dangerous denials: china's economy is blinding the world to its political risks

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Dangerous Denials: China's Economy Is Blinding the World to Its Political RisksAuthor(s): Minxin PeiSource: Foreign Policy, No. 146 (Jan. - Feb., 2005), pp. 56-58Published by: Washingtonpost.Newsweek Interactive, LLCStable URL: http://www.jstor.org/stable/30048179 .

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important catalyst in India's reforms and growth surge during the last decade. Latin American countries are starting to take notice: Chile and China are contemplating a free trade agreement, and Mexico and Brazil are sending high-level trade and investment missions to China. As China engages in free trade agreements with neighboring countries, Southeast Asia is likely to benefit even more.

During its communist heyday, Beijing often cham- pioned the cause of the developing world, at least in its rhetoric. Now, as a large, successful trader, China is in a far better position to put meaning behind its message, shaping the rules in the WTO and other international bodies to address development con- cerns. China is already active in the Group of 20, a forum in which rich countries and the largest developing countries exchange views. In many cases, China's interests coincide with those of other developing countries,

many of which look to China for support. For example, China wants to promote freer global trade in agri- culture, a key concern of poorer countries. China might also add its voice to the chorus of developing countries that seek safeguards for their service sectors.

Of course, China's rise does come

at a cost for some. Those poor countries that rely on commodity imports take a hit as China's demand pushes up prices. China is such an efficient producer of garments that it will likely dominate textile markets, now that the global system of quotas has disappeared. That scenario will hurt garment workers in such countries as Bangladesh and Cam- bodia, whose jobs and wages depend

on protected markets. Maquiladora industries in Central America that export to the United States under pref- erential agreements are already exiting the market, fearing the coming com- petition with China. Similarly, the advantages conveyed to some of the world's poorest countries through free-market access agreements with

the United States and Europe will decline, as global trade barriers come down and efficient produc- ers such as China begin to compete. Still, the benefits of China's economic rise, and of a more liberal and fairer global trading sys-

tem, outweigh the costs. Decades ago, Japan, Germany,

and South Korea showed the world how to develop with a strategy based on exporting manufactured goods. China's rise may offer an equally com- pelling example of how open economies can spur rapid growth. For the developing world, it's some- thing to emulate, not fear. 1H

... hina has become the center of a virtuous

regional trade cycle.

DANGEROUS DENIALS China's economy is blinding the world to its political risks. I By Minxin Pei

here is a Chinese proverb that says "one spot of beauty can conceal a hun-

dred spots of ugliness." Today, in China, there are few things as beautiful as the country's economic growth. But it is premature to

dismiss the inherent instability in China's authoritarian politics. The country's rapid economic growth may be blinding us to systemic risks in Chinese domestic politics that, if poorly managed, could explode, threatening the survival of the regime. There is no question that China's economy is on the rise-but so are the risks of political crisis.

To be fair, some of the dangers China is facing simply come with the challenge of being a developing country racing toward a market economy. Shaking off socialism isn't easy for any nation. When you are the world's most populous country, the chances for socioeconomic dis- aster are enormous. Income inequality, for example, is to be expected. The period from 1980 to 1997 saw

Minxin Pei is director of the China Pro-

gram at the Carnegie Endowment for International Peace.

56 FOREIGN POLICY



a 50-percent rise in inequality in China. Labor migration is natural. But China is experiencing the

largest movement of rural labor in

history. In recent years, Chinese cities have absorbed at least 114 million rural workers, and they are

expected to see an influx of anoth- er 250 to 300 million in the next few decades. Under the circum-

stances, it's hardly surprising that

China's effort to establish a new social safety net has fallen short, especially given its socialist roots. It would be a Herculean task for

any government. But China's isn't just any gov-

ernment. It is one that rests on

fragile political foundations, little rule of law, and corrupt gover- nance. Worse, it has consistently placed the highest value on eco-

nomic growth and viewed all demands for curbing its discretion and power as threats to its goal of

rapid modernization. The result? Social deficits in education, public health, and environmental protec- tion. But it is hardly surprising, since promoting high growth advances the careers of government officials. Thus, China's elites devote most of their resources to

JANUARY IFEBRUARY 2005 57



building glitzy shopping malls, fac- tories, and even Formula One racing tracks, while neglecting social investments with long-term returns. So for those who wonder how, if China's political system is so rotten, it can deliver robust growth year after year, the answer is that it delivers robust growth year after year, in part, because it is so rotten.

But the Chinese Communist Party knows that the people will tolerate only so much rot. Corrup- tion is a rising concern. The party's inability to police its own officials, many of whom are now engaged in unrestrained looting of public assets, is one of Beijing's greatest worries. These regime insiders have effectively privatized the power of the state and use it to advance per- sonal interests. Their loyalty to the

party is questionable, if it exists at all. The accelerating effect on the party's demise resembles that of a bank run; more and more insiders cannot wait to cash in their investment in the party.

Of course, the Chinese government, like other authoritarian regimes, is constantly threatened by internal power struggles. Again, Bei- jing has not only bucked the naysay- ers, but its ability to weather internecine strife appears to have improved markedly since the 1989 Tiananmen tragedy. The recent transfer of power from Presidents Jiang Zemin to Hu Jintao turned out more smoothly than expected, perhaps signifying that the party has acquired a higher degree of institutional maturity. But it may still be too little, too late for an increasingly pluralistic and assertive

population. Although the government managed to build an elitist ruling alliance of party officials, bureaucrats, intellectuals, and busi- nessmen, the durability of this alliance is questionable. And, as in other countries, exclusionary politics inevitably breeds alienation, resentment, and anger. This does not mean that a social revolution is imminent in China. But should a crisis hit, all bets are off.

Thankfully, all of these risks are manageable if China confronts them with bold political reforms rather than denial and delay. But this may be wishful thinking. Beijing has thus far preferred these risks to the gam- ble of democratic reforms. The only thing certain about China's political risks is that they are on the rise. And that reality is hardly a thing of beauty. I[

Want to Know More?

For authoritative histories of China, readers can turn to Jonathan D. Spence's The Search for Modern China (New York: Norton, 1990), Chinese Roundabout: Essays in History and Culture (New York: W.W. Nor- ton, 1992), and To Change China: Western Advisers in China, 1620-1960 (Boston: Little, Brown, 1969). Michael H. Hunt examines the historical roots of the foreign policy of the People's Republic in The Genesis of Chinese Communist Foreign Policy (New York: Columbia University Press, 1996).

Yasheng Huang and Tarun Khanna question whether China's pursuit of foreign direct investment is the fastest route to economic development in "Can India Overtake China?" (FOREIGN POLICY, July/August 2003). Nicholas R. Lardy analyzes the frailties of China's banking and financial system in China's Unfin- ished Economic Revolution (Washington: Brookings Institution Press, 1998). For a look at the emerging relationship between the Chinese Communist Party and the country's new class of entrepreneurs, check out Bruce J. Dickson's Red Capitalists in China: The Party, Private Entrepreneurs, and Prospects for Politi- cal Change (New York: Cambridge University Press, 2003).

Whether China's rise will be a source of conflict has sparked many debates. For a pessimistic outlook, see Aaron L. Friedberg's "Ripe for Rivalry: Prospects for Peace in a Multipolar Asia" (International Secu- rity, Winter 1993-94). Andrew J. Nathan and Robert S. Ross are optimistic about the chances of inte- grating China into the international community in The Great Wall and The Empty Fortress: China's Search for Security (New York: W.W. Norton, 1997). Also, the transcripts from the Carnegie Endowment for Inter- national Peace's two-day conference "China's Peaceful Rise?" are available on the endowment's Web site.

S))For links to relevant Web sites, access to the FP Archive, and a comprehensive index of related FOREIGN POLICY articles, go to www.foreignpolicy.com.

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dangerous denials: china's economy is blinding the world to its political risks

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