MCLC: China model shows limits

[Denton, Kirk]

MCLC LIST
From: kirk (denton.2 at osu.edu)
Subject: China model shows limits
***********************************************************

Source: NYT (5/10):
http://www.nytimes.com/2012/05/11/world/asia/chinas-unique-economic-model-g
ets-new-scrutiny.html

NEWS ANALYSIS
China¹s Growth Slows, and Its Political Model Shows Limits
By EDWARD WONG 

CHONGQING, China ‹ After the economies of Western nations imploded in late
2008, Chinese leaders began boasting of their nation¹s supremacy. Talk
spread, not only in China but also across the West, of the advantages of
the so-called China model ‹ a vaguely defined combination of authoritarian
politics and state-driven capitalism ‹ that was to be the guiding light
for this century.

But now, with the recent political upheavals, and a growing number of
influential voices demanding a resurrection of freer economic policies, it
appears that the sense of triumphalism was, at best, premature, and
perhaps seriously misguided. Chinese leaders are grappling with a range of
uncertainties, from the once-a-decade leadership transition this year that
has been marred by a seismic political scandal, to a slowdown of growth in
an economy in which deeply entrenched state-owned enterprises and their
political patrons have hobbled market forces and private entrepreneurship.

³Many economic problems that we face are actually political problems in
disguise, such as the nature of the economy, the nature of the ownership
system in the country and groups of vested interests,² said Zhang Ming, a
political scientist at Renmin University in Beijing. ³The problems are so
serious that they have to be solved now and can no longer be put off.²

On Thursday, China released data that showed its economy was continuing to
weaken. Many economists have been urging the government to loosen controls
over the financial system, to support lending to private businesses while
reining in state-owned enterprises, to allow more movement in exchange
rates and interest rates, and to improve social benefits.

Such changes would curb the state¹s role, lessen corruption and encourage
competition. But making them would involve a titanic power struggle.
Executives of Chinese conglomerates, army generals, Politburo members,
local officials and the ³princeling² children of Communist Party elders
have little incentive to refashion a system that fills their coffers.

Another significant aspect of the China model is the growing security
apparatus. Its heavy-handed tactics in pursuit of social stability have
been called into question by, among other things, more than 30
self-immolations by disaffected Tibetans and a diplomatic crisis between
China and the United States precipitated by the plight of a persecuted
dissident, Chen Guangcheng. A well-documented uprising last winter against
corrupt officials in the southern village of Wukan ignited a debate about
how protests should be addressed: by the sword of the security forces, or
through mediation by senior officials.

But it is the scandal over Bo Xilai, until recently a member of the
party¹s elite Politburo, that has most humbled those who previously
praised the well-oiled nature of China¹s political system and its
appearance of unity.

Before the charismatic Mr. Bo lost his party chief post in Chongqing,
other leaders were already starting to view him as an increasingly
intolerable maverick. After arriving in Chongqing in late 2007, Mr. Bo
began what was billed as a crackdown on crime, along with a revival of
Mao-era singalongs and welfare policies, aimed at generating populist
backing and winning political support from the ³new left,² or hard-core
socialists, for his bid to join the top-level Politburo Standing
Committee, which is scheduled to turn over this year.

Mr. Bo¹s bid veered sharply from the traditional route of ascension, which
since the era of Deng Xiaoping has been one of back-room patronage and
shadowy negotiations among party elders. The problem now in China is that
the powers of those elders have diminished with each generation ‹ the
current president and party chief, Hu Jintao, is weaker than his
predecessor, Jiang Zemin, who was much weaker than Mr. Deng.

With the dissolution of power, a multitude of factions and alliances are
emerging under one-party rule, with no one voice able to impose order.

³China needs a system in place more than ever,² said Wang Kang, a liberal
writer from Chongqing. ³Only a system can guarantee stability.²

Some say that the purge of Mr. Bo was a correction in the political
system, and that the system has returned to normal. But many others argue
that given the growing incoherence at the top, and the diversity and reach
of mass media in China, it is inevitable that more politicians will adopt
Mr. Bo¹s populist methods. Cheng Li, a scholar of Chinese politics, noted
that at the annual National People¹s Congress in March, several rising
sixth-generation leaders gave prominent news media interviews, a form of
self-promotion that was a break from tradition.

³There are no clear and steadfast rules,² said Wu Si, chief editor of
Yanhuang Chunqiu, a journal of politics and history. ³In this confused
state, there is bound to be someone like Bo Xilai who deploys various
methods to compete to enter the standing committee.²

Mr. Bo¹s policies also helped expose another fault line in the China
model: the priority placed on economic growth through investment projects
carried out by state-owned enterprises, with generous loans from state
banks. This is the framework propping up the Chinese economy.

Flush with infrastructure projects, Chongqing, with a population of 31
million, had an economic growth rate of 16.4 percent last year, the
highest of any municipality. But the municipal government and local
state-owned companies have accumulated $160 billion in debt, according to
an estimate by Victor Shih, who studies China¹s political economy. Many of
those loans might never be repaid.

Policy makers pushing for a different model across China, one that relies
more on consumer spending and encourages private enterprise, insist that
long-stalled structural overhauls must be restarted. Some see an opening
in the coming leadership transition. But the biggest hurdle may be the
fact that both departing and incoming leaders have close ties to
state-owned enterprises, which are keen to preserve the status quo.

The hesitancy over the next step is heightened by China¹s cooling economy.
The growth rate slowed to 8.1 percent in the first quarter of this year,
and Prime Minister Wen Jiabao in March cut the forecast for the year to
7.5 percent. The property market is deflating. The data released on
Thursday showed that domestic demand is weakening and exports are flagging.

China warded off the global financial crisis with a $580 billion stimulus
package and a loosening of bank lending. Its leaders could fall back on
that government-led, investment-driven approach if the economy cools too
much.

One thing keeping them in check, however, is fear of rampant inflation,
which could increase social unrest. Discontent among the poor and middle
class is a major source of anxiety for Chinese leaders, yet there are no
easy solutions to the widening wealth gap, as long as rapid growth is the
priority.

The surging number of protests arising from this gap is another stress
point in the China model. Officials rely heavily on domestic security
forces to quell what they call ³mass incidents,² which one sociologist,
Sun Liping, estimated at 180,000 in 2010. In March, the government
announced that it planned to spend $111 billion on domestic security this
year, a 12 percent increase over 2011, and $5 billion more than this
year¹s military budget.

During the uprising in Wukan last winter, which began because of what
villagers called illegal land seizures by local officials, police units
surrounded the village, but backed off after Guangdong Province officials
negotiated with the residents. Wang Yang, the provincial party chief, took
credit for the peaceful settlement and has proposed that that strategy be
more widely adopted, in an implicit criticism of the militant tactics used
in ³stability maintenance.²

The weakness of those tactics was exposed once again when Mr. Chen, the
activist put under house arrest in 2010, made his nighttime escape from
village guards who had beaten him and his wife. Mr. Chen, who is blind,
fled to the United States Embassy in Beijing. That such brutality could
set off a diplomatic crisis between the world¹s superpower and its rising
rival is as obvious a sign as any of the deep flaws in China¹s security
methods.

³From the few times I¹ve engaged with them,² Mr. Chen said, ³I know they
have the intention of reforming, of slowly initiating the rule of law. But
I don¹t know how soon.²

Jonathan Ansfield contributed reporting, and Li Bibo and Edy Yin
contributed research.