Rough notes on China bottlenecks

Earlier in the week I sat in on a discussion between Sir Christopher Hum (HM Ambassador to China, 2002 – 2005), Professor Danny Quah (London School of Economics) and Roddy Gow (Chief Executive, Asia House). Here are some highlights, focusing on the potential bottlenecks to China’s current model of rapid growth

(1) Demographics:

– Median age in China is currently 30. It will be 45 by 2050.

– “Asia is a dangerous place to be born a girl”

– India has a gender imbalance too.

– A mass immigration policy was not culturally feasible.

(i) Rising costs

– Danny Quah: China’s most pressing problems include wage inflation, rising land prices and a growing and potentially de-stabilising imbalance between the west of the country (relatively rich and urbanised), and the east (relatively poor and rural). The answer is for Beijing to encourage China’s manufacturers to shift to the east, where cheap land and labour is still plentiful.

– Christopher Hum: This is beginning to happen. Investors worried about the rising cost of production in western China are looking east. Some are also looking at Vietnam, which is cheaper but more bureaucratic.

(ii) Increasingly vocal middle class, and moves towards democracy?

China’s growing middle class is increasingly vocal and demanding – for representation, welfare and other rights.

Christopher Hum said that tiny outbreaks of NIMBY’ism are beginning to occur.

A growing community of virtual opinion. After the high speed train crash in Zhejiang in July 2 million tweets expressed outrage at the sluggish response of the authorities.

A member of the audience reported a private conversation with a senior member of the Communist Party (CP) in which she described the CP as a small boat on a big sea. For the time being the boat was riding the sea, but eventually it would be swamped by the sea, and lose control. But the boat would keep riding the sea for as long as possible.

(3) China’s foreign policy

– This used to follow Deng Xiaoping’s axiom:  “Keep a cool head and maintain a low profile. Never take the lead – but aim to do something big.”

– But since 2005 China’s relationships with its neighbours has cooled, and beijing has become more assertive

– The transition of power in 2012 may empower China’s hawks

– So will China’s coronation as the world’s biggest economy, which isn’t far off

– As Beijing faces growing discontent within China, it is likely to adopt a more aggressive stance foreign policy to distract malcontents

– Global surveys suggest the Chinese people are happy with China’s direction of tarvel, and are likely to demand more expansiveness

– China’s government remains poor at responding to foreign policy challenges and neighbourhood skirmishes because it is relatively inexperienced in managing them, and its default setting is to dictate and shout

– And China’s immense size and scale can make for a fragile chain of command. Eg: the decision to test fly China’s stealth bomber while Robert Gates, then US Defence Secretary, was visiting Beijing … this was not deliberate, the decision to fly was taken hundreds of miles from Beijing

– NB: the disconnect between the sophisticated and informed leaders at China’s centres, and her local leaders across the countryside

– China’s nervousness about establishing lines of supply through the Indian Ocean

– Quah: China sees two possible models for its future development – Singapore and India (“more talk than action

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