Growth Challenges

Here Xi Comes



Next week the US election and China’s once-in-a-decade transition coincide. In China’s case not only will the ruling Party anoint a new President and Premier, a new Politburo and Politburo Standing Committee, but furthermore will also replace a full 60-70% of China’s leadership. Little is known of the incoming line-up or their policies, with the exception of Xi Jinping and Li Keqiang, future Chinese President and Premier respectively. This piece proposes a checklist of policy matters that might come to be associated with China’s decade under President Xi, whom together with his new team will take office from March 2013.

X: Xinhua

 

 

If you’re not familiar with Xinhua News Agency you probably will be by 2022. It is Chinese for soft power, almost. One of China’s main state-run news agencies, Xinhua enjoys elements of monopoly powers over other media outlets in China. It is also at the forefront of China’s international media outreach. So far its expansion plans include up to 200 bureaus and several thousand journalists based outside of China. It occupies office space of a skyscraper in Times Square New York and has launched a 24-hour English-language news station. That Xinhua’s expansion arrives at a time of increasing use of pay-walls by other English-language news services should assist these expansion plans.

I: Internationalization  

While the three decades following the economic turning point of 1979 are known as the ‘opening and reform’ era, it is probable that the next three will rather come to be defined by something akin to going out and regulation. China has had an official ‘going out’ policy for a decade already, which focuses on larger Chinese companies investing abroad through acquisition, green-field investment or plain old export. This process will expectedly be facilitated by China becoming a market economy in 2016, as per its WTO ascension agreement.

But internationalization over the next decade will not be restricted to Chinese brands and companies. Rather, internationalization of Chinese finance is also expected, led by the gradual internationalization of the RMB. China already allows banks in Hong Kong to lend in RMB to companies in neighbouring and experimental Shenzhen. It has signed currency-swap agreements with the Philippines, Japan and Australia, among others. Nigeria and Chile are among countries already having a proportion of reserves stored in RMB. From outbound Chinese tourists to technology exports and the expected wider use of the RMBs, the Xi era is likely to see a notable increase in the relative outbound internationalization of China’s economy.

J: Jobs

Whereas in early decades China’s leaders were focused on policies to create jobs by quantity, over the coming decade job by quality are more of an issue. This derives firstly from demographics: China’s population is ageing, and its younger workers are both fewer and more educated than their parents and grandparents were. China’s graduates however lack sufficient employment alternatives that adequately reflect their newly acquired qualifications, let alone salaries reflective of the cost of living, housing especially.

More generally, Chinese labour is increasingly demanding not only a greater share of the pie but also better conditions. The results is a rising sporadic tendency to strike, the Foxconn employees assembling Apple products being among the more internationally known of China’s restive workers. Creating adequately skilled and compensated jobs, and a broader demand for a greater share in the fruits of China’s economic boom, will be a key economic challenge of the next decade, indeed as in the US and Europe also.

I: Inequality 收入不平等 

China’s Gini coefficient, a measure of income inequality, was at least temporarily and officially de-prioritized when paramount leader and reformist Deng Xiaoping suggested that some should be allowed to get rich first. And indeed, some since have. A recent study by the China Academy of Social Sciences highlights that China’s urban-rural wealth divide has grown 68 per cent since 1985. Recent urban-rural comparisons suggest that in 2011 rural dwellers had an average annual disposable income of around GBP690, compared to GBP2,170 for their urban counterparts and according to the National Bureau of Statistics.

More concerning perhaps is the gap between the top and bottom of China. Recent Hurun data suggests China is home to 251-dollar billionaires (up from 15 in 2006), and that Hurun’s Top 1000 have an average wealth of USD860mn. As Xinhua puts it: “China has succeeded in making a bigger cake,” “The problem now is how to divide it more equally.” Continued extensions to public healthcare coverage and the basic pension might be expected. How China’s modern elites respond – leaving with their wealth to OECD countries or staying to play a role in a prospectively more distributive system will help to shape China’s domestic environment going forth. Recent reports suggest many of China’s dollar millionaires are seeking to emigrate,  while others, including China’s richest man, Zong Qinghou, are on the record as stating that “People who get rich early should help the rest get rich”.

N: Non-Government Organizations 非政府组织 

 Recent clashes between police and protestors in Ningbo, a coastal port town in Zhejiang province, against the expansion of a petrochemicals plant are one example of rising levels of activism in China. Whether driven by concern to protect the environment or a private property’s value, such protest is putting pressure on local governments to differently deliver.

In February 2011 President Hu Jintao announced that ‘social management’ should be a Party priority, a term that is said to include party leadership, government responsibility, social coordination and public participation. Reported to be most welcome in cases of filling gaps in state provision, civil society in China has recently assisted earthquake relief efforts in Sichuan and Qinghai, as well as event management such as for the Olympics in 2008 and World Expo in 2010. Increasingly these organizations also increasingly provide care for the elderly, and may also provide very specific topical expertise, such as on climate change or green energy. Some see the rise of China’s civil society as irreversible, and relations with the state are accordingly evolving. To what extent these evolve over the Xi era will potentially shape these relations for decades forth, including if and how this takes a different shape to social society elsewhere.

P: Party unlike it’s 1949, 1979, 1989 or even millennial 1999

The first change that may come to be associated with Xi’s watch is to the number of members of Standing Committee of the Politburo – a reduction in members from nine to seven. This is expected to streamline decision-making in an environment where simply majority is insufficient, and voting used to determine degree of consensus. As the first succession that is not ordained by PRC founders, negotiation and a greater art of consensus building will be more important herein than up to this point in the PRC’s history, as may be balancing political needs within and outside of the Party. 

I: Innovation  

Recent decades of China’s history-making growth pivoted around reform and opening, and especially on an export-led growth model. Demand for imports from high-income countries has however fallen at a time when the advantages of backwardness – leapfrogging and imitation – are also fast fading from view. And so Chinese policy makers seek a new growth model built on indigenous innovation. If successful, this will in turn also act to drive China ever closer to the technological frontier, realising an additional goal of lower foreign technological dependency.

Charting the path forward is China’s Medium to Long-Term Plan for the Development of Science and Technology (S&T) (2005-2020) falls within the term of incoming President Xi. Its goals include the following: 1) Raising overall national R&D expenditures to 2.5 per cent of China’s GDP by 2020, up from 1.7 per cent in 2009; 2) enter the world’s top 10 countries in terms of citations of its professional science papers; and 3) Joining the top 5 countries in terms of invention patents granted annually. It has already achieved goals 1 and 2. This success is supported by not only a rising science budget – projected to reach RMB220bn in 2012, up 12.4% – but also a myriad of tax incentives, subsidies, investments, loans, procurement policies, land grants and patenting support. If over a decade under Xi’s watch China realises its push to become a more innovative economy, watch out not just for those inventions and their inventors, but likely greater attention toward the enforcement of intellectual property rights.

N: Neighbours 领国

Sharing more land borders than any other nation on earth, and arguably fronting one of the world’s most complicated and crowded maritime regions, China lies amid a relatively complicated geography. Disputes over maritime boundaries with Japan and some South East Asian countries, a flashpoint in Taiwan, a continued boundary dispute with emerging power India and unrest in western provinces, leave the neighbourhood restless to say the least. Managing regional relations amid such a dynamic region is an obvious challenge for the next decade.

G: Getting Old Before Getting Rich – The Only Way to Grey? 未富先老

‘Getting Old Before Getting Rich’ is a notion summarizing the combination of incomplete industrialization, and millions of citizens still in poverty, coinciding in China with a relatively high proportion – 10% of persons – being aged over 65. The latter places them forever outside of the formal workforce, lowering the proportion of available productive formal workers while also straining the fiscal envelope during the already challenging development process. Regardless of policies, this challenge indeed will press on the fiscal purse and on the limited younger hands free to take care of large numbers of elderly.

On the other hand and relatively, if China does become more innovative and is able to maintain growth above 7 percent, Getting Old Before Getting Rich might prove to be advantageous as compared with Getting Old After Getting Rich. Over the Xi era, whereas China’s ageing will stand in the glory of the achievements of their lifetime, handing over a richer more vibrant economy to their children, it may become more apparent that a rather inverse story is unfolding in countries full of rich old. Indeed, paying out the once-between-generations retirement expectations of rich old might prove a hard to resolve international competitiveness squeeze on younger generations of the OECD. The latter may ultimately be slavishly caught in the juncture of ‘the rise of the rest’ and the direct and indirect debt overhang of the compound benefits accruing to the democracy-biasing wealth-hijacking bulge that is the baby boomers. By the time of the next leadership transfer the idea of ‘Getting Old Before Getting Rich’, at least in comparison to its opposite, Getting Old After Getting Rich, may thus turn out to be the more long-run economically benign of the two economic demography lumps. 

If NGOs and newly funded researchers find innovative ways to help take care of the elderly, internationalization and technological innovation contribute to pension and healthcare and so on, looking back it may end up a more long-run story of Getting Old While Getting Rich. The challenges in that are surely enough to make persons of any age go grey. 

 

References:

Fulda, A. (October 2012), Protests in Ningbo mark the birth of a nation-wide environmental health movement, Nottingham University China Policy Institute blog, October 29, 2012, 

Hurun (accessed October 2012)

The Independent, “Meet Zong Qihou: China’s Wealthiest Man“, (November 10, 2012).

Ministry of Science and Technology of China, (accessed October 2012)

New York Times, Wary of the Future Professionals Leave China in Record Numbers, October 31, 2012.

OECD (2012), Inequality: Recent Trends in China and Experience in the OECD Area

Sinograduate (August 2012), Getting Old Before Getting Rich – China is not alone, August 31, 2012.

Sinograduate (September 2012), When China Thinks She’ll Shape the World, September 20, 2012.

Sydney University (2012), Recent Developments in China’s Civil Society, May 21, 2012.

Telegraph (2012), Two million to be moved in one of largest relocations in Chinese history, November 1, 2012.

Wacker, G. (October 2012), Chinese civil society at a time of leadership change, Institute for Security Studies, October 5, 2012.

Zhang, M. (October 2012), Renminbi Rising, Project Syndicate, October 31, 2012.

 

 

 

 

Lauren has worked in economic policy and research at the World Bank, World Economic Forum, EIU and for the governments of Sierra Leone and Guyana. She has learned Chinese since 1995, and lived in Beijing for almost six years, on and off since 1997. Lauren has a PhD in Economics from Peking University, an MSc in Development Economics from the School of Oriental and African Studies (SOAS) and a B.A/B.Com from the University of Melbourne.

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