China's Development China's Development ChallengesChallenges

Christopher A. McNallyChristopher A. McNallyResearch ProgramResearch ProgramEast-West CenterEast-West Center

January 2008January 2008

OverviewOverview

Sino-CapitalismSino-Capitalism

Economics, Geopolitics and EcologyEconomics, Geopolitics and Ecology

The Quandaries of China’s RiseThe Quandaries of China’s Rise

Sino-CapitalismSino-CapitalismPPolitical economy perspectiveolitical economy perspective

Sino-capitalism – a global capitalist Sino-capitalism – a global capitalist system that differs from Anglo-American system that differs from Anglo-American capitalism in important respectscapitalism in important respects

Sino-capitalism relies on informal business Sino-capitalism relies on informal business networks rather than on legal codes and networks rather than on legal codes and transparent rules transparent rules

Sino-capitalism also assigns the Chinese Sino-capitalism also assigns the Chinese state a leading role in fostering and state a leading role in fostering and guiding capitalist accumulationguiding capitalist accumulation

Sino-CapitalismSino-CapitalismIncomplete Transition and Imprints of HistoryIncomplete Transition and Imprints of History

China’s transition in its internal political economy China’s transition in its internal political economy remains incomplete remains incomplete the maturing of the maturing of capitalismcapitalism

China still posses insufficient legal and institutional China still posses insufficient legal and institutional certainty certainty

Dominant state // subservient capital and middle Dominant state // subservient capital and middle classes classes no separate sphere of the “economy” no separate sphere of the “economy”

Some historical parallels to China’s imperial political Some historical parallels to China’s imperial political economy during the late Song to Qing dynastieseconomy during the late Song to Qing dynasties

Tributary State

Small-scale Merchant Capital

$1 25¢ $1 50¢ $1

China’s Imperial Political EconomyChina’s Imperial Political Economy

Sino-CapitalismSino-CapitalismNetworked CharacterNetworked Character

A A highly networked system that gives highly networked system that gives Chinese firms enormous flexibility and Chinese firms enormous flexibility and global reachglobal reach

GuanxiGuanxi and common Chinese cultural and common Chinese cultural norms support these networks, though the norms support these networks, though the network character comes in many forms network character comes in many forms and shapes (e.g., some integration with and shapes (e.g., some integration with high-tech networks in US and Taiwan in high-tech networks in US and Taiwan in the Silicon Valley – Hsinchu – Kunshan the Silicon Valley – Hsinchu – Kunshan Triangle) Triangle)

Sino-CapitalismSino-CapitalismState-dominated CapitalismState-dominated Capitalism

The capitalist logic of China’s development The capitalist logic of China’s development is being harnessed for the purposes of is being harnessed for the purposes of greater CCP legitimacy (for the time being)greater CCP legitimacy (for the time being)

PATH-DEPENDENCY:PATH-DEPENDENCY: State dominant State dominant nature of China’s capitalism will remain for nature of China’s capitalism will remain for the foreseeable future!the foreseeable future!

In other words, if China’s present political In other words, if China’s present political economy is sustained, it economy is sustained, it implies a state-implies a state-sponsored form of capitalism.sponsored form of capitalism.

Sino-CapitalismSino-CapitalismGlobalizationGlobalization

China is already a large contributor to world China is already a large contributor to world GDP growth – GDP growth – A new motor for the world A new motor for the world economy!economy!

China and the West are truly in the same China and the West are truly in the same bed of globalization:bed of globalization: West: Low inflation // high corporate profitsWest: Low inflation // high corporate profits China: Growing trade, technological China: Growing trade, technological

sophistication, and rapid capital accumulation sophistication, and rapid capital accumulation (for example, China’s foreign reserves of 1.45 (for example, China’s foreign reserves of 1.45 trillion USD in Oct 2007)trillion USD in Oct 2007)

Sino-CapitalismSino-CapitalismSize and SpeedSize and Speed

Never has the world seen such an Never has the world seen such an important political economy rise within such important political economy rise within such a short time span with such global influencea short time span with such global influence

1.3 billion people 1.3 billion people 1/5 of humanity 1/5 of humanity China is already a major economic player at China is already a major economic player at

an early stage in her capitalist transition an early stage in her capitalist transition China’s global economic influence is China’s global economic influence is

substantial and could shake the global substantial and could shake the global economic systemeconomic system

Capitalism versus CapitalismCapitalism versus Capitalism

This is not “THE CHINA THREAT” but rather This is not “THE CHINA THREAT” but rather frictions generated by frictions generated by Capitalism vs. CapitalismCapitalism vs. Capitalism

Major conflicts between China and her major Major conflicts between China and her major trading partners are brewing:trading partners are brewing:

Problems in China’s legal system and Problems in China’s legal system and governance capacity on the local levelgovernance capacity on the local level

Different business ethicsDifferent business ethics Role of the state in China’s political economyRole of the state in China’s political economy MOST IMPORTANTLY: International currency MOST IMPORTANTLY: International currency

policy, especially the value of the RMB/CYNpolicy, especially the value of the RMB/CYN

The Geopolitical EquationThe Geopolitical Equation

The geopolitical dimension, in which both The geopolitical dimension, in which both systems will vie to govern the global systems will vie to govern the global

political economy, promises to be political economy, promises to be contentiouscontentious as China’s power increasesas China’s power increases

Q: Can East Asia absorb China’s rising Q: Can East Asia absorb China’s rising power?power?

Q: What is the future role of the United Q: What is the future role of the United States and Japan in Asia? States and Japan in Asia?

Q: How will China assure its access to Sea Q: How will China assure its access to Sea Lanes of Communication (SLOCs)?Lanes of Communication (SLOCs)?

EcologyEcology

EcologyEcology

The large and rapid developmental processes The large and rapid developmental processes unfolding in China raise the specter of unfolding in China raise the specter of accelerating environmental degradation accelerating environmental degradation

Major ecological dilemmas loom if China Major ecological dilemmas loom if China continues to develop as she has and follows in continues to develop as she has and follows in the footsteps of other capitalist developers the footsteps of other capitalist developers increasing scarcity of certain global resources increasing scarcity of certain global resources and massive impact on global ecologyand massive impact on global ecology

EcologyEcologyChina’s environmental crisisChina’s environmental crisis Water – Pollution and shortageWater – Pollution and shortage Air – PollutionAir – Pollution Land (vegetation and soil) – Degradation and Land (vegetation and soil) – Degradation and

desertificationdesertification Greenhouse gases (COGreenhouse gases (CO22, etc.) , etc.) reliance on coal! reliance on coal!

ImpactsImpacts Immediate human cost (health, economic & Immediate human cost (health, economic &

livelihood)livelihood) Long-term ecological damageLong-term ecological damage Global implications, especially re global climate Global implications, especially re global climate

changechange

Ecology Ecology Development Overpowers the EnvironmentDevelopment Overpowers the Environment

Economic growth is “China’s state religion”Economic growth is “China’s state religion”

““The CCP is addicted to economic growth”The CCP is addicted to economic growth”

““GDP growth mania”GDP growth mania”

The Quandaries of China’s RiseThe Quandaries of China’s Rise

Domestic challengesDomestic challenges produced by China’s produced by China’s capitalist transition:capitalist transition:

1.1. Widening income gaps (and the perception Widening income gaps (and the perception thereof)thereof)

2.2. Environmental degradationEnvironmental degradation3.3. Corruption and bad governanceCorruption and bad governance Political will to complete the transition in the Political will to complete the transition in the

political realm (lack of constitutionalism)??political realm (lack of constitutionalism)??

The Quandaries of China’s Rise The Quandaries of China’s Rise Governance CapacityGovernance Capacity

Bad capacity to govern over a broad range Bad capacity to govern over a broad range of issues on a day-to-day basisof issues on a day-to-day basis

Insufficient feed-back loops and no checks Insufficient feed-back loops and no checks on the CCP’s absolute power!on the CCP’s absolute power!

BUT:BUT: Enormous capacity to mobilize Enormous capacity to mobilize resources short-term: e.g., SARS resources short-term: e.g., SARS campaign; smuggling campaign (in campaign; smuggling campaign (in 1997/1998); reforestation campaign1997/1998); reforestation campaign

The Quandaries of China’s RiseThe Quandaries of China’s RiseThree external challenges:Three external challenges:

1.1. The influence of China’s political economy on the The influence of China’s political economy on the rest of the world rest of the world international economic international economic management will be more complicated, management will be more complicated, necessitating a new institutional architecturenecessitating a new institutional architecture

2.2. Rising specter of politico-military conflict between Rising specter of politico-military conflict between the US and China the US and China possibility of another round possibility of another round of great power struggles, be it a “cold” or “hot” warof great power struggles, be it a “cold” or “hot” war

3.3. China’s ecological impact China’s ecological impact China becoming the China becoming the world’s largest greenhouse gas emitter with world’s largest greenhouse gas emitter with massive implications for global climate changemassive implications for global climate change

The China QuandaryThe China QuandaryThe fundamental questions:The fundamental questions: As Sino-capitalism becomes a new force in the As Sino-capitalism becomes a new force in the

global system to be reckoned with, can the world’s global system to be reckoned with, can the world’s established powers adjust and adapt?established powers adjust and adapt?

Can new leadership and management models be Can new leadership and management models be developed that can address the globe’s major developed that can address the globe’s major challenges in the 21st century?challenges in the 21st century?

Ideally, the US and China should face their Ideally, the US and China should face their differences and work towards a mature partnership differences and work towards a mature partnership of equals that contributes to global management.of equals that contributes to global management.

Thank You!Thank You!

谢谢谢谢