China needs political reforms for future growth

September 7, 2010

Thirty years ago, a small fishing village called Shenzhen led China’s economic miracle. Now, it has a more challenging mission. President Hu Jintao said Shenzhen should test political reforms. Although changes may be disruptive in the short run, more checks and balances and rule of law are key for sustainable growth.

China’s authoritarian system has shown its merit during the global financial crisis. When Western banks stopped lending, China’s state-owned banks kept pumping credit into the system. The centrally planned economy was also good at funnelling cheap capital and resources to industries. That has helped China to continue its transition from a poor rural economy into a global manufacturing powerhouse.

Yet the shortcomings of the system have also become more evident. A centralised government overwhelms the power of the market. New policies aimed at rebalancing this face resistance from various interest groups. One of China’s biggest challenges is to get its people to spend. But as long as the state controls the bulk of the wealth and power, ordinary people can’t afford to consume more.

More balanced growth requires political reforms. Beijing needs to let the market play a bigger role in setting input prices, if it is serious about promoting energy efficiency and technological advances. Citizens need to have more voting power in order to create checks and balances in the system. Rule of law is needed for economic and political stability.

Those changes may be painful in the short term. Market-based input prices will make Chinese goods more expensive. Local government and powerful interest groups will resist changes. Democracy can’t be learned in a day.

Yet China can’t afford not to change. To reduce wasteful investment, China needs to reduce the concentration of resources at the state level and give people more wealth. As ordinary Chinese get richer, they will demand more political rights.

Thirty years of economic success has made the Communist Party popular and powerful. China’s future hinges on whether some of that power and wealth is shared more evenly with its people.

Comments

Does anybody really think the Communist Party will just give away money and power???

Let’s be honest here, people in power never want to let go of that power. That is one of the inherent weaknesses in mankind.

That is why it is imperative that those in power are held accountable for their actions…..to keep them honest. (this is what is missing in China).

Nobody in China can hold the government accountable for their actions. The Communist Party holds all the power! The Communist Party controls the military! The Communist Party controls the media! The Communist Party controls 70% of all the business activity! The Communist Party controls the courts! The Communist Party owns all of the land!

When all the power is in the hands of the communist party, how can anybody promote change? Sadly, all of this power is in the hands of 9 people (the politburo).

It’s dangerous when all of the power rests in the hands of a few individuals. POWER CORRUPTS!!! And there aren’t many places on earth more corrupt than China! Don’t believe me? Live there for more than 1 year and you’ll begin to see more than what they want you to see.

China will change, eventually. But it won’t be a pretty change. The Communists are going to fight to maintain power and control….but history has shown us 100% of the time that dictatorships ALWAYS fail!!!

Posted by China_Lies | Report as abusive
 

Without such centralised power, China had no ability to handle 2003 SARS outbreak, by disallowing people to fly out of country, and even within country from North to South. Further, centralised power means more collective bargaining power in dealing with foreign biz giants in acquiring Beoing jets, Olympic broadcasting rights etc. Copying Western democracy, free market competition will put China into disorderly chaos, at least in short run.

Posted by leungsite | Report as abusive
 

When you are “popular and powerful”, you just keep on going at it.

I don’t understand how Western analysts keep thinking that China’s every sign and evidence of outstanding success is THE reason it needs to change itself.

Please take your head out of the sand if you want to call yourself an observer.

Posted by Neander | Report as abusive
 

China looks at Russia and finds what will happen if the state relinquishes more power to its people and takes advices from the West. Why would some interest groups in China want to share the power and wealth with every citizen? If capitals are mis-allocated because of the central planning economic system, so what? In the U.S. there were hundreds of automotive companies in 1920′s, were capitals wasted? Back in early 20th century the Chinese got lost after they got rid of the emperor. I am sure they will be lost again if the Communist party left the power. A joke in Russia goes like that: It would take only one week for Stalin to solve all the current Russian problems if he had come back. I am sure an average Chinese is very much aware of the Russian experience.

Posted by jlpeng | Report as abusive
 

Democracy US style for China? If only others could see/hear the political discourse going on in the US right now. It has turned out to be nothing but “money rules”.

A US Senate campaign costs $10 mln every four years. That translates to a Senator spending @ 4hrs daily on fundraising.

Just concluded healthcare and financial sector reforms brought out a swarm of lobbyists, a daily five lobbyists per legislator, spending an average of $5 mln daily – for a total of well over $1bln – in trying to get legislations swinging their way.

Glass Steagall act of 1933 regulating banks totaled 17 pages, against the recent financial legislation totaling over 2,000 pages (the repeal of Glass Steagall & dereggulation in the last 2 decades is held responsible for ushering in casino capitalism).

Why? Because those taking money from lobbyists have written into the document all sorts of exemptions as to make the law relatively meaningless.

Right now, people are raging about a proposed Islamic center to be built near the 9/11 ground zero. Since some 3,000 Americans died on that day, the place is said to be “hallowed ground”.

How about the hundreds of thousands muslims killed in US supported/started wars for the last few decades, from Palestine to Afghanistan? The Iraqis who perished under the indecently named “Shock & Awe”, when nightly some $40 mln worth of missiles rained down on them.

All those cited are human beings, equally capable of bleeding, grieving & suffering.

Healthcare reform – the US as the only industrialized country without medical coverage for all its citizens, leaving 47 millions unprotected.

When Obama pushed through the reform, Republicans/Tea partiers railed against the establishment of “death panel”, “pulling the plug on grandma”, and “Obama is Hitler” in the healthcare bill.

Most importantly, if China were to adopt the same system nowadays, it will face a glut of outside machiavellian machinations (e.g. Tibet/Dalai Lama & I suspect the 1984 Tiananmen Square Massacre episode) over a relatively poor & unsophisticated 1.3 billions, one fifth of the world’s population. Sheer chaos and backwardness. It won’t work.

As it is, many now have a fierce dislike of “communist/atheistic/Red China”.

I say let China imprison the political activists who lead to mass unrest. More power to them. Go for development giving the people a better, more comfortable life. Some 800 millions to go?

Under these circumstances, “democracy” is a poor joke when one is starving.

Posted by cna | Report as abusive
 

money… money… power… power … im sick of this come-on china / india and other asian countries (communist and fake democracy) grow up … let others live quality life

Posted by rajeevtco | Report as abusive
 

This article is a mishmash of nonsensical contradictions. You cannot take outsatnding success as your main argument why changes should take place. The popular and powerful will just keep on doing what has given them fortune. Indeed democracy was not learn in a day, nor in ant given amount of time when there is no reason to learn it.

Get a hold of reality!

Posted by Neander | Report as abusive
 

“Citizens need to have more voting power in order to create checks and balances in the system. Rule of law is needed for economic and political stability.”

I think it’s time someone put paid to the inherent stupidity and falseness of comments such as the above.

So, are we to believe that it was due to the ‘rule of law’ that the US formed secret prisons all over the world where they tortured people to death?

Or maybe it’s because US citizens don’ have ‘enough voting power’ to create the necessary ‘checks and balances’ in the system.

I guess it’s because of all the checks and balances in the system that prevented George Bush from waging and unjustified war based on fabricated evidence. And thank goodness all those checks and balances and the US rule of law prevented perhaps a million Iraqis from being killed for no reason.

And I guess that’s the reason the US managed to avoid causing yet another worldwide financial crisis. Those good old checks and balances again.

Statements like those in the article are just blnd jingoism, urban legends that have achieved political correctness and nobody bothers to question. But they’re nonsense fiction and we should finally face that fact.

To equate energy efficiency and technological achievement with a form of government, is foolish at best.

Posted by WatchingChina | Report as abusive
 

China is working because to become part of Governement you actually have to sit exams to be part of a department. The west you just have to have enough money to be voted in

Posted by diddums | Report as abusive
 

“China’s future hinges on whether some of that power and wealth is shared more evenly with its people”

Good luck with that!
or
When pigs fly!

Posted by Happy_McSlappy | Report as abusive
 

China will never change unless there is a reason that compels it to do so. The argument that China must change because they are economically successful simply does not make much sense. If being authoritarian is working for them, then they have no reason to change.

Posted by johnintj | Report as abusive
 

The claim that political plurality and liberal democracy are prerequisites to growth is one that has been made for some time now, and frankly, China isn’t reflecting that in its behavior.

Quite the opposite: watching China, many Americans are grasping that our own system of gerrymandered elections, partisan gridlock, and a complete disdain for national priorities if there are votes to be won with populist rabblerousing is a system that looks a lot less effective in practice than Beijing just deciding to take bold action and moving forward.

Reuters can talk up the merits of sharing power and wealth, but America is actually moving in the opposite direction, reducing its middle class to near-serfdom while cheering the “vision” of do-nothing executives whose “experience” consists of deciding to fire thousands of people and pay themselves large bonuses while shareholder value plummets (i.e. Carly Fiorina, not coincidentally now running for the U.S. Senate in California).

Everyone says they like freedom and democracy. But few people vote, and the Christian fundamentalism we see sweeping across the nation would like to make us a lot less free as it is. If we’re going to be authoritarian, we could at least be effective.

China’s got one up on the West.

Posted by JamieSamans | Report as abusive
 

good points made by JamieSamans and watchingchina. A Chinese professional I know recently told me that they were moving towards the American model (the 1950 – 1990 era), and we (USA) were moving towards what they experienced under Mao…. Go figure.

Posted by edgyinchina | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/