[East Asia Forum] Is China choking on success?

March 5th, 2013

Author: Robert A. Manning, Atlantic Council


A popular app on smartphones in Beijing is the US Embassy’s Air Quality Index measurement.

No wonder: until last year, China’s ruling elite refused to make public its air-quality levels or even admit a problem. Levels of the nasty particulate PM2.5 are some 40 times higher than the 25 micrograms per cubic meter deemed an acceptable level by the World Health Organization.

The entire city of Beijing is choking on its success, subjected to air quality that’s the rough equivalent of smoking two packs a day.

The putrid, poisonous air is an apt metaphor for the current Chinese predicament and challenges facing China’s new leaders: the state-centric economic model is unsustainable, exceeding the limits of utility. China’s citizens are paying a steep environmental price for breakneck development over the past 34 years — and increasingly question the legitimacy of a political elite and policies lacking in transparency and accountability.

Beijing is not alone. Consider that China features seven of the world’s 10 most polluted cities, and then consider a new wave of urbanisation over the coming generation projected to add 350 million more to the country’s urban population. By 2025 there will be 221 Chinese cities with a million or more people living in them. By comparison, Europe has 35 cities with one million or more.

China’s rapid urbanisation contributes to continuing growth in energy demand, which helps explain why despite large-scale investments in nuclear power, wind and solar, 70 per cent of China’s energy still comes from coal, a percentage that’s remained steady over the past two decades.

The smog encapsulates many core problems that must be overcome to keep China on a growth trajectory to meet the needs of its citizens, particularly a growing middle class. In a rare bit of candour, Wang Yuesi, an atmospheric physicist and member of a government working group on haze reduction, told the Financial Times that coal burning and car emissions interacting with a particular weather pattern were the immediate cause of the problem. Remarkably, Wang added, ‘Only if reform of the political system is put on the agenda will the economic system and the [environmental] management system be able to catch up’.

Xi Jinping and his colleagues, taking the reins of state power in March, are all too aware of the depth of problems facing China, of which the smog is so emblematic. China’s state-centred, investment-driven export growth model is clearly one of diminishing returns.

This was the premise of China 2030, a report last year co-sponsored by the World Bank and the Chinese Development Research Center, a leading policy body under China’s State Council. China 2030 outlines the sweeping reforms necessary if Beijing is to realise its goal of becoming ‘a modern, harmonious, creative, and high-income society’.

As the report states: ‘Realizing China’s vision for 2030 will demand a new development strategy’ — one that requires strengthening the rule of law, with a greater role for private markets and ‘increased competition in the economy’. Importantly, the strategy argues that ‘reforms of state enterprises and banks would help align their corporate governance arrangements with the requirements of a modern market economy and permit competition with the private sector on a level playing field’.

The strategy also argues for a new strategic direction of ‘green growth’, viewing environmental protection and climate change mitigation not as burdens, but as growth opportunities. Beyond the toll on public health, it’s estimated that environmental damage accounts for roughly 5 per cent of annual GDP loss.

Although incoming president Xi and many in the standing politburo are viewed as likely reformers, thus far there are few signs of a sea change in China’s approach to development. The Chinese political elite are part of a wide network encompassing those who lead state banks and state-owned enterprises. Thus, it’s no surprise that China’s major state-owned oil companies have lobbied against enforcing higher fuel-efficiency standards, even as the number of autos in Beijing has jumped from three million in 2008 to more than five million in 2012.

This is the dilemma for China’s leaders, who know they must pursue far-reaching reforms that will have no small impact on the endemic corruption and the perquisites that come with Communist Party membership and government jobs, which benefit much of China’s upper echelon. But leaders appear somewhat perplexed as to how to implement specific new policies, navigating between competing interest groups. Instead, recent efforts to keep economic growth in the 7–8 per cent range have involved more stimulus spending, with state banks funnelling renminbi to Chinese state-owned industry.

Over time, such behaviour will only make growth and reform that much more difficult. These internal dilemmas may help explain Beijing’s assertive, nationalist actions over disputed islets in the East China Sea with Japan and the South China Sea with the Philippines, Vietnam and Malaysia. The maritime disputes may be a popular short-term distraction, but they won’t alleviate pressures for change.

However, at the end of the day, the legitimacy of China’s ruling Communist Party has been based on performance. And more than three decades of double-digit economic growth have been part of a successful social contract. But the price of breakneck growth has been enormous environmental damage, growing inequality and a development model that has run its course. In the face of more than 500 million internet users and increasing access to smartphones, ubiquitous social media sites and blogs, Beijing confronts a credibility and accountability crisis on a near daily basis.

One suspects that Beijing will gradually take on reform in a piecemeal approach. Former Chinese leader Deng Xiaoping, now deceased, described his approach to reform as, ‘crossing the river by feeling for stones’. That pragmatic approach is likely to be followed by his successors, but whether they can do so and keep China’s economic wheels turning sufficiently, let alone without making it still more difficult to breathe, is another question.

Robert A. Manning is a senior fellow at the Brent Scowcroft Center on International Security and the Strategic Foresight Initiative, the Atlantic Council.

This article was originally published here by YaleGobal. 



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