Fast on the heels of the United States presidential election came the “election” of the chairman of the Communist Party of China and the other six men who will make up its Politburo – the executive of the party. Next March, when China’s National People’s Congress meets in Beijing, the new Chairman of the Party, Xi Jinping, will be confirmed President of China, and the other Politburo members will take control of the nation’s key government ministries that will set the agenda for China’s development over the next decade.
These seven men are now arguably the most powerful people on earth – or soon will be. They will control a nation of 1.3 billion people, the world’s second largest economy, and the largest standing army on earth with three million men and women under arms. Xi Jinping’s presidency will last a decade, as is the custom in China.
But what are the challenges facing the incoming Government and how will it chart China’s course for the 21st Century?
It really is the economy
China’s single biggest challenge is economic. The nation is at a crossroads. After nearly two decades of double digit GDP growth, the economy is stalling. From 1990 to 2009 China’s economy grew by a staggering 536 percent while the US economy only increased in size by 61 percent. But since the Global Financial Crisis of 2009, China’s economy has slipped to single digit growth. While the US and many other Western nations might envy growth rates of 7.5 or 8 percent, such low growth rates put China precariously close to a precipice. If China’s growth falls below 7 percent it will not be able to absorb the nation’s nine million annual new entrants onto the job market. That could result in considerable social unrest that might threaten the very survival of the Communist Party.
But the problem isn’t just that China’s economy has stalled because of the Global Financial Crisis. That’s a simplistic explanation. China’s economy was in trouble before the crisis, before the US recession and before the Eurozone crisis. True; these global crises have not helped matters. But the Chinese economy was already on a slippery slope during the 10 years of Hu Jintao’s Presidency – and it was a slope of its own making.
China’s problems are the result of a moribund political and economic system; and of the one child family policy.
Too poor to grow old yet
Indeed, the one child family policy has ensured that China will become the first nation to grow old before it grows rich. The problem in China is referred to as the “four-two-one” problem. Essentially a generation of only children, coming of age now (the policy was introduced in 1978), will be burdened with caring for their ageing parents and even grandparents if pension funds fail. But the one child policy itself is a threat to the nation’s pension system precisely because it means a smaller tax base to fill government coffers and pension funds. The policy means an already strained system will soon be at breaking point.
Because of the Chinese preference for boys, the policy has also created a massive imbalance between the sexes. According to current estimates, there will be 30 million more men than women by 2020. These men will be denied the ability to marry and start families, and consequently they pose a considerable social problem for the nation. China is already experiencing large numbers of kidnappings of girls and women who are forced into marriages because of the difficulties finding wives in some parts of the country. Women are even being kidnapped from countries bordering China to be sold as wives in the Middle Kingdom. Chinese blogs and microblogs now openly discuss legalizing homosexual marriage and allowing complex marriages (such as polyandry) in order to reduce the social unrest 30 million young, single men with no hope of marrying might cause.
Shoppers need a safety net
Leaving aside the one child family policy, the incoming government needs to stimulate the economy and build a domestic consumer market in order to absorb the new entrants to the job market each year and pay for the increasing social welfare burden facing China – pensions and healthcare costs being the most critical. The 20 fat years of double digit economic growth from 1990 were largely driven by foreign investment into China, and exports of low cost manufactures to the developed world, and the large spending on infrastructure development to support investment and exports. All of those have been in decline in recent years as China has become a more expensive country to operate it. Foreign investment has started moving to India and some of China’s other less costly labour-market neighbours, and those countries in turn have started exporting manufactured products to the West.
So the solution is to get Chinese out shopping.
But right now most Chinese are hesitant to spend their hard earned incomes because they have little confidence in the State’s ability to provide a safety net; although a Communist nation, China’s welfare system is at best rudimentary and people fret that if they lose their jobs, become sick or grow old, they will not be able to rely on the State to protect them. They believe it is wiser to save their money for a rainy day. And the storm clouds are gathering.
And here’s the rub: The only way to build a consumer-based economy such as China needs is to undo much of what is wrong with the political and economic system, which means to change China’s Constitution which, based on its Marxist-Leninist principles, places the means of production in the hands of the people … ahem, the state.
The Government is not oblivious to the problem. The current Prime Minister, the grandfatherly Wen Jiabao who is rolled out whenever there is a massive disaster of some sort to reassure the nation, such as during the Sichuan earthquake in 2008, has spent much of the past year calling for political and economic reform. He has said the country needs to deal with corruption in the Party, reform the State-owned Enterprises (SOE’s) – the gigantic business and industrial conglomerates that control and drive the economy – and introduce financial reforms that will enable easier borrowing for China’s emerging and still fragile private sector.
Double or nothing
In his closing address last week as Chairman of the Communist Party of China, the President Hu Jintao echoed these calls. He set forth a vision for China to double GDP and double per capita income by 2020. That pledge was received with much enthusiasm across the country where many are concerned at the growing chasm between rich and poor. But now that the dust has settled on the Party Congress, many are asking what his statement really meant. For, it is entirely possible to achieve a doubling of the economy and per capita GDP without addressing the real problem of the growing gap between rich and poor.
Consider this, for example: China’s current per capita income stands at around US$5,414 in nominal terms; but many in China’s hinterland get by on just $2 a day (around 16% of people get by on less than $1.25 per day).
Obviously a lot of China’s mega-rich take up the slack, among them the nation’s politicians.
And the problem runs top to bottom. Prime Minister Wen’s family, according to a New York Times article (blocked to readers in China), has amassed a fortune of $2.7 billion during his decade in office. The incoming President, Xi Jinping, who in 2004 warned Party officials to “rein in [their] spouses, children, relatives, friends and staff” who were acquiring phenomenal wealth on their coattails, has apparently failed to keep his own brood in check. Indeed, his family amassed assets and holdings worth in excess of $20 billion according to a recent Bloomberg story, which led to the news service being blocked from inside China.
Who is really for reform?
Addressing China’s vast economic problems is going to take much more than pledging to double GDP and per capita income by 2020. That can easily be achieved while the rich get richer and the poor get poorer. The real challenge will be dealing with entrenched interests – the SOE’s who have publicly said they do not need to be reformed; the Party’s Marxist Left which has said it would be unconstitutional to take the means of production from the public (i.e., from the SOE’s) and place them in the hands of the private sector. But the biggest challenge will be reforming the Communist Party and ending corruption, when those calling for a cleaner party have the dirtiest hands.
Orwell had it right –some animals are just more equal than others.
It really is time for China to put the farm in order. The next decade will be telling for Mr Xi and his fellow politburo members. Will they change China, or will they and their families simply accumulate more wealth? Would that everyone in China could have the spending power to fuel the economy and put away for a comfortable retirement.
Constance Kong is a Shanghai-based business consultant.
