In China, the pendulum swings the party's way
MONDAY, SEPTEMBER 25, 2006
It is almost 15 years since Deng Xiaoping, with his Southern Tour, restarted the economic liberalization that had been stalled by the Tiananmen protests. But amazing economic progress has, unsurprisingly, not been matched by institutional change.
The notion of property rights is still uncertain. Party, state and commercial functions are still interwoven. The legal system has only partly been detached from the political structure.
Under these circumstances, it may be true that assertion of the authoritarian tendencies at the heart of all Communist parties and all Chinese bureaucracies is necessary to address the most serious problems now confronting China - because the problems, taken one by one, can be seen as mirror images of China's successes.
The devastation already caused by pollution, let alone that still to come, is partly the result of the very growth that was seen as an end in itself as well as a means of diverting popular aspirations from political to economic goals. Many of the worst aspects of pollution, however, stem not from growth per se but from the greed of local officials, whether profiting from polluting factories or claiming credit for creating industries regardless of collateral damage.
There has been a high environmental price for decentralization and for the ability of those with political power to use it to enrich themselves. Given the weakness of both the legal structure and the market to address these issues, a reassertion of central authoritarianism will be needed - in the same way as the centralizing Tokugawa era saved Japan from environmental disaster by imposing massive wood-use controls and a reforestation drive that survives to this day.
One can already see signs that Beijing views tough central action as a reaffirmation of the party's national leadership role. The environment may yet overtake Taiwan as a focus of national aspirations.
What applies to pollution also applies to water resources, which are being depleted at an alarming rate, particularly in northern China. Realistic water pricing could address this, but even an authoritarian party would balk at driving tens of millions of farmers out of business and into the cities. Instead it will use central authority to build huge, economically inefficient and environmentally dubious schemes to divert water to the north. More logically, it may also use its power to focus urbanization on central and southern regions where water if more plentiful. Either way, the water crisis will enhance central power - or undermine the whole economy.
Another major problem is income distribution. There are limits in almost every society to how far this can go without creating political unrest.
In China, the natural tendency of any developing economy to increased income gaps is made more sensitive by the extent of official corruption stemming from partial reform of enterprise ownership. But the party's response will probably be to slow rather than speed up market-based reform.
There are many grounds for income redistribution through the tax system - for state enterprises to pay more dividends and the rich regions more taxes to fund central payments to improve the abysmal standards of health, education and social welfare in poor regions and rural areas generally. At the least, the center and the party have to be seen to be doing more to redress the imbalances.
It is very likely that more than a decade of rapid growth based heavily on exports and foreign investment will soon come to an end. Years of growing U.S. trade deficits and easy money internationally are set to be reversed before long. Meanwhile, China will meet resistance to aggressive exporting. Given the control that the state has over the major state enterprises and almost all the banking system, a shift away from external-led growth will place more pressure on the government to generate growth. This will probably take the form of more spending on social goals and infrastructure in the center and west and less investment in goods-producing industries. It will be accompanied by tighter central bank control of credit.
In short, the pendulum is starting to swing back after years of exhilarating economic and social liberalization whose fervor owed much to reaction against the memory of the Cultural Revolution. This swing will be far less severe but it will not be comfortable, particularly for those who had come to assume that the energy-releasing reforms of the past 15 years would continue for the next decade or more.