To sustain its success, China will have to undertake deep reforms to an economy that is still leaving too many behind, despite breakneck growth that has brought hundreds of millions out of poverty over a 40-year boom period.
While many see the gleaming skyscrapers of Shanghai as typifying the country’s emergence, just as representative of its future is the “other China” of the countryside, where Mao-era policies keep hundreds of millions from joining the middle class.
That’s according to Dexter Roberts, who tracked China’s economy for two decades living in Beijing as a Bloomberg Businessweek correspondent, starting with the heady days around its accession to the World Trade Organization and ending recently as the world grew increasingly skeptical of the country’s aims.
Mr. Roberts’ new book, “The Myth of Chinese Capitalism,” uses on-the-ground reporting to look through the lens of migrant families at how the top-down growth model that delivered massive GDP increases also has created societal fissures that are only growing harder to mend.
Ironically, these could throw a wrench into China’s formula of state-backed capitalism at a time when it needs to generate more economic activity domestically amid growing pushback from abroad.
“The two-year trade war, plus the devastation that COVID has wrought on the global economy, has made it painfully clear that (China) can no longer rely so much on the rest of the world, on investment and exports and they must move much more quickly toward an economy based on the spending power of its own people,” he said during a virtual lectures hosted by the Georgia Tech Center for International Business Education and Research and the Atlanta-based China Research Center.
In view of a possible “de-coupling” with the U.S., whose consumers, technology and intellectual property helped drive its export-driven industrialization, China has now begun to talk of a “dual circulation” strategy — a method of continuing to engage with the world where beneficial while becoming more “self-reliant,” to use the Mao-era phrase that President Xi Jinping has recently dusted off, Mr. Roberts said.
But some of China’s core problems remain the same as when Mr. Roberts began observing how masses of peasants were moving from rural farms to urban factories in the early 2000s.
Thanks to the hukou system of household registration, an internal passport system enacted in the 1950s, hundreds of millions of migrant laborers, from factory hands to construction workers, remain stuck in a sort of societal limbo, unable to permanently relocate to cities or access schools and services because of their ID cards. But they’re also forced to move by lack of opportunity in their home regions.
Because of this, an estimated 60 million children are growing up away from their parents, many of them reuniting only once a year during the new year holidays. Aside from mental health issues and educational disparities, the system has also contributed to a widening wealth gap between the cities and the formerly glorified peasantry.
In his talk, Mr. Roberts did not deny China’s progress; the Communist Party goals of eliminating extreme poverty, doubling per capita disposable income and doubling GDP over the decade ending in 2020 look likely to be achieved even in spite of COVID-19. A massive urbanization drive has been successful by the standards of including people in the country’s economic growth story.
But these goals have not delivered even results in a country whose founding ideals glorified the peasantry and denigrated wealthy land holders, he argued.
China now has one of the world’s largest wealth gaps, with a three-to-one wealth disparity between urban and rural households.
“Even more alarmingly, the wealth gap in China is growing very quickly. They’re moving in the wrong direction,” Mr. Roberts said.
With many of its economic levers already pulled, China faces a choice to reform or stagnate, he said.
Changing the hukou system, tackling bloated state-owned companies and reorienting land laws to ensure that people can better capitalize on the resources available to them could “unleash a whole new wave old productivity” and drive growth into the future. These moves could also give consumers the safety net they need to ratchet down savings and up spending, which the government agrees is key to the future.
“They really have made virtually no progress whatsoever on the degree to which the economy is driven by the spending power of their own people,” Mr. Roberts said.
Unfortunately, he said, what looks more likely is a doubling down on “restrictive policies” for a variety of bureaucratic and political reasons.
Cities, facing the brunt of the cost of integrating migrant populations, see the prospect as cost-prohibitive, while wealthy urbanites have loudly protested efforts to integrate migrant children into schools, for instance.
During the COVID-19 outbreak, many compounds locked out migrant renters, fearing they were bringing in disease. Chinese civil society, meanwhile, is in retreat amid an ideological hardening driven from the top of the Chinese government, Mr. Roberts said.
What all this means for U.S.-China relations is an open question. Mr. Roberts doesn’t see the 2020 presidential elections changing much, noting that President Trump had tapped into a strong undercurrent toward rethinking the economic relationship. China is unlikely to see a leadership change anytime in the near future, given that Mr. Xi has been given clearance to govern indefinitely.
Meanwhile, the technology rivalry — epitomized in the U.S. banning Huawei and forcing the sale of TikTok’s American operations — seems to be here to stay.
Mr. Roberts said the issues of intellectual property theft, market access and state support in the Chinese economy today are the same that plagued the relationship early on, when China was a much weaker power.
But tackling these doesn’t mean giving up on engagement: He advocated a continuation of educational exchange even as the two sides rebalance trade, lamenting the Trump administration’s closure of the Fulbright program in China, ending the Peace Corps there and cracking down on many of the more than 300,000 Chinese scholars in the U.S.
“These are absolutely misguided moves,” Mr. Roberts said. “Even in the absence necessarily of a good Washington-Beijing relationship at the higher levels, it’s important to maintain these people to people exchanges.”
If China turns inward, he cautioned, the result could be dire for global peace.
“If they do not reform those policies, we could see a diversionary tactic, which is to fan nationalism to get people to focus on political issues and to perceive the that they’re being victimized by the rest of the world (not by the party) and become more bellicose beyond their borders.”
The conversation was moderated by John McIntyre, director of the Georgia Tech Center for International Business Education and Research at the Scheller College of Business.
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The Myth of Chinese Capitalism: The Worker, the Factory, and the Future of the World
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