Five myths about China's power: Live discussion

Jan 31, 2012

As China gains on the world's most advanced economies, the country excites fascination as well as fear - particularly in the United States, where many worry that China will supplant America as the 21st century's superpower. Many ask how China has grown so much so fast, whether the Communist Party can stay in power and what Beijing's expanding global influence means for the rest of us. But to understand China's new role on the world stage, it helps to rethink several misconceptions that dominate Western thinking.

Live chat with Minxin Pei as he separates the facts from fiction when it come to China's power.

Submit your questions, comments and opinions now.

Read: Five myths about China's power

"China's economic development is being paid for by the health and safety of its people." Isn't there coming a point where the population will demand less pollution, fewer projects like Three Gorges, and more safety in occupations like coal mining?

China has achieved very rapid economic growth, but at a huge social cost -- mainly in terms of the quality of life, such as environmental pollution and inadequate social services.  The point at which people will no longer tolerate the status quo may have arrived already.  We have seen more protests against proposed industrial projects that will threaten residents' health and quality of life.  Complaints about poor social services having been rising and appear to have some impact on the Chinese government, which is trying to build a basic social safety net.

I am looking for accurate figures and insights on China's economy. Where would I go for accurate data on China's banks, its steel production, the structure of its financial system? What are reliable sources? -JK

Reliable data on the Chinese economy are notoriously hard to get.  Growth and inflation numbers published by official sources in China are not very reliable.  I would suggest you check out data used by the World Bank, the International Monetary Fund, the U.S. Government, and various Western investment banks (which employ a large number of well-trained economists).  Trade data are very reliable.  Transportation and energy consumption data are also more reliable than growth and inflation numbers.  Another problem with data in China is that they use different defitions.  The least reliable data are those produced by local governments.

Could the following explain why there seems to be a slowdown in growth not only in China, but also in the world?: - Industries and trades are at their best before many people recognize how profitable they are. As soon as that happens, they decline, for strong competition makes them less profitable. Thus, in all matters, it is wise to get up very early. Francesco Guicciardini (Italian historian, 1483-1540)

You are absolutely right about how competition depresses profitability -- that is the essence of capitalism and the survival of the economically fittest.  But that may not be the reason for the slowing down of growth in China.  If you read financial reports released by companies, there are two lines -- top line and bottom line.  The top line is revenue, which is similar to GDP growth; the bottom line is net profit, which is similar to personal income (different from GDP).  China has been experiencing high growth of GDP but slower growth of personal income, indicating low efficiency.  The trouble for China in the future is that changes in some structural conditions will likely bring down the topline as well.  Here we are talking about lower aggregate demand due to the slower growth of exports (China is already the world's largest exporter, so it is hard to see its export growth continue at robust rate), population ageing (lower growth in labor force), and many other factors.

China has billions of peoples and uses most of its peoples talent. The US is dwarfed by comparison, and some sectors within the US seem proud to do just the opposite with regard to Human Capital development. It seems a bit idiotic for persons in the US to think that the US can come back with a plan that stifles talent and destroys liberty rather than develops talent. Perhaps, this explains why the US is continuing to decline relative to China who will soon surpass it.

China certainly has a lot of people, and many of them are very talented.  But on average, an American has more human capital than a Chinese, due to more investment in human capital in the U.S.  For example, here education K-12 is free; in China, the government provides free education only up to the equivalent of the 9th grade.  More people in the U.S. have college degrees than in China.  The quality of higher education in the U.S. is much higher than that in China.  Where China does better than the U.S. is in primary and secondary education in urban areas.  High-school students in China perform well on math and science tests than their U.S. counterparts.  

Where China is unlikely to catch up with the U.S. is in higher education.  The U.S. has a huge lead.  Although China is trying to copy the U.S. model, it has not been very successful, due to political control, bureaucracy (nearly all colleges and universities are run by the government and controlled by the Communist Party), and poorly qualified faculty.

So I don't think the U.S. is experiencing relative decline in the area of higher education.  One indication of this is that more and more Chinese students are coming to the U.S. to received college and graduate education.

 

In your opinion, what do you think is the biggest myth about China?

The biggest myth about China is that the country has learned to do capitalism better than the West.  You hear this from Western business people all the time.  The reality is that China has learned to do "raw capitalism" or "crony capitalism" much faster than people can imagine.  But I don't think people in the West could tolerate that kind of capitalism.

Is China a "Godless" country? Is there freedom of religion, and if so, which religion is predominatant? Also, if it is not a religious nation, isn't there much to fear, for what moral/ethical philosophy do they adhere to in conducting business in the global economy? What shapes their actions?

The ruling Chinese Communist is certainly Godless in the sense that it does not believe in any religion and actually has a record of persecuting religious believers.  But the same party also allows religions to be practiced -- under state control and sponsorship.  So today all religious groups must, officially, register with the state and they operate with the permission of the state.  Religious groups that practice without explicit state sponsorship or permission run the risk of being shut down.  The practitioners can be imprisoned; many have.   The largest denomination seems to be Buddhism.  Christianity is becoming very popular.  Perhaps China now has tens of millions of Christians (both Catholics and Protestants).  There are no reliable figures on the number of religious practitioners mainly because a very large number of them simply do not want to belong to groups that are sponsored or controlled by a government not friendly to religion.

What can most of the rapid economic growth in China be attributed to? How can we bring some of that back to the U.S.?

Most of the growth of China can be attributed to four factors:  investment (China invests more than 40 percent of its GDP, double that of the U.S.); growth of the labor force (China has many young people entering the labor force; many more than the U.S.); growth in foreign trade (for a poor country with low internal demand, exports provide a huge boost to growth); and urbanization (which demands infrastructure, housing, seervices, etc).  Of course, technological advances contribute to growth as well.  For the U.S., raising investment rates, mainly in infrastracture, will help.  China invests nearly 10 percent of its GDP in infrastructure each year,  The U.S. invests less than 1 percent.  That is why airports, ports, roads, bridges in China are much better than many in the U.S.  The U.S. should also invest more in primary and secondary education to raise the level of human capital for average Americans (the U.S. does well at the higher end, but not so well at the lower-end of the labor force).  But by and large, most of the factors for rapid growth in China are unique to the country and probably not very relevant to the U.S.

Reading the news this morning, how come such a strong country is afraid of a little poetry? Doesn't China know that while the weak can't handle criticism, the strong embrace it? They're cowards and the rest of the world knows it.

I am myself often puzzled by the display of extreme political insecurity by the Chinese government.  But one-party regimes lack legitimacy and self-confidence.  They always react excessively to perceived threat to their power.  That is why there are so many instances of human rights abuses and needless censorship in such regimes, China included.

Of course, China pays a huge price for this.  As long as its government behaves in this manner, it will not gain real international respect.

China's leaders are able to target resources and investment in a way that America cannot. Clean energy, rare earths mining are a couple that spring to mind immediately. Will the US be able to compete successfully against such coordinated effort and cooperation between government and industry?

It is true that the Chinese government can use public funds to target what it considers strategic sectors in a way that the U.S. cannot match.  There are several issues here.  First, we need to look at the record of such a strategy.  Government-designed industrial policy, the practice you are referring to, is quite common, but its record is spotty.  Some projects succeed, many fail.  In the Chinese case, more projects fail than succeed.  For example, its ambitious plan to produce advanced semiconductors has not panned out, even after tens of billions of dollars in government spending.

For the U.S., the real question is whether certain projects, such as clean energy, have intrinsic social value and national security benefits.  In China, such decisions are made without public debate; in the U.S., they must be debated.  This is certainly time-consuming.  But I am not saying that the U.S. has not been successful in its industrial policy.  Some of the most successful American technologies and companies (civil aviation, biotech, and the Internet) owe their existence to Washington, specifically to the Pentagon.

What the U.S. needs to do is something more fundamental -- increase government revenues so that the existing projects can be adequately funded.  It does not need to copy China at all.  

It's impossible to know the future, obviously, but do you imagine that China will open up politically and become a more democratic country over the next few years? And if so, do you think it will happen in a controlled way, or is there potential for serious unrest?

You are right. Nobody can foresee the future.  But this much we know.  No autocracy has survived beyond 74 years (the former USSR).  The Chinese Communist Party's rule is now 62 years old.  So we may not see China become democratic in the next few years, but it is hard to imagine that this type of political system can last in China beyond 2030.  Whether the transition is peaceful or not depends on whether the ruling elites want to initiate the change before they face a crisis or not.  If they try to change when they are weak, the potential for unrest will be higher, and the process of transition will be more unstable and violent.

In This Chat
Minxin Pei
Minxin Pei is the Tom and Margot Pritzker '72 Professor of Government and the director of the Keck Center for International and Strategic Studies at Claremont McKenna College. Prior to joining CMC in July 2009, Pei was a senior associate and the director of the China Program at the Carnegie Endowment for International Peace in Washington.
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