Growth Counts

A decade after President Hu Jintao took the helm, China’s greatest asset remains its enormous potential for growth By Kerry Brown

Growth Counts

A decade after President Hu Jintao took the helm, China’s greatest asset remains its enormous potential for growth By Kerry Brown

The author is head of the Asia Program at Chatham House, London

The coming 18th National Congress of the Communist Party of China(CPC) and the expected election of a new general secretary of the CPC Central Committee by the end of this year offer an opportunity to look at the changes and developments that have occurred in Chinese society and its international face over the last decade since the 16th CPC National Congress in 2002, when Hu Jintao took up his current position of general secretary.Where have the major achievements been?What are the major challenges that China now faces? How does it stand differently now to the way it was as a country 10 years ago?

In November 2001, China successfully completed the long negotiation process for entry to the World Trade Organization(WTO). For over 14 years, fi rst as the General Agreement on Tariffs and Trade, and then as the WTO, China had been negotiating deals with all the other members of the organization about the terms of its entry. Its final accession, less than a year before President Hu became general secretary of the CPC Central Committee, was a major moment in the globalization and integration of China into the world economy.

Initial assessment by economists within and outside China immediately after the deal was completed in 2001 was that ful fi lling the WTO commitments for China would be challenging, and there were plenty of potential pitfalls. Some asked whether the Chinese agricultural sector would be able to deal with increased competition from abroad. Others asked whether Chinese stateowned and private companies would be able to compete in their own market with multinationals, which theoretically had greater powers under the WTO and greater incentives to enter China. In fact, China ful fi lled the commitments it made under the WTO on time.

More remarkably, we can see that from 2001 China entered an era of great productivity. Raw GDP growth data show strong growth, even during the year when the global economic crisis struck hardest,in 2009, and China’s exports fell because of the drying up of global markets. Almost every year since 2002, China has posted an impressive new statistic—replacing Japan as the world’s largest holder of foreign exchange reserves in 2005, becoming the world’s largest exporter in 2009, and the world’s second largest economy in 2010.The greatest success of the government in the last 10 years therefore has been to maintain high growth levels, even though the international economic environment has deteriorated.

Economic takeoff

This growth has been central to the CPC and the government’s task. Hu stated at the CPC National Congress in 2007 that the key benchmark would be the delivery of economic growth and lifting people out of poverty. In many ways, however, the extent and speed of this growth have now become a challenge. The Chinese economy is much larger than most outsiders expected in such a short period of time. Sometimes success can be as much a challenge as failing to succeed. The issues that face the current and future leaders are spelled out in the 12th Five-Year Plan that runs from 2011 to 2015.Broadly, they concern the issue of how, now that China is well on the way to becoming a middle-income country, it can deal with some of the imbalances that have grown over the last decade.

The first of these concerns sustainability. High growth rates have also involved an increased need for energy, and for new sources of energy. China still remains behind the United States in terms of its oil needs, but for all other sources of energy, from solar to nuclear to wind, it is number one. Its reliance,like most other Asian countries, on fossil fuels is a huge challenge. How does China move to energy forms that are less polluting and more efficient, especially now that there is more caution over the likely future role of nuclear power since the Fukushima tragedy last year in Japan?

There is also the issue of balanced growth. In the census of 2010, it became clear that China was, for the fi rst time ever in its history, becoming a country where as many live in cities or towns as in rural areas.The urbanization of China has also created challenges over housing, over the best way to construct cities, and over the unequal levels of development between cities and the countryside. In 2006, the long-standing agricultural tax was lifted on farmers. There have been a number of policies to make their lives easier, and to bridge this gap. But the urban-rural divide is still a large one. In the areas of social welfare, too, there are big differences in the provisions of healthcare,education and other public goods in urban areas compared to most of the countryside.These inequalities have become a major target for central and provincial government policy. They will continue to be so for many years to come.

The outside world, and in particular the developed world, still needs to move beyond some of its stereotyping of what China is, how it behaves, and what its development means

There is also the issue of balancing growth not just between urban and rural areas, but between the very different parts of China. Coastal regions have become wealthier, but there are still big differences in terms of per-capita GDP between a developed province like Zhejiang, and an inland province like Gansu, where Hu spent over a decade in the early part of his career from 1968. The developmental challenges of each of these areas are different, as are their chief assets and advantages. Finding a means of dealing at a national level with the differences that exist across China’s provinces and autonomous regions has proved to be a big challenge. The language used by Hu and the leadership around him of a harmonious society aims, on many levels,at dealing with this challenge.

Global outreach

As the size and importance of the Chinese economy increase, so does the way in which China relates to the world. Since 2008, while the developed world has been posting very low, or in many cases negative, growth statistics, the Chinese economy has increased by 40 percent. It has been one of the major sources of GDP growth globally. Some economists state that if one were to remove the Chinese contribution to GDP growth from 2001 to the world, it would have been an era of stagnation. Since 2008, this role as a global engine of growth has become more important.But so have the demands made on China as a country.

President Hu and Premier Wen Jiabao have resisted talk of an age of China as a superpower rivaling the United States. When there was a suggestion in 2009 that, regardless of a G20 or G8 or G7, there was in fact only one grouping that mattered, and that was the G2 (the United States and China),they said this was a misapprehension, and their key priority was to continue dealing with the country’s internal issues. They did not want to be drawn into a “global superpower club.”

Even so, the demands on China as a diplomatic actor are likely to grow fast. Many countries will seek its support for their positions on issues during trade or political negotiations. Areas where China has traditionally wanted to remain detached from will take up its time and focus. The more tangible part of this is investment abroad,with partners from the EU to Latin America or Africa vying to see Chinese state and non-state companies come and place resources. The less tangible aspect is the way in which China will act as a model for other countries as they look away from the U.S.-led model for something different.

Within China there are lively debates about what sort of influence China might want to have. For some, like foreign affairs expert Yan Xuetong of Tsinghua University, the aspiration is for China to be a moral and intellectual exemplar, in ways that the United States has aspired to be in the last century. But for many other thinkers in China, the critical issue is to deal with the huge challenges society and the economy will face during the transition to middle-income status over the next decade.For them, this remains the critical mission, rather than stretching too far beyond China’s borders.

China’s greatest asset is that it still has enormous space for growth, and that strong growth will remain likely in its economy over the coming decade and beyond. The momentum of this growth will at least either cure problems, or offset them until a time when they become more manageable. The challenge after 10 years of strong growth,however, is that now issues of balance and sustainability will become more pressing,and support for policy tools like those that develop social welfare, reform pension and tax systems, and look at the imbalances within China’s political economy will become more necessary.

The most symbolic moment of the period during which Hu has been secretary general of the CPC Central Committee was the opening of the Beijing Olympics on August 8, 2008, when over 4 billion people watched the vast ceremony from the National Stadium in Beijing, known as the Bird’s Nest. The Olympics taught the world a lot about China. But the event also showed that many outside the country have a complex, and sometimes contradictory,attitude to what China means to them, and how its development might affect them in the decades ahead. Compared to a decade ago, Chinese and non-Chinese are all more knowledgeable about each other. This is a good thing.

As U.S. President Barack Obama and President Hu acknowledged during Hu’s visit to the United States in January 2011,people-to-people contact between China and the outside world has never been richer and stronger. But the outside world, and in particular the developed world, still needs to move beyond some of its stereotyping of what China is, how it behaves, and what its development means. This will be a big challenge in the coming decade,because one thing that events since 2002 have taught us is that we are inclined to underestimate the scale and the speed of the changes China is undergoing. And at the moment, there is no reason to think that these are likely to slow down in the decade that lies ahead.