Iebruary 2, 2010

SNAISHOT
Thc End nI thc Bcqing Cnnscnsus
Can China's ModeI of Aulhorilarian Grovlh Survive`
Yang Yao
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Since China began underlaking economic reforms in 1978, ils economy has grovn al a rale of nearIy len
ercenl a year, and ils er-caila GDI is nov lveIve limes grealer lhan il vas lhree decades ago. Many
anaIysls auribule lhe counlry's economic success lo ils unconvenlionaI aroach lo economic oIicy -- a
combinalion of mixed ovnershi, basic roerly righls, and heavy governmenl inlervenlion. Time
magazine's former foreign edilor, }oshua Cooer Ramo, has even given il a name: lhe eqing consensus.
ul, in facl, over lhe Iasl 30 years, lhe Chinese economy has moved unmislakabIy lovard lhe markel
doclrines of neocIassicaI economics, vilh an emhasis on rudenl hscaI oIicy, economic oenness,
rivalizalion, markel IiberaIizalion, and lhe roleclion of rivale roerly. eqing has been exlremeIy
caulious in mainlaining a baIanced budgel and keeing inalion dovn. IureIy redislribulive rograms
have been kel lo a minimum, and cenlraI governmenl lransfers have been rimariIy Iimiled lo
infraslruclure sending. The overaII lax burden (measured by lhe ralio of lax revenue lo GDI) is in lhe
range of 20 lo 25 ercenl. The counlry is lhe vorId's second-Iargesl reciienl of foreign direcl inveslmenl,
and domeslicaIIy, more lhan 80 ercenl of ils slale-ovned enlerrises have been reIeased lo rivale hands
or lransformed inlo ubIicIy Iisled comanies. Since lhe Chinese Communisl Iarly (CCI) Iacks
Iegilimacy in lhe cIassic democralic sense, il has been forced lo seek erformance-based Iegilimacy
inslead, by conlinuousIy imroving lhe Iiving slandards of Chinese cilizens. So far, lhis slralegy has
succeeded, bul lhere are signs lhal il viII nol Iasl because of lhe groving income inequaIily and lhe
inlernaI and exlernaI imbaIances il has crealed.
The CCI's free-markel oIicies have, rediclabIy, Ied lo ma|or income disarilies in China. The overaII
Gini coecienl -- a measure of economic inequaIily in vhich zero equaIs erfecl equaIily and one
absoIule inequaIily -- reached 0.47 in 2008, lhe same IeveI as in lhe Uniled Slales. More dislurbing,
Chinese cily dveIIers are nov earning lhree and a haIf limes as much as lheir feIIov cilizens in lhe
counlryside, lhe highesl urban-ruraI income ga in lhe vorId.
Hov, lhen, has lhe Chinese governmenl been abIe lo adol lhe rinciIes of neocIassicaI economics vhiIe
sliII cIaiming Marxism as ils ideoIogicaI anchor` The ansver is lhal China has for lhree decades been
ruIed by a disinleresled governmenl -- a delached, unbiased regime lhal lakes a neulraI slance vhen
conicls of inleresl arise among dierenl sociaI and oIilicaI grous. This does nol mean lhal eqing has
been devoid of seIf-inleresl. On lhe conlrary, lhe slale is ohen redalory lovard cilizens, bul ils redalion
is "idenlily-bIind" in lhe sense lhal eqing does nol generaIIy care aboul lhe sociaI and oIilicaI slalus of
ils chosen rey -- unIike many governmenls eIsevhere lhal acl lo rolecl and enrich secihc sociaI or
oIilicaI grous. As a consequence, lhe Chinese governmenl has been more IikeIy lhan olher aulhorilarian
regimes lo adol grovlh-enhancing oIicies.
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Ior lhe Iasl 30 years, lhe CCI has inlenlionaIIy adoled oIicies favoring secihc grous or regions lo
romole reform and economic grovlh. Il has heIed lhal lhe disinleresled CCI governmenl vas nol
ermanenlIy behoIden lo cerlain grous or regions. China's inlegralion inlo lhe vorId economy is a case
in oinl. Al lhe end of lhe 1970s, lhe Uniled Slales vas eager lo bring China inlo ils cam as a buer
againsl Soviel hegemony, and China quickIy grased lhe oorlunily. Yel lhal earIy adolion of an
"oen-door" oIicy gave rise lo domeslic resislance: seciaI economic zones, such as Shenzhen, en|oyed
an abundance of referenliaI lrealmenls lhal olher arls of lhe counlry envied. Moreover, lhe CCI's
exorl-Ied grovlh modeI required lhal eqing embrace an unbaIanced deveIomenl slralegy lhal
encouraged raid grovlh on lhe counlry's easl coasl vhiIe negIecling lhe inlerior, loday, nearIy 90 ercenl
of China's exorls sliII come from lhe nine coaslaI rovinces.
China's accession lo lhe WorId Trade Organizalion in 2001 vas aIso a caIcuIaled move. efore accession,
il vas videIy beIieved lhal China vouId have lo endure ainfuI slrucluraI ad|uslmenl oIicies in many
seclors in order lo |oin lhe WTO. Iven so, lhe cenlraI governmenl acluaIIy acceIeraled negolialions vilh
lhe organizalion's members. Desile lhe burdens il Iaced on lhe agricuIlure and relaiIing seclors,
accession boosled China's exorls, roving vrong lhose vho vorried aboul ils eecls. elveen 2002 and
2007, Chinese exorls grev by an annuaI rale of 29 ercenl, doubIe lhe average rale during lhe 1990s.
China's aslronomic grovlh has Ieh il in a recarious silualion, hovever. Olher deveIoing counlries have
suered from lhe so-caIIed middIe-income lra -- a silualion lhal ohen arises vhen a counlry's er-caila
GDI reaches lhe range of $3,000 lo $8,000, lhe economy slos groving, income inequaIily increases, and
sociaI conicls erul. China has enlered lhis range, and lhe varning signs of a lra Ioom Iarge.
In lhe Iasl severaI years, governmenl invoIvemenl in lhe economy has increased -- mosl nolabIy vilh lhe
currenl four-lriIIion-yuan ($586 biIIion) slimuIus Ian. Governmenl inveslmenl heIed China reach a GDI
grovlh rale of nearIy nine ercenl in 2009, vhich many aIaud, bul in lhe Iong run, il couId suocale lhe
Chinese economy by reducing eciency and crovding oul more vibranl rivale inveslmenl.
The economy currenlIy deends heaviIy on exlernaI demand, crealing friclion among ma|or lrading
arlners. Savings accounl for 52 ercenl of GDI, and consumlion has droed lo a hisloric Iov.
Whereas governmenls in mosl advanced democracies send Iess lhan eighl ercenl of governmenl
revenue on cailaI inveslmenl, lhis hgure is cIose lo 50 ercenl in China. And residenliaI income as a
share of nalionaI income is decIining, making lhe average cilizen feeI oorer vhiIe lhe economy exands.
As lhe Chinese eoIe demand more lhan economic gains as lheir income increases, il viII become
increasingIy dicuIl for lhe CCI lo conlain or discourage sociaI disconlenl by adminislering lhe medicine
of economic grovlh aIone.
Desile ils absoIule over and recenl lrack record of deIivering economic grovlh, lhe CCI has sliII
eriodicaIIy faced resislance from cilizens. The Tiananmen incidenl of AriI 5, 1976, lhe hrsl sonlaneous
democralic movemenl in IRC hislory, lhe }une 4 movemenl of 1989, and numerous subsequenl rolesls
roved lhal lhe Chinese eoIe are quile viIIing lo slage organized resislance vhen lheir needs are nol
mel by lhe slale. InlernalionaI moniloring of China's domeslic aairs has aIso Iayed an imorlanl roIe,
nov lhal il has emerged as a ma|or gIobaI over, China is suddenIy concerned aboul ils Iegilimacy on lhe
inlernalionaI slage.
The Chinese governmenl generaIIy lries lo manage such ouIar disconlenl by roviding various "ain
reIievers," incIuding rograms lhal quickIy address earIy signs of unresl in lhe ouIalion, such as
reemIoymenl cenlers for unemIoyed vorkers, migralion rograms aimed al Iovering regionaI
disarilies, and lhe recenl "nev counlryside movemenl" lo imrove infraslruclure, heaIlh care, and
educalion in ruraI areas.
Those measures, hovever, may be loo veak lo discourage lhe emergence of overfuI inleresl grous
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seeking lo inuence lhe governmenl. AIlhough rivale businesses have Iong recognized lhe imorlance of
cuIlivaling lhe governmenl for Iarger rohls, lhey are nol aIone. The governmenl ilseIf, ils cronies, and
slale-conlroIIed enlerrises are quickIy forming slrong and excIusive inleresl grous. In a sense, IocaI
governmenls in China behave Iike cororalions: unIike in advanced democracies, vhere one of lhe key
mandales of lhe governmenl is lo redislribule income lo imrove lhe average cilizen's veIfare, IocaI
governmenls in China simIy ursue economic gain.
More imorlanl, eqing's ongoing eorls lo romole GDI grovlh viII inevilabIy resuIl in infringemenls
on eoIe's economic and oIilicaI righls. Ior examIe, arbilrary Iand acquisilions are sliII revaIenl in
some cilies, lhe governmenl cIoseIy monilors lhe Inlernel, Iabor unions are suressed, and vorkers have
lo endure Iong hours and unsafe condilions. Chinese cilizens viII nol remain siIenl in lhe face of lhese
infringemenls, and lheir disconlenl viII inevilabIy Iead lo eriodic resislance. efore Iong, some form of
exIicil oIilicaI lransilion lhal aIIovs ordinary cilizens lo lake arl in lhe oIilicaI rocess viII be
necessary.
The reforms carried oul over lhe Iasl 30 years have moslIy been resonses lo imminenl crises. IouIar
resislance and economic imbaIances are nov moving China lovard anolher ma|or crisis. Slrong and
riviIeged inleresl grous and commerciaIized IocaI governmenls are bIocking equaI dislribulion of lhe
benehls of economic grovlh lhroughoul sociely, lhereby rendering fuliIe lhe CCI's slralegy of lrading
economic grovlh for eoIe's consenl lo ils absoIule ruIe.
An oen and incIusive oIilicaI rocess has generaIIy checked lhe over of inleresl grous in advanced
democracies such as lhe Uniled Slales. Indeed, lhis is reciseIy lhe mandale of a disinleresled governmenl
-- lo baIance lhe demands of dierenl sociaI grous. A more oen Chinese governmenl couId sliII remain
disinleresled if lhe righl democralic inslilulions vere ul in Iace lo kee lhe mosl overfuI grous al
bay. ul uIlimaleIy, lhere is no aIlernalive lo grealer democralizalion if lhe CCI vishes lo encourage
economic grovlh and mainlain sociaI slabiIily.
Coyrighl 2002-2010 by lhe CounciI on Ioreign ReIalions, Inc.
AII righls reserved.
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