China’s coming challenges

BEIJING

“We are all struck by the contrast between Beijing and Washington,” said George Yeo, the former foreign minister of Singapore. He was referring to the quality of governance in the two capitals — in particular, the sense pervasive in Asia that the United States has lost its ability to execute public policy with competence (see Iraq, Obamacare). Beijing, on the other hand, has been carefully and systematically planning a series of reforms that probably will make China the world’s largest economy within a decade.

The contrast is particularly striking because China faces huge challenges and will need to make major economic, political and social reforms as it navigates through the “middle-income trap” that has affected many once-fast-growing developing countries. The United States, on the other hand, remains the world’s most innovative economy with a dynamic and growing society. It simply needs some common-sense policies on a range of issues, such as infrastructure, entitlements and immigration. And yet it’s hard to foresee progress on any of these fronts in the next few years in Washington.

Yeo and I were among a group of visitors invited to China by the Berggruen Institute, a global think tank, for meetings with the country’s top leaders, including President Xi Jinping. They were more confident and relaxed than at any point in the more than 20 years that I have been visiting China. In the past, they talked about China’s weaknesses and problems, and always about how their nation was far behind the United States. I heard little of that on this visit. But the country continues to search for ideas and best practices from everywhere. “One of the reasons China has succeeded so far,” Xi told us, “is that we have been willing to learn from others, even small countries like Singapore.”

The task today is huge but no greater than in the past. China’s original market-oriented reforms were announced by its leader, Deng Xiaoping, in 1978. (Imagine creating a market economy from nothing and finding managers for it when the entire national university system had been shut down for a decade!) The second burst of reforms, globalizing one of the world’s most isolated economies, was announced in 1993 by President Jiang Zemin . The Communist Party plenum starting this weekend will mark the third major push for reform in modern Chinese history.

In recent years, Beijing has dithered. It has known what to do but has chosen to put off things that would be politically difficult. Instead it has used cheap credit as a stimulusto boost the economy every time growth faltered. But senior officials have acknowledged this and seem determined to make good on their promises this time. “If we loosen credit, if we expand the fiscal deficit, that would be like an old saying where one carries firewood to extinguish a fire,” Premier Li Keqiang said to the group.

China’s leaders have promised “unprecedented” market-oriented reforms that are “comprehensive,” “economic, social and political.” We will have to wait and watch to see what that means but, for sure, it means no moves toward democracy. It will likely involve administrative changes that make China’s bureaucracy more efficient, effective and honest. Local courts, for example, long dominated by corrupt local politicians, are likely to be streamlined, perhaps with the creation of an American-style federal circuit.

In fact, so far, the country has actually moved in the opposite direction politically, clamping down on the Internet as part of a Maoist campaign against dissent. One participant described this as a strategy that “moves left politically so that you can move right economically.” He said it mirrored Deng’s approach, which is summarized in a joke that he once instructed his driver to turn on the left signal while turning the car to the right.

Many in my group of visitors to China were confident the country would manage this process successfully. “The Chinese ruling elite is fully aware of the rising political and social tensions in the country,” said Yeo, “and they respond to them and allow a good bit of openness in the society and on the Internet. But they will keep intervening to stop these tensions from getting out of hand. They are engineers, and in any system, you need some friction to slow things down. Too much friction will stop the machine, but too little will cause systemic instability.”

It’s a powerful metaphor. But one wonders whether a political system can be run like a machine, full of mechanical parts. A nation, after all, is full of people, who are sometimes animated by passions, expectations, fears and anger. Managing those might prove a tough challenge for even the finest engineers.