Inequalities will continue to rise • CCP as the preserve of the elites • Permanent underclass in rural and urban China • Relations with the US and Japan would be fragile and liable to uncertain trends

  12. Scenarios for Future Development • 3) Liberalization • Leadership responds to increasing diversity in society • Produces similar outcomes to democratic breakthrough elsewhere in East Asia • Requires a significant section of the elite to break with the old system and form a new compact with progressive forces in society • Beneficial for relations with the US and Japan with considerably reduced tensions over Taiwan offering a potential route for reunification

  13. From a Command Economy to a Market-Influence Economy • Transitions 2 and 3 have produced a tremendous growth in the economy with average growth rates of around 10 per cent. • Has brought China to the shoulder of Japan as the world’s second-largest economy • Led to a growing private sector, albeit a credit starved non-state sector • State sector = 25 per cent of industrial output; private sector 40 per cent and collective sector 30 per cent • Stimulus package has favored the state sector over the non-state • Move to market caused some 50 million to lose their jobs on the late-1990s • 22-23 million are now receiving the Minimum Living Support in urban China

  14. From Collective to Individual as Focus • Progressive undermining of the party’s “heroic” narrative • Re-emergence of popular religion, class and even secret societies, providing alternative sources of belief and sites for reciprocity and welfare distribution • In urban China, emergence of a focus on individual desires and wants—enhanced by single-child policy. • CCP “Women hold up half the sky” • Wang Hui women “have much freedom than women fifty years ago, better looks than those of thirty years ago, and a greater variety of orgasms than women ten years ago” • Turning from the collectivist ethos to a focus on the individual • A problem for socialism as this is based on collective individualism • Fundamental challenge for the leadership is to give meaning to a whole that is greater than the sum of the individuals parts

  15. Global Impacts of China’s Development • Six main impacts of economic development • 1) China’s export competitiveness and the volume of exports will severely affect trade prospects of other countries. Strong competitive pressures in consumer goods—future engineering products and services • 2) Attraction of FDI will force other countries to develop more hospitable environments • 3) Major impact on import of commodities, intermediate components, machinery and energy • 4) Setting up of China Investment Corporation can have a major impact on the global investment world • 5) Emission of carbon dioxide and other greenhouse gases will affect climate change • 6) Other environmental impacts

  16. Impacts for Global Business • 1) If shift to domestic consumption is successful—will reduce CCP interest in export trade and FDI—more emphasis on rural/inland development and a shift to higher quality FDI. • 2) More economic nationalism and pro-China competition policies • 3) But will still be crucial needs and wants • Energy and raw materials security • Advanced technology • Help develop global brands • 4) Opportunities to serve new secondary markets, inland cities and new markets created by urbanization and improved infrastructure and logistics

  17. China’s Foreign Engagement • Two drivers for China’s foreign behavior • Emotional driver—linked to deep feelings of nationalism and often xenophobia • Pragmatic driver—trading and essentially status quo power. Economic growth as a primary goal. • Interact to establish main goals of foreign policy: ensuring that external policy helps sustain economic growth while maintaining domestic stability; trying to expand its sphere of influence without directly confronting US interests; and increasing international support for its attempts to “regain” territories that Beijing feels rightfully belong within the PRC. • Latecomer to intergovernmental organizations and thus not a rule drafter • Has perception that international governance is structured essentially to advance the agenda and interests of the West • China is essentially an empire anchored to a Westphalian concept of the nation-state trying to operate in an increasingly multilateral world

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