China and America’s related, but inverse, dilemmas

July 3, 2013

As protests sweep the developing world and Europe struggles through an austerity hangover, China and the U.S., relative to their peers, look like the best in class. They are both comfortable with their modest growth rates (compared to their norms of the past decade), and insulated from the kind of social unrest we are seeing in Egypt, Turkey or Brazil. But both countries have a deeper intractable challenge that will, in the longer-term, get worse. What’s interesting is that they’re the inverse of each other: in the U.S., wealth and private sector interests capture the political system. In China, politicians capture the private sector and the wealth that comes with it.

The U.S.’s struggles with lobbying, pork-barrel spending, and the corporate sector’s general overlord status in Washington are well documented. Campaign finance reform is long past. Corporate personhood is well-entrenched. Super PACs are ascendant. A representative democracy is being crowded out by a capitalist one.

The cycle is hard to break. Politicians’ interests become aligned with those of the corporations that help them get elected. But even more troubling is that so many American politicians are gearing up to join the lobbying machine after they retire from government. In 1974, 3 percent of retiring members of Congress became lobbyists. Today, the figure stands at half of senators, and 42 percent of the House.

China has a related but different problem: its politicians control too much of the money themselves. Politicians and elites in China enrich themselves, their friends, and their families by managing and siphoning China Inc. — China’s state capitalist enterprise. Chinese industry is controlled by the state, and thus it’s the property of the people who run the state. Last year, state-owned enterprises and affiliated businesses accounted for over half of Chinese economic output and employment. There were 70 mainland Chinese companies on the 2012 Fortune Global 500 list; 65 of those were state-owned.

As an example, look no lower than China’s People’s Congress. The United States’ House of Representatives and Senate has no billionaires. China’s parliament has 83. According to Bloomberg, “The richest 70 members of China’s legislature added more to their wealth last year than the combined net worth of all 535 members of the U.S. Congress, the president and his Cabinet, and the nine Supreme Court justices.” If you’re part of the state, state capitalism is the best — even if the system is centralized, corrupt and calcified.

That is where China’s trouble is: its inability to create a robust industrial sector that can spread the wealth. It’s leading to severe income inequality. Reliable financial metrics can be hard to come by in China, but a survey by a Chinese university suggests the wealth gap is now well above the world’s average and “10 percent of Chinese households held up to 57 percent of all disposable income.”

Income inequality is of course a problem in the U.S. as well. Just this week, the New York Times reported on how medical and pharmaceutical companies have ensured that giving birth in America is costlier than anywhere else in the world. Yet the country is still sufficiently stable, resilient and wealthy. America’s poor people are still well-to-do from a global perspective. China’s? Less so. One in ten Chinese live on the equivalent of $1.50 a day or less. In other emerging markets this has (and is) leading to mass protest. But in China what can be done to placate the masses when it comes to corruption?

Xi Jinping is very popular, and he’s eager to make a show of addressing political corruption. He announced a fight against the “four forms of decadence” — formalism, bureaucracy, hedonism and extravagance. The party leadership may be priming itself for a purge — locating local and midlevel officials that are low-hanging fruit: people they can make a public example of without impacting the top of the pyramid. As for the wealthiest, they are undergoing a PR campaign of sorts, trying to display more modesty. (China’s foreign minister just traded in his Audi for the same domestic model that Mao used to drive around in.) Make no mistake — these actions are largely cosmetic. They mitigate public dissent in the short-term, but they don’t get at the root of the problem. Why is that? China’s leaders can’t fundamentally go after the problem because the problem is them.

And so we’re left with a world in which the two strongest countries offer mirrored visions of what it takes to get to the top. In the U.S., the biggest danger of the capitalist system is that the private sector captures the state. In China, the biggest problem with state capitalism is that the state has already captured the private sector.

This is not to say that China is doomed. It, like the U.S., is in a powerful position despite its fundamental inefficiencies. The world’s two largest economies are humming along at modest clips — and economic growth has a way of shading over entrenched structural concerns. Both the United States and China are positioned to kick the can for the foreseeable future — but eventually they will have to face their biggest issues. And it’s best that they do so sooner rather than later.

It’s fascinating that the two countries with the largest economies have inverse imperfections. But will they have inverse fates?

This column is based on a transcribed phone interview with Bremmer.

PHOTO: U.S. President Barack Obama meets with Chinese President Xi Jinping at The Annenberg Retreat at Sunnylands in Rancho Mirage, California June 7, 2013. REUTERS/Kevin Lamarque


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Interesting and thoughtprovoking idea!!!
We’ll wait to see the fates of both powerful countries.

Posted by steederic | Report as abusive

An excellent TED Talk on this subject:
Eric X. Li: A tale of two political systems e_of_two_political_systems.html

Posted by tmc | Report as abusive

China’s People’s Congress function is mainly consultative, so experts, rich businessmen, even artists and celebrities constitute 1/3 of it as a rule (its a sort of Chinese who is who) for decades, nothing special in this fact.
The China’s counterparty of US Congress is 350 members Central Committee of Communist Party of China.
No businessmen in this body.

Posted by Wantunbiasednew | Report as abusive

What is most important, the information about net worth of any of the uppermentioned 350 members of Central Committee of Communist Party of China is a sort of state secret and you go to jail for even asking about it or simply disappear.
There is less hard political corruption in China than in US, I mean you cannot lobby for fundamental changes in economic policy. This area is governed by Politburo Standing Committee of Communist Party and these guys are above any money influence. But at a lower level situation is not so good.

Posted by Wantunbiasednew | Report as abusive

“The United States’ House of Representatives and Senate has no billionaires. China’s parliament has 83″

This might be true but how many in the House is in the pocket of billionaires? Which is worse, being an oligarchy like Russia and soon to be China or an oligarchy that disguises itself as a republic like the United States?

Posted by derekdj | Report as abusive

‘But will they have inverse fates?’ ….

I think the proof is already in the pudding…

Posted by edgyinchina | Report as abusive

A truly valuable and well thought out point. The article fails to make the final step in logic that business and government should be separated once and for all.

Posted by BidnisMan | Report as abusive

Do you think this article will ever be accessible in China?

Posted by Get-Truth-Out | Report as abusive

There’s a huge qualitative difference between China and the US in this regard. In the US, stories of corporate influence in Washington and corruption are in the news every single night. We make blockbuster films about corrupt politicians who only serve their evil corporate masters. People are very well aware of the problem.

In China, Bloomberg and NY Times were both blocked for publishing reports about leaders’ wealth. Chinese people aren’t even allowed to know about or discuss corporate influence on politics and vice versa. A Chinese version of the popular Indian website “I paid a bribe” was deleted within days. Which system has a better chance of improving over time, and which one will probably feature more of the same? Odds are not in China’s favor.

Posted by Andao | Report as abusive

This just goes to demonstrate that like in a septic tank scum rises to the top. You would hope that somewhere in the U.S. political system there is the will and ability to make the changes necessary for the benefit of the country and its people. The Founding Fathers knew that scum floats and did allow for the system to correct itself. I wonder if our age has the caliber of people needed for the system to succeed.

Posted by keebo | Report as abusive


Yes. I sign in this website virtually every day in Guangzhou, China. It is quite free here in fact.

Posted by Kailim | Report as abusive