Don't Fear the Dragon
Americans view China with both fascination and fear. We don't know whether to be scared (because of its military potential and onetime alliance with Soviet communism) or applaud (because of the way it is entering the modern world while cherishing its ancient culture). We need to get our perspective right.
The first thing to realize is that China is still a poor country. The second: Its leadership does not seek a conflict that would diminish the rising standard of living-because that's the cornerstone on which the legitimacy of the Chinese government depends.
China's size obscures the limits to its ambition and power. Short of water, decent farmland, and energy resources, it must accommodate 10 million to 13 million people a year moving from farms to cities-where wages average only about 2 percent of those in the United States. Tens of millions of urban Chinese have had to face the end of their "iron rice bowl" in which state enterprises provided housing, pensions, and healthcare. Hundreds of millions of rural Chinese have no basic health coverage. The one-child policy, which averted 300 million births over the past nearly 30 years, has given them more dependents and fewer workers. It is thus a country that may grow old before it grows rich.
China's growth has been sustained by a 40 percent savings rate, a prodigious work ethic, and more than $500 billion in foreign capital. Yet the leaders know that it will take an additional 45 years before China can claim to be a modernized, medium-level developed country. Misguided investments mostly dictated by state companies account for 60 percent of the bad bank debt and underperforming ventures that yield only around 1.5 percent per year. The near ubiquitous label "Made in China" masks the fact that China owns none of the 5,000 major brands dominating the world market, nor a single financial institution capable of operating at the global level.
Growing pains. China's leaders recognize that their progress depends on integrating with the global economy, yet the growth they seek will aggravate staggering problems. Sixteen of the world's 20 most polluted cities are in China. Almost 75 percent of the water is too toxic to drink, and many of the rivers are unfit for agriculture. Then there's degradation of the land, including deforestation that exacerbates floods. All this will only get worse if they bring on hundreds of coal-powered electric plants and quadruple their car ownership over the next 15 years. Finally, of course, there is the political dimension. By using the private sector as a patronage system for allocating privileges, the leadership has spawned a combustible mix of crony capitalism and rising inequality of wealth. Some 95 percent of Chinese regard the rich-poor gap as too wide.
Despite all this, rapid growth has enhanced support for concentrating on economic rather than political liberalization. It has helped justify a single-party system-something we don't like but which resonates in a country where chaos has always been seen as the greatest social danger. From the Opium War of 1840 to the founding of the People's Republic of China, the country has been plagued by foreign invasion, civil wars, and poverty-a century of national humiliation that still stings and explains why the Chinese don't understand how they can be perceived as a threat.
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