CHINA APPROACHES a leadership transition late this year amid signs that its investment- and export-led growth model is producing diminishing returns.
The giant country has grown roughly 10 percent a year for almost three decades, lifting half a billion people out of poverty with relatively little political turmoil. But the contradictions are mounting: An outmoded system of local government finance, based on sales of state-owned land, is driving a housing bubble; corruption undermines infrastructure projects such as high-speed rail; state-owned banks continue to channel resources into inefficient state-owned firms; and China’s one-child policy has caused a premature social aging process, saddling China with a large dependent elderly population before it’s truly rich enough to support it.
And so China 2030, a comprehensive 468-page blueprint for reform from the World Bank, is both timely and, for the most part, persuasive, in both its analysis and prescriptions. In fact, many of the bank’s recommendations — for a greater market role in banking, say, or increased investment in public services — are convincing precisely because they have been so often made before.
What might be different about this document is that the bank’s co-author was the Chinese State Council’s Development Research Center, an influential government advisory body. This suggests that reformists are already angling for greater power within the next administration and using the bank to help achieve it.
Well and good. Yet any reform effort must come to grips with the deepest contradiction within Chinese society — one too profound and controversial for the bank to mention openly but which is nonetheless implicit throughout the report. We are speaking, of course, about the tension between Communist Party rule and freedom and democracy.
“If the experience of other countries is any guide, the rising ranks of the middle class and higher education levels will inevitably increase the demand for better governance and greater opportunities for participation in public policy debate and implementation,” the report notes. “Unmet, these demands could raise social tensions.” In our view, such demands are legitimate whether they raise social tensions or not. The bank is also perfectly aware that “vested interests,” as it calls them, will resist needed structural changes. Indeed, they already have. China’s state-owned Assets Supervision and Administration Commission lashed out at the report while it was still a draft.
The road to achieving the World Bank’s ambitious goals for the rule of law, greater regulatory transparency and a more open public policy debate — which should be China’s goals, too — must pass through political reform. The bank optimistically calls on China’s government officials to show “leadership” by embracing such changes. It calls on them to “empower people,” “grant rights to individuals” and “encourage broad participation.” Good advice. Yet, so far, it is also the very kind of counsel China’s rulers have most fiercely resisted.