The Chinese model is nearing its end
The country is now going through a crisis of transition, unparalleled since Deng Xiaoping
The signs are that it is not going so well. Rebooting the authority and primacy of the Communist party, the pursuit of often contentious reforms, financial liberalisation and rebalancing the economy while trying to sustain an unrealistic rate of growth are complex and mutually incompatible goals.
Deng’s task in a pre-industrial society without a middle class and social media was, in many ways, easier. Determined to avoid the concentration of power in one individual, he empowered government bodies and ministers, especially the State Council and the prime minister, and encouraged openness and a consensus-driven political model. This worked well enough until the 21st century, but gradually tended towards atrophy. The party succumbed to corruption and paid scant attention to citizens’ concerns about social, environmental and product safety.
The economy built up high levels of debt, overcapacity and an addiction to misallocated and credit-fuelled investment.
The indices are still flirting with the nadir reached in early July. Caught between its roles as cheerleader and regulator, the government has shown a lack of trust in the very market forces it sought to introduce.
A central part of the challenge for China will be its ability to manage employment, a more politically sensitive indicator than GDP. The official unemployment rate, supposedly about 4 per cent over many years, is fiction. Current developments in investment and labour-intensive construction, the low registration for unemployment benefits among those without urban registration status, the weakness of the benefit system and the difficulties of finding suitable work for 7m graduates a year are among many reasons to believe that the jobless rate may not only be higher than the 6.3 per cent estimated by the International Labour Organisation but rising.
China’s economic transition was always going to be difficult, but developments this year suggest that things are not going according to plan. The centralisation of power is proving to be a double-edged sword for reform, the anti-corruption campaign is choking off initiative and growth and the economy cannot be kept on an unrealistic expansionary path by unending stimulus.
The time for accepting a permanently lower growth rate is drawing closer. It will test the legitimacy and reform appetite of China’s leaders in ways that will determine the country’s prospects for years to come.
The writer is an associate at Oxford university’s China Centre and a senior adviser