A Giant's Growing Pains
Still, the momentum of change in China is likely to overcome such difficulties. The 40 percent savings rate is stunningly high. Then there are those billions in foreign direct investments. And the huge foreign-exchange reserves are likely to continue if China keeps up the pace of its export-driven strategy that was so successful for Japan, South Korea, and Taiwan.
Stresses. There is a question mark here, too. It is often assumed that China will maintain its export lead because millions of university graduates will give it an edge in world trade. It is not that simple. These new graduates will help domestic output but not exports, at least to the same degree. Why? Only an estimated 10 percent are expected to be qualified enough to work for multinational companies, which hire about 70 percent of China's top graduates and account for more than half of China's success in exports and 85 percent of its high-tech exports. The Chinese export boom, in other words, has more to do with foreign firms relocating their production within China than with China's own businesses undercutting foreign producers.
According to George Gilboy, writing in Foreign Affairs, Chinese firms tend to focus on short-term gains and limit commitments to research and development of new technologies. Chinese companies make most of the goods sold in China, but as Gilboy points out, "They have yet to lay the domestic institutional foundations for China becoming a technological economic superpower."
There are political implications in all this. China must maintain a welcoming posture for foreign investment. Chinese companies will mature and grow more sophisticated and venture beyond China's borders, but to compete in a global economy, China's leaders will have to make structural political reforms. If they do so, Gilboy notes, they will have even more to share with the United States and other industrial countries, including global free trade and support for the international rule of law.
How far will this be possible for a country noted for its authoritarian politics and hobbled by the corruption and waste endemic in a communist system?
Chinese leaders have engaged in the unrestrained looting of public assets, and they have gotten away with it because for the past 20 years, hundreds of millions of Chinese have given them more disposable incomes than at any time in their history. This astonishing prosperity has been accompanied by peace and a respite from the wars and domestic strife that had dogged China for more than a century.
The changes in China have not been without their stresses, however. With growth concentrated mostly in the coastal areas rather than in the interior, it is not surprising that there have been thousands of peasant and workers' strikes and uprisings involving some 3 million people, harshly crushed by local authorities. The new forces now being unleashed in the country are masked by a new Chinese leadership that understands what is called the consciousness of upcoming crisis ( weiji yishi). These leaders are not isolated from the West, as the leaders of countries behind the Iron Curtain were for so long; they do not exercise the cruelty that Mao did; and they are trying to focus on balancing growth between the cities and the countryside. They know they must resist the temptation to crack down and understand that they will have to represent a new generation of educated citizenry. The proof? Five of the Politburo's seven members and more than half the Central Committee's 200 members stepped down last year--and all were replaced by university graduates.
The basic strategy of the Chinese leadership today is not conflict but the avoidance of conflict. They promote the Communist Party as the way for China to maintain a long, forced stability. They understand that the United States and countries in Asia are wary of China's thrust to become a world power. They wish to continue their economic growth, technological modernization, and military buildup without provoking other countries into a costly rivalry. By and large, China's leaders have managed their politics and their economic policies reasonably well. But they face immense challenges that may yet put too great a strain on their system of a Leninist economy and authoritarian rule.
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