From Davos to Dalian
Inaugural Annual Meeting of the New Champions 2007
Republic of China, 6-8 September 2007
Dalian city panorama showing off a fine stretch
of urban parkland
Dongbei University of Finance and Economics
View from a fort over Lushun, formerly
naval base Port Arthur
Cliffside on the Dalian peninsula
BusinessWeek, July 18, 2007
Edited by Andy Ross
China has averaged annual growth of
9.5% for three decades. But probe even a little into the Chinese economic
miracle, and glaring administrative failures abound. China has skimped on investments needed to
provide basic, affordable health care and the regulatory machinery that can
enforce environmental, safety and corporate governance regulations
Communist Party officials enjoy wide latitude over social and economic
affairs. They also have huge professional and financial incentives to spur
GDP growth, which they often do by ignoring regulations or lavishing
companies with perks. Even if Beijing has
the best intentions of fixing problems such as undrinkable water and
unbreathable air, it is often thwarted by hundreds of thousands of party
officials with vested interests in the current system.
trillion in foreign reserves and soaring trade surplus are evidence of an
overreliance on exports, weak domestic consumption and a primitive financial
system. A dearth of social services makes a widening income gap between
urban and rural areas politically explosive. But China lacks the will to overhaul a political structure that gives party officials down
to even the smallest villages huge influence over many facets of economic
The roots of China's ersatz capitalism go back to the 1980s and
'90s. Late paramount leader Deng Xiaoping gave a green light for legions of
cadres to discard their Mao suits and rush into business, often by setting
themselves up as middlemen or grabbing stakes in communal assets.
These communist capitalists have evolved into a powerful and wealthy elite
with an enormous stake in the status quo. Truly private capital markets
would strip officials of their power to reward cronies with bank loans and
stock market listings. Copyright enforcement might do wonders for China's
software industry, but it's blocked at the local level by cadres more
interested in safeguarding the jobs and profits that flow from knock-offs.
The central government still struggles to impose its will on local
officials nationwide. China's State Environmental Protection Agency employs
about 60,000 employees across the country. But they report to provincial and
local governments, which tend to favor economic development over green
Oversight of food production in China is similarly
troubled. The State Food & Drug Administration employs 1,700 people, but 80%
of China's food producers have fewer than 10 employees and often lack any
real understanding of safety standards.
The misplaced economic
priorities explain the decrepit state of social services. Top leaders have
been pledging to provide basic public health-care and retirement plans since
the 1980s. It would cost Beijing around $40 billion to set up a national
health-care system. But responsibility is fragmented among too many
competing ministries in Beijing, and at the local level, cadres still are
judged on GDP growth.
Meddling by party officials is hobbling China's
stock markets, too. The booming Shanghai Stock Exchange boasts first-rate
facilities, and shares have nearly tripled since 2005. But despite some
improvements in oversight, trading remains volatile, weakly regulated and
driven by rampant speculation.
Again, it comes down to the cozy
relationship between government and industry. About 95% of the stocks on the
Shanghai bourse are state enterprises, and last year no private companies
were permitted to list there. But 14 state enterprises did. By floating 10%
to 30% of their shares, state companies can ease their dependence on bank
loans without ceding any real control, while insiders make windfalls on the
Beijing is in charge of the Chinese drive to become a
power in science and technology. China boasts superbly equipped labs in life
sciences, nanotechnology, optics and more, churns out more than 60,000
master's and doctoral degrees in science and technology each year, and has
made big strides in military technology and manned spaceflight. Chinese
scientists publish an impressive number of papers but most of the work is
The country has come a long
way in just three decades. Its growth record is unparalleled in history, and
it took the U.S. and Europe centuries before they developed modern financial
systems and methods for ensuring food safety, providing pensions and
protecting the environment. But to build the financial, legal and
administrative systems required to become a modern industrial society, China
must get the party out of business.
China and Japan
By Rowan Callick
The American, July/August 2007
Edited by Andy Ross
Japan is still in second place among the world's economic powers. An
export-led upturn in 2002 has segued into a broad-based economic expansion
driven by surging domestic demand, with GDP growth comfortably above U.S.
Economic reform has already taken on a life of its own, with
Japanese firms reviewing their jobs-for-life employment structure, cutting
costs, and repaying trillions of yen of debt. Business confidence is back,
and Japanese firms have begun shifting up the value chain.
Foreign managers are increasingly common in
Japan. The inefficient service sectors are slowly opening up to competition.
Best-practice international accounting standards have been widely adopted.
Japan's largest multinational companies are not the rare islands of success
they once were. Now other firms in the broader domestic economy are
competing and operating productively.
Japan's recent economic reforms
have been triggered by the prospect of international competition and
concomitant worry about national survival. But in this case the competition
came not from the West, but from one of Japan's closest neighbors and oldest
In the 1990s, China emerged as a top contender not only for
economic power but also for diplomatic and strategic influence. In 1998,
when President Clinton visited China, he described Communist Party leader
and President Jiang Zemin as "a man of extraordinary intellect," praised
"the intelligence, the ingenuity, the enterprise of the Chinese people," and
predicted for the Middle Kingdom a future with "even greater promise" than
its "glorious past."
Watching Japan's chief ally join the growing
line of suitors in Beijing was a shock for Tokyo leaders. For the first time
since the Japanese defeat of the Mongols eight centuries ago, Japanese
realists had to admit that the country faced genuine competition within
Japan had lapsed into stagnation, failing to attract foreign
investors and maintaining myriad obstacles to businesses that wanted in.
Japan continues to lag behind China in attracting outside investment,
largely because it simply doesn't need the capital, but also because China
has chosen to make attracting foreign investment a key growth strategy.
China still has a long way to go. In 2006, China's GDP was $2.5
trillion, just over half of Japan's $4.9 trillion. More important, since
Japan's population of 127 million is roughly one-tenth that of China's, the
income of the average Japanese, at $35,000, was 18 times that of the average
Chinese. China holds much-vaunted international reserves valued at $1.2
trillion, but Japan's reserves are $890 billion, far from insignificant.
But leaders of both countries recognize that they need each other too
much to let nationalist sentiment get out of hand. China's assembly
factories provide crucial profits for Japan's major corporations, and
Chinese goods are among the products enticing Japanese consumers to start
buying again. In turn, the manufacture of sophisticated Japanese components
is helping drag Chinese industry up the value chain. Each country is the
otherís biggest source of imports. As of spring 2007, China has become
Japan's biggest trading partner.
By spurring needed economic and
political reforms, the Japanese rivalry with China has been a positive
force, but Japanese nationalism has a troubling history. The
unwillingness of Japanese leaders to consign World War II to history
continues to explain why Japan has yet to box its weight diplomatically,
despite its economic might. Japan thinks the United States has moved
too close to China.
There is no doubt that Japan is on
the rise. To what extent will Japan allow its cultural and political rivalry
with China to trump common economic interests?
China and the Environment
Elizabeth C. Economy
Foreign Affairs, September/October 2007
Edited by Andy Ross
China's rapid development has become an environmental disaster. Record
growth requires the gargantuan consumption of resources, but in China energy
use has been especially unclean and inefficient, with dire consequences for
the country's air, land, and water.
The coal that has powered China's
economic growth is also choking its people. Coal provides about 70 percent
of China's energy needs: the country consumed some 2.4 billion tons in 2006
— more than the United States, Japan, and the United Kingdom combined. The
country is home to 16 of the world's 20 most polluted cities. As much as 90
percent of China's sulfur dioxide emissions and 50 percent of its
particulate emissions are the result of coal use.
boom poses a growing challenge to China's air quality. Chinese developers
are laying more than 52,700 miles of new highways throughout the country.
Some 14,000 new cars hit China's roads each day. By 2020, China is expected
to have 130 million cars, and by 2050 it is expected to have even more cars
than the United States.
China's land has also suffered from
unfettered development and environmental neglect. Centuries of
deforestation, along with the overgrazing of grasslands and overcultivation
of cropland, have left much of China's north and northwest seriously
degraded. China's ground water, which provides 70 percent of the country's
total drinking water, is under threat from a variety of sources, such as
polluted surface water, hazardous waste sites, and pesticides and
China is already attracting international attention for
its rapidly growing contribution to climate change. According to a 2007
report from the Netherlands Environmental Assessment Agency, it has already
surpassed the United States as the world's largest contributor of carbon
dioxide to the atmosphere.
China's close economic partners in the
developing world face additional environmental burdens from China's economic
activities. Chinese multinationals, which are exploiting natural resources
in Africa, Latin America, and Southeast Asia in order to fuel China's
continued economic rise, are devastating these regions' habitats in the
In the view of China's leaders, however, damage to the
environment itself is a secondary problem. Of greater concern to them are
its indirect effects: the threat it poses to the continuation of the Chinese
economic miracle and to public health, social stability, and the country's
international reputation. Taken together, these challenges could undermine
the authority of the Communist Party.
China's environmental problems
stem as much from its corrupt and undemocratic political system as from
Beijing's continued focus on economic growth. Local officials and business
leaders routinely ignore environmental laws and regulations, abscond with
environmental protection funds, and silence those who challenge them.
Much of the burden and the opportunity for China to revolutionize the
way it reconciles environmental protection and economic development rests
with the Chinese government itself. To continue on its extraordinary
trajectory, China needs leaders with the vision to introduce a new set of
economic and political initiatives that will transform the way the country
The China Model
By Rowan Callick
The American, November/December 2007
Edited by Andy Ross
The China Model has two components: economic freedom plus political
repression. The Communist Party of China, or CPC, ensures steadily improving
living standards for all, and, in return, the Chinese people let the CPC
rule as an authoritarian regime.
The economic portion of the model
works like this: let in foreign capital, technology, and management skills.
Engage with global markets. Do everything you can to lift living standards.
Give your middle class an ownership stake in the newly emerging economy.
Communism didn't do that.
The regime has succeeded in one of its
prime goals, to generate sufficient surplus value to finance the
modernization of the economy. China holds $1.3 trillion worth of foreign
However, the People's Bank of China remains a tool of
government rather than an autonomous institution, as most Western central
banks now are. A large range of core industries are, by policy, fully or
majority-owned by the government. Nontariff barriers to trade are declining,
but they remain legion, especially in the services sector.
more and more foreigners are successfully doing business in China. This
steady but cautious opening of the economy to foreigners and entrepreneurs
has ensured that as global liquidity has soared, much of it has found its
way to China.
Many of China's global partners require transparent
governance, independent courts, enforceable property rights, and free
information. None of these is present in China today, or will be unless the
party surrenders a degree of political authority it has so far regarded as
No one, however, is anticipating such a shift anytime
soon. In the 1990s, a presumption grew that the crowds of well-connected
young Chinese returning with their Ivy League MBAs would not acquiesce to
the continued unaccountable rule of the cadres. But many of them instead
joined the party with alacrity.
Indeed, the big attractions of China
to capital from overseas has been that the political setting is stable, that
there will be no populist campaign to nationalize foreign assets, that the
labor force is both flexible and disciplined, and that policy changes are
rational and are signaled well ahead.
The CPC is replacing old-style
communist values with nationalism and a form of Confucianism, in a manner
that echoes the Asian values espoused by the leaders who brought Southeast
Asian countries through their rapid modernization process in Singapore,
Malaysia, Thailand, and elsewhere. But in its public rhetoric, the party is
stressing continuity and is assiduously ensuring that its own version of
history remains correct.
It is true that the Chinese people are free
to consume whatever they can afford. They have also gained the freedom to
travel where they want, at home and abroad. They can now work for whom they
want, where they want. They can buy their own home, and live where they
choose. A Chinese woman can marry the man she loves. The Chinese can study
at any institution that will have them.
But Chinese citizens can't
form a political party, or any other organized group, without official
permission. They can't choose their leaders. Even the ordinary CPC members
have no say in their hierarchy. Phone calls, text messages, and emails are
likely to be screened, and many Internet sites are blocked or filtered.
Bloggers must give their real names and identity card numbers to their
Internet service providers. All books published in China must bear a license
code from a state-owned publishing house. All films must be vetted by the
State Administration for Radio, Film, and Television.
do not expect to obtain justice from the courts, which are run by the party,
the judges answerable to the local top cadres. Ordinary people have grown
accustomed to widespread corruption. They are meant to report to the
neighborhood police whenever someone new comes to stay with them. A file is
kept on Chinese citizens, which follows their work and home moves, but they
cannot see it. There are only two legal churches that the Chinese can join,
the Catholic and the Protestant organizations
In the 1980s, wishful
thinking on the part of some Western observers, combined with a form of
historical determinism that was, in its way, a tribute to the thinking of
Hegel and Marx, had China inevitably becoming more free and democratic as it
became more of a market economy.
Now, such views have faded. Premier
Wen Jiabao said during the last annual session of China's version of a
parliament, the National Peopleís Congress, that the country would remain at
the present "primary stage of socialism," during which it would require
continued guidance by the party, for at least another 100 years.
story of cultural heroism has acquired a glossy appeal because of the
success of China's modernization drive. The nationís gross domestic product
has grown at an average annual rate of more than 10 percent since 1990.
Developing nations believe that, as an ideal, the China Model has replaced
the American Model.
This is no longer the communist program that Mao
Zedong tried to export with little success. It is the program that gives
business room to grow and make profits, while ensuring it walks hand in hand
with big, implacable government.
Like most other East Asian states,
China's route to development placed economic reforms before democratization.
But the China Model differs markedly from most of the region in that it has
resisted taking any serious steps down that road to democracy. There were
also some token village elections, but they have remained dominated by the
CPC and its cadres.
China offers a seductive model that is being
eagerly taken up by the leaders of countries that have not yet settled into
democratic structures. The China Model is also fascinating to Russia. In the
early 1980s, there was some vestigial discussion about separating party and
state, but the idea was abandoned as both impractical and undesirable. The
party rules today through four pillars ó the army, the legal apparatus
including the courts and police, the administration, and the state
corporations that dominate the strategic sectors of the economy.
is almost certain that China will push on with its present structure, but
with the prospect of broadening democratic competitiveness for posts within
the party, and institutionalizing consultations with more diverse groups in
Chinese society. The China Daily recently hosted on its website a reader
discussion on the theme: "China is a role model to all developing nations.
After centuries of oppression and domination by Western nations, most
developing nations are trying to pull themselves up from poverty. They look
at Chinaís rapid progress as an example. China also gives aid and technical
help to these nations."
The United States, Japan, and other countries
have been urging China to become more transparent about the rapid
development of its military capacity. But China's capacity to project
adventurist military power far beyond its borders is limited today both by
its resources and by its reluctance to leave its heartland short of the
muscle the party may need to quell domestic disturbances.