China Is Not Just Rising, but Also Changing

A tussle between economics and politics, yin-yang's stiffest test, seems inevitable.

An op-ed article published in the New York Times, September 9, 2006

By Ross Terrill

(Ross Terrill, a research associate at Harvard’s Fairbank Center, is the author of “The New Chinese Empire.”)

Xian, China -- China's advance toward global economic pre-eminence appears irresistible. Having recently surpassed Britain, France and Italy, its economy is now the fourth-largest in the world, growing, Beijing says, at the startling rate of 10 percent a year. Brokers in Hong Kong and New York entertain themselves by predicting the year in which China’s gross domestic product will outstrip that of the United States.

The speculation is understandable. China’s appetite for oil, gas and other natural resources from abroad is all but insatiable. Its urban middle class enjoys cellphones, poodles, Häagen-Dazs, gated apartments, psychiatrists, overseas vacations and cars for which city streets have little room in a nation that is now 40 percent urban.

Yet the facade of China’s urban coastal economy hides problems that, sooner or later, are sure to put a damper on the celebration.

If China is perfecting a new system of Leninism-plus-consumerism, based on yin and yang, such a hybrid would be a first. The Soviet Union and its satellites could not blend strict authoritarianism and a loosened economy. Nor did they slide gracefully into post-communism; several states broke into pieces in the process.

China is more brittle than it looks from the superb restaurants overlooking the Shanghai Bund. Scores of new skyscrapers in Shanghai are half-empty. The government seldom allocates capital to private, commercially rational projects. Banks extend 65 percent of their loans to state-owned firms that produce only 25 percent of the national output. State subsidies make it hard to measure the returns on capital.

Meanwhile, labor costs are on the rise in southeastern China, prompting exporters to move to Vietnam and Cambodia. Old folk proliferate, as do farmers on the move for coastal cities. Urban air is dirty, and water is in short supply in the north.

China welcomes some foreign business but still fears domestic entrepreneurs. The country ranks high on global lists of gross domestic product, foreign direct investment and exports, but its legal system is unreliable, making capitalism at times a difficult game to master. Although China’s per capita income is double that of India, China is only 37 percent wealthier. So it’s no surprise that the World Economic Forum’s most recent Global Competitiveness Report, which takes into account the rule of law and open flow of information, was warmer on India’s prospects than on China’s.

China’s recent growth has been aided by an unprecedented calm. No international crisis has complicated Beijing’s economic decision-making in the 27 years of peace since the China-Vietnam war; no domestic disturbance has shaken the state in the 17 years since Tiananmen Square. But tensions, both internal and external, are unlikely to remain at bay.

Should there be unrest in North Korea, millions of refugees could destabilize northeastern China. A confrontation with Taiwan would bring tension between commercial south China and the politically orthodox north.

A tussle between economics and politics, yin-yang’s stiffest test, seems inevitable. President Hu Jintao has surely bet that freedom in the two realms can be separated. But if Adam Smith was correct to call his free market economics a “system of natural liberty,” this will not be possible. In Beijing in the spring, I watched people snap up Chinese-language copies of F. A. Hayek’s “The Road to Serfdom,” which says a command economy is precisely that.

Many Chinese shrug off official doctrine, whose cultivation, together with the allocation of resources, is a key vocation of communist rule. In Shanghai, the only time I have seen Mao recently is in a department store display, reclining in a suspiciously bourgeois pair of green silk pajamas.

Although Maoism has been buried and Mao himself airbrushed out of history textbooks, the Leninist lid is still clamped awkwardly on the bubbling cauldron of a complex new economy and society. Just last month, the Chinese government locked up a lawyer and two journalists -- including Zhao Yan of The New York Times -- on trumped-up charges behind which lay the offense of indiscreet speech.

Even without such sharp contradictions, economic fireworks have a way of flaming out sooner than expected. It was just a short time ago that Japan’s economy was the object of envy and terror. That experience -- and the hype that accompanied it -- is a reminder that linear projections of economic growth are subject to the nonlinear realities of politics, culture and human nature.

China’s new economy will surely experience setbacks. But eventually, with its emerging middle-class society, it will refashion the old politics. In that sense China’s economic boom will both fail and succeed. As Leninism-plus-consumerism it will reach its limit. But as a base for a post-communist political system, it seems destined to run well into the future.