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06/26/2015

China's Future, Part II

Writing in the May/June issue of Foreign Affairs, “Youwei,” a pseudonym for a scholar based in China, talked of the loss of momentum in reforms in recent years, as covered in part I. This time Youwei looks ahead.

China faces four possible futures. In the first, which the party favors, the country would become a ‘Singapore on steroids,’ as the China expert Elizabeth Economy has written. If the anticorruption campaign is thorough and sustainable, a new party might be born, one that could govern China with efficiency and benevolence. Policy reforms would continue, the country’s economic potential would be unleashed, and the resulting productivity and progress would boost the new party’s legitimacy and power.

“Such a future is unlikely, however, for many reasons. For one thing, Singapore is much less authoritarian than contemporary China; it has multiple parties and much more political freedom. Political competition is not completely fair, but opposition parties won 40 percent of the popular vote in elections in 2011. For China to emulate Singapore, it would have to open up political competition significantly, possibly stepping onto a slippery slope to full pluralistic democracy – an outcome the Communist Party does not want to risk. Singapore is tiny, moreover, and so the cost of supervising its administration is relatively small. China is huge, and the party would find it increasingly difficult to supervise the country’s vast, multilevel governmental apparatus from the top down.

The second and most likely future, at least in the short term, is a continuation of the status quo. Whatever problems it has, the regime’s current model of ‘socialism with Chinese characteristics’ is not exhausted. From demographics to urbanization to globalization to the revolution in information technology, the structural factors that have facilitated China’s rise are still present and will continue to operate for some years to come, and the regime can continue to benefit from them.

“But not forever: a regime relying on performance legitimacy needs continued economic growth to maintain itself in power. With growth already slowing, fear of a hard landing is rising. A housing bubble, manufacturing overcapacity, financial instability, weak domestic demand, and widening inequality represent significant vulnerabilities. The bursting of the housing bubble, for example could cause problems throughout the economy and then in the political sector, too, as local governments lost a major fiscal source that they rely on to support public services and domestic security.

“This could trigger the third possible future: democratization through a crisis. Such an outcome would not be pretty. With the country’s economy damaged and political demands soaring, conflicts could intensify rather than subside, and several time bombs planted by the current regime (a demographic crisis, environmental devastation, ethnic tensions) could eventually explode, making matters worse. The result might be the reemergence of some form of authoritarianism as the country recoiled from democratic disorder....

“As for outsiders, what they can do is limited. External pressure tends to ignite defensive nationalism rather than indigenous liberalism. For a country with China’s size and history, democratization will have to emerge from within. But the fact that the world’s most powerful countries tend to be liberal democracies creates a strong ideological pull – and so the best way for the West to help China’s eventual political evolution is to remain strong, liberal, democratic, and successful itself.”

Wall Street History will return in two weeks.

Brian Trumbore



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-06/26/2015-      
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Wall Street History

06/26/2015

China's Future, Part II

Writing in the May/June issue of Foreign Affairs, “Youwei,” a pseudonym for a scholar based in China, talked of the loss of momentum in reforms in recent years, as covered in part I. This time Youwei looks ahead.

China faces four possible futures. In the first, which the party favors, the country would become a ‘Singapore on steroids,’ as the China expert Elizabeth Economy has written. If the anticorruption campaign is thorough and sustainable, a new party might be born, one that could govern China with efficiency and benevolence. Policy reforms would continue, the country’s economic potential would be unleashed, and the resulting productivity and progress would boost the new party’s legitimacy and power.

“Such a future is unlikely, however, for many reasons. For one thing, Singapore is much less authoritarian than contemporary China; it has multiple parties and much more political freedom. Political competition is not completely fair, but opposition parties won 40 percent of the popular vote in elections in 2011. For China to emulate Singapore, it would have to open up political competition significantly, possibly stepping onto a slippery slope to full pluralistic democracy – an outcome the Communist Party does not want to risk. Singapore is tiny, moreover, and so the cost of supervising its administration is relatively small. China is huge, and the party would find it increasingly difficult to supervise the country’s vast, multilevel governmental apparatus from the top down.

The second and most likely future, at least in the short term, is a continuation of the status quo. Whatever problems it has, the regime’s current model of ‘socialism with Chinese characteristics’ is not exhausted. From demographics to urbanization to globalization to the revolution in information technology, the structural factors that have facilitated China’s rise are still present and will continue to operate for some years to come, and the regime can continue to benefit from them.

“But not forever: a regime relying on performance legitimacy needs continued economic growth to maintain itself in power. With growth already slowing, fear of a hard landing is rising. A housing bubble, manufacturing overcapacity, financial instability, weak domestic demand, and widening inequality represent significant vulnerabilities. The bursting of the housing bubble, for example could cause problems throughout the economy and then in the political sector, too, as local governments lost a major fiscal source that they rely on to support public services and domestic security.

“This could trigger the third possible future: democratization through a crisis. Such an outcome would not be pretty. With the country’s economy damaged and political demands soaring, conflicts could intensify rather than subside, and several time bombs planted by the current regime (a demographic crisis, environmental devastation, ethnic tensions) could eventually explode, making matters worse. The result might be the reemergence of some form of authoritarianism as the country recoiled from democratic disorder....

“As for outsiders, what they can do is limited. External pressure tends to ignite defensive nationalism rather than indigenous liberalism. For a country with China’s size and history, democratization will have to emerge from within. But the fact that the world’s most powerful countries tend to be liberal democracies creates a strong ideological pull – and so the best way for the West to help China’s eventual political evolution is to remain strong, liberal, democratic, and successful itself.”

Wall Street History will return in two weeks.

Brian Trumbore