Will the twenty-first century belong to China? Its economy may be growing rapidly but there are many reasons to be cautious about making such assertions. Notably, China’s communist legacy, both in the economy and its political orbit, could dampen its growth forecasts in years to come and prevent China from becoming a truly global power before its reforms.
The Chinese economy is expected to overtake America’s as the world’s largest by the middle of this decade but the leadership in Beijing has many things to be anxious about. Already, their country is losing its cheap labor advantage to other nations in the region, including Indonesia and Vietnam, while neighbors as Malaysia and Thailand and Taiwan are investing much more aggressively in information and biotechnology where China, lacking a free business climate, is struggling to compete.
Compared to the communist state, labor regulations and business laws in South and Southeast Asia are relatively flexible and welcoming of international investment. China attracts in foreign direct investment every month what India takes in every year. Still China only grows 2 percentage points faster than that other Asian giant.
Protectionism may help finance huge new airports and high speed rail but the great trade wall of China also enhances corruption and nepotism at home, much to the chagrin of the country’s burgeoning middle class.
Public discontent is mounting, in the countryside, where people have not yet experienced the material effects of Chinese growth and in the cities, where people want the freedom to do more than make money. The communist leadership is trying to address dissatisfaction in the former group by championing “balanced growth” but its political ties with the finance industry and powerful real estate developers is undermining the sort of redistribution of wealth that one might expect in the socialist state.
As Fareed Zakaria puts it, “China has not solved the basic problem of what it is going to do when it creates a middle class and how it will respond to the aspirations of those people.” So far, economic progress has convinced the Chinese to accept one-party rule but what happens if growth inevitably slows down and people become evermore cosmopolitan?