AmCham arrow Publications arrow Topics Archive arrow Topics Archive 2003 arrow Vol.33- No.8 arrow Book Review: Cheerleading for China
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In a volume that overall suffers from a lack of balance and analytical rigor, several chapters deal insightfully with...

In a volume that overall suffers from a lack of balance and analytical rigor, several chapters deal insightfully with the economic challenges now facing China.

By June Teufel Dreyer

China: Enabling a New Era of Changes.
By Pamela C.M. Mar and Frank-JŸrgen Richter,
John Wiley & Sons, Singapore, 2003. 220 pages. ISBN 0470820861

This book seems to have emanated from papers presented to the annual summit of the World Economic Forum, an organization whose motto proclaims it is "committed to improving the state of the world." A longtime participant in Sino-American business dealings has a less lofty view of the raison d'être of professional conference organizing groups, describing them as hard-driving and very aggressive businesses, whether they are for profit or not for profit.  He believes that they do not compile publications out of altruism but in ways that promote or advance the conferencing activity interests of their respective organizations. One way in which this is done is to give exposure and publicity to those in China with whom one wishes to work on subsequent conference activities, including Chinese government leaders and representatives of well-known think tanks. A second is to reach out, via one's publications, to consumers who are thus likely to be encouraged to pay the money to attend one's conferences.

This analysis, rendered in the abstract, seems applicable to the volume under consideration. Contributors include the chair of a major investment corporation, the Hong Kong director of that corporation, a member of China's National People's Congress, a deputy governor of the People's Bank of China, a provincial official, a vice-chair of the Chinese People's Political Consultative Conference, and a newspaper columnist. Their contributions vary in length from two pages to thirty, with most essays falling on the shorter side. Topics include banking reform, managed marketization, the role of venture capital, the impact of China's entry into the World Trade Organization (WTO) on its economy, and development strategies for major cities. Although it is difficult to find common threads in such a disparate group of writers, authors generally acknowledge the problems facing economic development in the People's Republic of China (PRC).  References to ticking clocks and time-bombs occur in several chapters. Frequently mentioned problems include corruption, growing disparities between rich and poor, structural irrationality in the banking and financial sectors, and labor unrest.

Conference organizers faced a difficult task weaving together such a disparate group of papers, and clearly chose to do so in such a way as to encourage further investment in the PRC.  They explain that the character shou, longevity, which graces the front cover of the book and appears at the beginning of each section and chapter, has been selected "in honor of" the desire of China's government, business, and ordinary people for continued long-term economic growth and prosperity -- surely a desire shared by virtually every sizeable group on earth. A first chapter, unattributed but probably the work of the editors, sets the tone. China is deemed a "striking exception" to Yale historian Paul Kennedy's proposition that great powers invariably rise and fall: "Only China, although certainly experiencing its ups and downs, had the wherewithal to survive. Only the rulers changed."

Aside from the fact that Kennedy's theory has been widely discredited, this is an amazing statement. What we, and the Chinese, term "the Chinese state" today is largely a Western construct. In pre-modern China, each dynasty constituted a state -- and dynasties rose and fell with some regularity, never to rise again. Even assuming that the anonymous authors meant that Chinese civilization endured, those with passing familiarity with the history of the area know that the cultures of dynasties differed considerably -- the Song from the Tang, for example -- and even more so when the dynasty, like the Mongols and Manchus, was not Han Chinese. Moreover, civilization in the West has shown remarkable continuities, although hegemony has been exercised by different powers at different times. Arguably, only the names of the rulers changed there as well.

Another astonishing statement is that "age-old" ideologies give preference to state-owned enterprises in allocating resources. State-owned enterprises (SOEs) were a product of Maoist-communist ideology, and date from the 1950s -- hardly a different age, despite all the changes that have taken place in the past two decades. Finally, we are told that "it is only a matter of time before the civil service becomes upright across the board, instead of only in some elements." This will be news to the average Chinese, who complains vigorously that official corruption is getting worse rather than better, and to a number of Chinese economists, who have statistics to corroborate such complaints. An equally optimistic three-page concluding chapter, again unsigned, bristles with phrases like "dramatic transformation," "economic globalization," and "a new era of changes." The PRC's economy is pronounced past the threat of deflation [Forever? On the basis of what evidence?] and the nation is in a position to be a "first among equals" economic power. China is described as having reframed the globalization debate, heretofore characterized by a north-south divide: It is becoming the first "poor country" to gain from globalization without the boom-bust cycle seen elsewhere in the developing world.

To be sure, China managed to escape the worst effects of the 1996-97 Asian currency crisis, but it has had its share of boom-bust development. The growing rich-poor gap within the PRC is acknowledged but there are "indication[s] that this gap is being taken seriously." True, but does that mean it will be solved? If not, with what consequences? What has been the fate of plans to deal with the gap in the past? May China still be described as having reframed the north-south dichotomy if so many of its citizens remain impoverished? There is too little thoughtful analysis and too much cheerleading on behalf of the PRC's prospects for the future.

Fortunately, several of the contributors rise above this level. Fan Gang, a professor of economics at Beijing University, notes that China is trying to accomplish a dual transformation: seeking to bring its rural economy into a modern society and its planned economy into a market system. Because the problems of accomplishing each amplify and complicate the other, the process becomes still more difficult. For example, legal reform is not just a matter of replacing one set of laws or rules with another, but one of building up the whole concept and a whole set of institutions based on the rule of law from a rural and even, he says, medieval society. After the laws have been promulgated, many years and many court tests will be required before this legal framework can reflect the new realities of the marketplace.

Fan notes that competition from the non-state sector has caused difficulties for state-owned enterprises, without which they would be unlikely to accept any reform program.  In some regions, more than 70% of smaller SOEs have been privatized, some of them by being converted into employee shareholding corporations. Although large SOEs continue to resist reform, further development of the non-state sector may eventually force them to. Fan believes it likely that the Beijing government will be able to manage a situation where three to five million people are laid off each year for the near future without running into major social unrest. Its real problem, he says, will be how to create jobs for 400-million rural laborers in the coming decade. The government's ability to do so will be crucial to the continuation of the impressive economic growth rates of recent years. Fan concludes his essay with a key question: is the progress being made at this stage sufficient to lay the foundations for further development, or -- as he seems to be implying -- is it too small to avoid a crisis in the next stage?

Another standout chapter is that of Tsinghua University's Hu Angang and his graduate student Guo Yang, who address the difficulties that a special form of corruption they term administrative monopolies (AMs) causes for China's economic transformation.  AMs, as Hu and Guo define them, are established by the authorities in order to ensure the interests of the government and its locally affiliated enterprises. They exist both in industry sectors, such as telecommunications, and in geographical regions. Under the guise of maintaining market order, AMs engage in anti-competitive behavior through regulatory policies and administrative means. They are able to restrict the entry of more efficient enterprises -- on grounds, for example, that the enterprise's primary activity is in another sector, or that it is based outside the local market.

In the game Hu and Guo describe, the government is simultaneously rule-maker, referee, and athlete. It becomes impossible to launch a meaningful campaign against the AMs because doing so could result in the perception that the government itself has failed. The existence of this ultimately ruinous institution has caused huge economic losses, which are getting worse.  The authors' research shows that, although import tariffs are decreasing globally, inter-provincial trade barriers within China have been rising steadily since the 1980s, and have led to a net loss of social welfare. Hu and Guo hope that their government will take advantage of WTO accession and its plans for institution-building to reduce the rent-seeking activities of AMs and decrease the market distortions they cause.

Hank Paulson and Fred Hu have produced an interesting chapter on banking reform in the PRC, terming it "mission critical." While crediting Beijing with substantial progress in economic restructuring, they believe China will be unable to reach its full potential unless the government tackles banking-sector problems very quickly. They present data to show that, although a full-blown banking crisis remains a low-probability risk over the next five years, there is no reason to believe that China's banks can simply grow out of their bad loan problems, or that they can solve this and other staggering problems on their own. Performance to date has been piecemeal and unimpressive. The authors advocate a more aggressive and comprehensive "big bang" strategy.

Unfortunately, the remaining essays do not approach these standards. Cheng Siwei's vision for venture capital in China says little more than that although venture capital is a high-risk investment, he believes that it will certainly become a major force for prosperity so long as the country devises a way to develop it with Chinese characteristics. Cheng counsels against being afraid to try to new methods and calls for avoiding pointless debates marked by dogma. Laurence Brahm has produced a paean to Zhu Rongji. Philip Bowring's attempt to place economic developments in a geopolitical context seems out of touch with reality. While China "tolerated" the U.S. strategic presence in Asia despite the Taiwan issue (could Beijing really have done much about it?) times are changing. China is looking forward to the United States withdrawing from Asia (is there any evidence that it plans to?) as the PRC gets stronger. Furthermore, "North Korea is too poor to be a credible threat to a prosperous South enjoying excellent relations with China." So far, PRC-ROK relations are not so excellent as to have stopped Beijing from supplying financial and moral support to Pyongyang. And, by trading on its putative possession of nuclear weapons, North Korea manages to inspire a sense of threat in the South despite its poverty. The question of what Beijing would gain by ceasing to play North Korea off against South Korea should be addressed, but is not.  

Citizens of Taiwan will be interested to learn that "China  appears to have learned from past mistakes that alienation of the Taiwanese is no way to advance unification."  One wonders when Beijing learned this. Not while refusing to allow the Red Cross to give aid to Taiwan after the devastating September 21, 1999 earthquake until it first obtained Beijing's permission.  Nor in 2003, while obstructing the access of World Health Organization officials to Taiwan during the devastating outbreak of SARS that originated on the mainland.

In general, it is not so much that the volume's contributors lack awareness of China's problems as that they stretch points in order to come to optimistic conclusions. The nexus between the PRC's economy and global markets and, ultimately, international stability, cannot be doubted. Nor, therefore, can the importance of the management of that economy.  One wishes, therefore, that the topic had been addressed in a more balanced and analytical fashion.

--- Professor Dreyer is chair of the Department of Political Science at the University of Miami and a commissioner of the U.S.-China Economic and Security Commission established by the U.S. Congress.
 
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