Abstract
Viewing the Chinese economy as a speeding car, there are three types of development that could crash the car: (1) a hardware failure, which is the breakdown of an economic mechanism (analogous to the collapse of the chassis of the car), for example, a banking crisis; (2) a software failure, which is a flaw in governance that creates social disorders (analogous to a fight among the people inside the car), for example, the state not being able to meet the rising social expectations about its performance because many of the key regulatory institutions are absent or ineffective; and (3) a power supply failure, which is the loss of economic viability (analogous to the car running out of gas or having its ignition key pulled out), for example, an environmental collapse or an export collapse. The fact that China has recently declared that its most important task is to build a Harmonious Society (described as a democratic society under the rule of law and living in harmony with nature) suggests that improvements in governance and protection of the environment are among the most serious challenges to achieving sustainable development. The greatest inadequacy of the Harmonious Society vision is the absence of an objective to build a harmonious world because a harmonious society cannot endure in China unless there is also a harmonious world, and vice versa. The large amount of structural adjustments in the developed countries generated by rapid globalisation and technological innovations has made the international atmosphere ripe for trade protectionism; and environmental degradation has made conflict over the global environmental commons more likely. China's quest for a harmonious society requires it to help provide global public goods, particularly the strengthening of the multilateral free-trade system, and the protection of the global environmental commons. Specifically, China should work actively for the success of the Doha Round and for an international research consortium to develop clean coal technology.
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Notes
One of the more elegant expression of this sentiment would be Friedman (2005).
For example, Jim O'Neill et al. (2005) of Goldman Sachs.
For a review of the debate on how to interpret China's high growth in the 1978–2000 period and why China, unlike the economies of the former Soviet bloc, did not experience a recession when it made the switch from a centrally planned economy to a market economy, see Sachs and Woo (2000) and Woo (2001).
For example, the 2005 Plenum reiterated the Dengist mantra that ‘economic development is the top priority for the CPC, all efforts should be focused on economic development’; see ‘CPC Plenary session calls for developing the economy based on scientific concept,’ People's Daily Online, 12 October 2005; http://english.people.com.cn/200510/12/eng20051012_213891.html
This fundamental change in the overall policy regime will not only reduce poverty, income inequality, and financial shenanigans, but also reduce the possibility of hardware failures; see Woo (2005) and Woo (2006).
‘China investigates contaminated toothpaste,’ The New York Times, 22 May 2007; and ‘China prohibits poisonous industrial solvent in toothpaste,’ The New York Times, 12 July 2007.
‘From China to Panama, a trail of poisoned medicine,’ The New York Times, 6 May 2007.
‘Filler in animal feed is open secret in China,’ The New York Times, 20 April 2007; and ‘Another chemical emerges in pet food case,’ The New York Times, 9 May 2007.
‘As more toys are recalled, the trail ends in China,’ The New York Times, 19 June 2007; ‘Train wreck,’ The New York Times, 19 June 2007; and ‘Fisher-Price recalls 1.5m China-made toys,’ Financial Times, 2 August 2007. The first article also reported the recall of a ghoulish fake eyeball that was filled with kerosene, and of an infant wrist rattle that had a choking hazard.
‘F.D.A. curbs sale of 5 seafoods farmed in China,’ The New York Times, 29 June 2007; and ‘A slippery, writhing trade dispute,’ The New York Times, 3 July 2007.
For example, radial tires were manufactured without the gum strips that prevented the tires from separating; see ‘Chinese tires are ordered recalled,’ The New York Times, 26 June 2007.
‘When fakery turns fatal,’ The New York Times, 5 June 2007.
‘Ex-Chief of China Food and Drug Unit sentenced to death for graft,’ The New York Times, 30 May 2007; and ‘For 2 children, ban of a drug came too late,’ The New York Times, 13 July 2007.
‘China to investigate into “slave labor” incident,’ China Daily, 16 June 2007. The New York Times (‘China slave scandal brings resignation calls,’ 18 June 2007) reported that: ‘The workers endured prison-like confinement with fierce dogs and beatings … Released workers were shown on television with festering wounds and emaciated bodies.’
‘China brickwork slave children may number 1,000,’ China Daily, 15 June 2007.
‘5 Chinese arrested in enslavement case,’ The New York Times, 18 June 2007.
‘Reports of forced labor unsettle China,’ The New York Times, 16 June 2007.
This point was made by the popular tabloid Southern Metropolis Daily, see ‘China slave scandal brings resignation calls,’ The New York Times, 18 June 2007.
‘More forced into prostitution, labor,’ China Daily, 27 July 2007.
This point was made by the Shanxi governor, Yu Youjun, who said: ‘For a long time, relevant government departments did little to regulate rural workshops, small coal mines and small factories, and they are basically out of control and are not being supervised … The dereliction of duty by civil servants and the corruption of individuals have made it possible for illegal labour to exist, particularly the abductions of migrant workers, and forced labour of children and mentally disabled people’ – see ‘Fears linger over child slaves at kilns,’ South China Morning Post, 23 June 2007.
The Gini coefficient has a value between 0 and 1, and the higher the value, the greater the degree of income inequality. Wu and Perloff (2005) put the rural and urban Gini coefficients to be 0.272 and 0.191, respectively, in 1985; and Benjamin et al. (2005) estimated them to be 0.32 and 0.22, respectively, in 1987.
‘Income gap in China widens in first quarter,’ China Daily, 19 June 2005–2006.
1993 number is from Keidel (2006, p. 1), and 2004 number is from Pei (2005) who wrote that, in 2004, there were 74,000 ‘mass incidents’ involving 3.7 million people compared to 10,000 such incidents involving 730,000 people in 1994. Possibly, because of the widespread attention in the Western media on the marked rise in mass incidents, the post-2004 definition of mass incidents appeared to have been changed, making post-2004 data not comparable with the 1994–2004 data; see discussion in EastSouthWestNorth (no date).
‘New pledge to give farmers a louder voice,’ South China Morning Post, Tuesday, 30 January 2007. The No. 1 Document designation is designed to show that this is the most important task in the new year.
‘Impromptu remarks reveal the party's pressure for reforms,’ South China Morning Post, Monday, 16 April 2007.
The following quote from The New York Times (20 April 2007) report ‘In China, Talk of Democracy Is Simply That’ makes a plausible case against optimism about democratisation of Chinese political life:Like the spring showers that give the parched landscape a veneer of green … Communist Party journals and the state-run news media have published a stream of commentaries by retired officials and academics on ‘political system reform’ and the need for ‘socialist democracy’, including a bold-sounding call for China to mimic Switzerland's worker-friendly democratic governing style … [The above developments might well reflect Hu Jintao's attempt] to rally support among younger party members and intellectuals ahead of an important party congress in the fall … In an internal party document issued last year, Mr. Hu sharply criticised the Communist government of Vietnam for moving too rashly toward so-called inner-party democracy. He argued that the Chinese party had to maintain tight discipline to prevent the promotion of a figure like the former Soviet leader Mikhail S. Gorbachev, whom Chinese Communists consider a traitor to socialism, party officials who read Mr. Hu's comments on the subject said. The essays in party journals do not endorse multiparty democracy. Most of the authors argue that democracy can be functionally consistent with single-party rule.
To get a sense of how abusive the local leaders could be, the reader should consult Chen and Wu (2006) for documentation on five incidents in the 1990s in Anhui province that suggest that ‘[many] of China's underclass live under an unchanged feudal system’.
Tanner (2004a, 2004b) pointed out that the ‘data demonstrate that unrest began rising rapidly no later than 1993–1995 when the rate of economic growth exceeded 10 percent. Protests also show a ratchet effect, remaining quite high (and continuing to rise in at least two provinces) even as the rate of economic growth revived’.
For example, in the same meeting with the Trustees of Brookings Institution in October 2006, Premier Wen outlined a step-by-step extension of free election from the village level to the provincial level. While such a plan, if proposed, would most likely receive wide societal approval in 2006, it is possible that Chinese society in 2020 might have raised its expectations to that free election should also be held at the national level.
If such escalations in social expectations are natural, then it is likely that regardless of whether or not the CPC defines ‘democracy’ the same way as the US constitution (or the Taiwanese constitution), the form of the democracy that will finally emerge in China will be closer to the latter's definition. Perhaps this is why the former Party Secretary Zhao Ziyang warned his colleagues in 1986–1987: ‘Democracy is not something socialism can avoid. The people's demand for democracy is a trend. We must meet their demand to the fullest extent’ (Zhao's remarks are quoted in Minxin Pei, ‘How Far Has China to Go?’ Financial Times, 18 January 2005.)
This sense of urgency explains why there is an explicit deadline of 2020.
‘Surplus fuels EU-China war of words,’ Financial Times, 13 June 2007.
‘4 in Senate seek penalty for China,’ New York Times, 14 June 2007.
Compensation estimates are from Burtless (2007). Woo (forthcoming) attributes this rise in compensation to the accelerated technological innovations in the US in the 1990s.
The single biggest boost to economic globalisation in the 1990s was perhaps the post-1990 integration of the labour force in the former Soviet Union bloc, India and China (SIC) into the international division of labour. The number of workers already engaged in the international division of labour in 1990 was 1,083 million, and the combined labour force of SIC was 1,232 million. The international division of labour in 1990 was certainly an unnatural one because half of the world's workforce had been kept out of it by the SIC's autarkic policies. By 2000, the number of workers involved in the international economic system in 2000 had increased to 2,672 million (with 1,363 million workers from SIC); data are from Freeman (2004).
Feenstra and Hanson (1996) estimates the impact of these two developments on US wages. Immigration has also increased the anxiety of US worker; see Ottaviano and Peri (2005).
These inadequacies are discussed in Brainard (1997) and Gary Burtless (2005). The latter reports that within the G-7 in 2004, only the United Kingdom has a less generous unemployment benefits scheme than the United States. An unemployed person in the US received initial unemployment benefits that equaled 53% of previous income compared to 78% in Germany, 76% in Canada and France, 61% in Japan, 60% in Italy, and 46% in UK. The duration of unemployment benefits was 6 months in the US compared to 12 months in Germany, 9 months in Canada, 30 months in France, 10 months in Japan, and 6 months in Italy and the UK.
The SCE category covers companies that are classified as state-owned enterprises, and joint-ventures and joint-stock companies which are controlled by third parties (eg legal persons)who are answerable to the state.
Economist Intelligence Unit (2004, p. 23) reported that ‘farmers’ propensity to save seems to have increased.'
Liu and Woo (1994) and Woo and Liu (1995) contain formal modelling and econometric support for the investment-motivated saving hypothesis.
It is important that time limits be put on the expanded public works and SCE investments because, in the long-run, the increased public investments could follow an increasingly rent-seeking path that is wasteful (eg building a second big bridge to a lowly-populated island to benefit a politically-connected construction company as in Japan), and the increased SCE investments could convert themselves into nonperforming loans at the SOBs.
‘300,000 people die prematurely from air pollution annually, which is twice the number for South Asia, which has a roughly comparable population’, Economy (2004, p. 85)
Economy (2004, p. 69)
‘ …degradation has reduced China's grassland by 30–50 percent since 1950; of the 400 million or so hectares of grassland remaining, more than 90 percent are degraded and more than 50 percent suffer moderate to severe degradation’, Economy (2004, p. 65)
Air pollution is a serious problem. Of the 20 cities in the world identified by the World Bank as having the dirtiest air, 16 of them are located in China. It is shocking that lead and mercury poisoning are more common than expected, see. ‘China's economic miracle contains mercuric threat,’ Financial Times, 18 December 2004; and ‘A Poison Spreads Amid China's Boom,’ Wall Street Journal, 30 September 2006.
‘Top official warns of looming water crisis,’ South China Morning Post, 7 November 2006.
‘China may be left high and dry,’ The Straits Times, 3 January 2004. The shortage is reported to be most acute in Taiyuan in Shanxi and Tianjin (Becker, 2003).
‘Northern cities sinking as water table falls,’ South China Morning Post, 11 August 2001 and Becker (2003).
‘Northern China sinking. as the south rises,’ The Straits Times, 18 March 2002. ‘Some 60 percent of the land in Tianjin municipality is plagued by subsistence’ (Becker, 2003).
‘Chinese cities, including Olympic host Beijing, slowly sinking,’ Agence France-Presse, 23 July 2004.
‘China may be left high and dry,’ The Straits Times, 3 January 2004.
‘Top official warns of looming water crisis,’ South China Morning Post, 7 November 2006.
Examples of serious water pollution are ‘Main rivers facing a “pollution crisis”,’ South China Morning Post, 6 June 2003; ‘Booming cities polluting scarce water supplies,’ The Straits Times, 18 September 2003; ‘Rivers run black, and Chinese die of cancer,’ New York Times, 12 September 2004; ‘“Cancer villages” pay heavy price for economic progress,’ South China Morning Post, 8 May 2006; and ‘Rules ignored, toxic sludge sinks Chinese village,’ New York Times, 4 September 2006.
‘Quarter of land now desert – and Man mostly to blame,’ South China Morning Post, 30 January 2002.
This is average of the 3,800 square miles reported in ‘Billion of Trees Planted, and Nary a Dent in the Desert,’ New York Times, 11 April 2004, and the 4,014 square miles reported in ‘Quarter of land now desert – and Man mostly to blame,’ South China Morning Post, 30 January 2002.
The number of major sandstorms in China was five in the 1950–1959 period, eight in 1960–1969, 13 in 1970–1979, 14 in 1980–1989, 23 in 1990–1999, 14 in 2000, 26 in 2001, 16 in 2002, and 11 in 2003 according to Yin Pumin, ‘Sands of time running out: desertification continues to swallow up “healthy” land at an alarming rate,’ Beijing Review, 16 June 2005.
‘Billion of trees planted, and Nary a dent in the desert,’ New York Times, 11 April 2004
The National Development and Reform Commission (2007) reported: ‘The regional distribution of precipitation shows that the decrease in annual precipitation was significant in most of northern China, eastern part of the northwest, and northeastern China, averaging 20∼40 mm/10a, with decrease in northern China being most severe; while precipitation significantly increased in southern China and southwestern China, averaging 20∼60 mm/10a … The frequency and intensity of extreme climate/weather events throughout China have experienced obvious changes during the last 50 years. Drought in northern and northeastern China, and flood in the middle and lower reaches of the Yangtze River and southeastern China have become more severe.’
‘Ambitious canal network aims to meet growing needs,’ South China Morning Post, 27 November 2002.
‘China approves project to divert water to arid north,’ South China Morning Post, 26 November 2002.
‘Massive scheme aims to quench China's thirst,’ Financial Times, 26 July 2004; a lower estimate of 300,000 is given in ‘China will move waters to quench thirst of cities,’ New York Times, 27 August 2002.
‘China's river plan worries India,’ Times Of India, 23 October 2006.
‘Massive scheme aims to quench China's thirst,’ South China Morning Post, 12 May 2003.
‘China water plan sows discord,’ Wall Street Journal, 20 October 2006.
‘Chinese water plan opens rift between science, state,’ American-Statesman, 10 September 2006.
‘China may be left high and dry,’ The Straits Times, 3 January 2004.
‘Alert sounded over looming water shortage,’ The Straits Times, 10 June 2004.
‘Water wastage will soon leave China high and dry,’ South China Morning Post, 8 March 2006.
‘750,000 a year killed by Chinese pollution,’ Financial Times, 2 July 2007. 350,000–400,000 died prematurely from air pollution in Chinese cities, 300,000 from poor air indoors, and 60,000 (mostly in countryside) from poor-quality water.
‘OECD highlights Chinese pollution,’ Financial Times, 17 July 2007.
Quoted in James Kynge, ‘Modern China is facing an ecological crisis,’ Financial Times, 26 July 2004.
‘China fails to hit target for saving energy,’ Financial Times, 11 January 2007.
‘Report on mainland's No. 1 emissions status “flawed”,’ South China Morning Post, 21 June 2007. Chinese officials have questioned the credibility of the report's conclusion ‘that the mainland's carbon dioxide emissions, which topped 6.2 billion tonnes last year, had surpassed those of the United States by 8 percent.’
‘China's bid to gauge cost of pollution is set back,’ The Wall Street Journal, 17 July 2007; and ‘Faith in green GDP idea lost amid the bickering,’ South China Morning Post, 24 July 2007.
‘China's new car fuel in disarray,’ Financial Times, 19 June 2007.
‘Schwab surprised by stance of India and Brazil,’ Financial Times, 22 June 2007; and ‘China's shadow looms over Doha failure,’ Financial Times, 22 June 2007.
See Samuelson (2004); and ‘Shaking up trade theory,’ Business Week, 6 December 2004.
‘An elder challenges outsourcing's orthodoxy,’ The New York Times, 9 September 2004.
‘Pain from free trade spurs second thoughts,’ The Wall Street Journal, 28 March 2007.
‘Brazil, others push outside Doha for trade pacts,’ The Wall Street Journal, 5 July 2007.
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Acknowledgements
I am most grateful to Ximing Yue for providing the estimates on rural poverty, and to John Bonin, Jeffrey Miller, Gerard Roland, and Wei Zhang for comments on an earlier draft presented at the Association for Comparative Economic Studies ASSA session, Chicago, 7 January 2007. This paper was inspired by the Debate on China's Economy in the Reframing China Policy Debate Series of the Carnegie Endowment for International Peace; see http://www.carnegieendowment.org/events/index.cfm?fa=eventDetail&id=929&&prog=zch
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Woo, W. The Challenges of Governance Structure, Trade Disputes and Natural Environment to China's Growth. Comp Econ Stud 49, 572–602 (2007). https://doi.org/10.1057/palgrave.ces.8100231
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DOI: https://doi.org/10.1057/palgrave.ces.8100231
Keywords
- Harmonious society
- governance issues
- mass incidents
- environmental protection
- water crisis
- trade imbalances
- protectionism