Sunday, January 21, 2007
Will this nation swamp us all?
Posted by David Smith at 10:59 AM
Category: David Smith's other articles

A review of two new books about China - Will Hutton's The Writing on the Wall and Randall Perenboom's China Modernizes.

Will Hutton will forever be known as the author of The State We’re In, the mid-1990s polemic that closed the book on 18 years of Tory rule and ushered in new Labour. He followed it up, less successfully, with The World We’re In, an attack on conservative America published a few months after 9/11. Now, with his new book, he has essentially given us The State China’s In. And, as with the others, he finds much to criticise. Britain needed to change, America needed to change and, yes, China needs to change.

If that sounds excessively dismissive, it is not meant to be. Hutton approached this book, as he approaches everything, with Tiggerish enthusiasm. He bowls over those who disagree with his analysis; both Andrew Neil and Sir Digby Jones are floored for suggesting that China’s extraordinary economic performance over the past three decades represents the triumph of the free market. Hutton thinks success was built on the foundations laid down by Mao Tse-tung. I tend to agree with Neil and Jones that success from the late 1970s came from digging up most of those foundations.

But the book, which reads well, skates effortlessly through history to the crossroads at which the country finds itself today. Can it carry on growing at the near 10% annual rate achieved since 1978, or will it be dragged down by internal political tensions and the fundamental contradictions of “an unstable halfway house”?

China, Hutton argues, has an economy that is neither socialist nor capitalist, run by a communist party that is certainly not revolutionary but has little interest in democracy. The strains, meanwhile, are showing. Growth is kept going only by huge investment; the banking system is dodgy; the Chinese don’t do anything well for themselves, depending on foreign companies to provide the technology and expertise on which export success is based.

There is nothing wrong with his criticisms of China’s economic development. They have been made before. There are indeed strains, as you would expect given the rapid transformation. We should, too, worry about the effect of new coal-fired power stations and thousands of miles of motorways on global warming. But Hutton overstates it. At every stage during the China growth story, people have predicted it will run out of steam. But opening up a country of 1.3 billion to the world economy has created a new global locomotive, and there is not the slightest evidence it is going to be derailed.

To say China has no global companies worthy of the name is wrong. It has 20 in the Forbes Global 500, twice the number of Italy, and those numbers are growing fast. Chinese businesses are expanding by taking over foreign firms. Where he is entirely right is to argue that the West should not fear the rise of China. That is not because China is about to fail but because the West will for the foreseeable future have a comparative advantage in the “new” areas of economic activity, notably technology and the knowledge economy.

As to whether and how China should change, nobody would disagree with that. The problem for Hutton is that nobody lives up to his ideal. America certainly doesn’t. Nor does Britain, where Tony Blair is a tragic failure who has abandoned pluralism. The poor Chinese, if they are looking for a role model, will struggle to find one here. The reader, meanwhile, may wish Hutton had stuck to China. There is rather too much of the Hutton world view, in particular the revisiting of his attack on America.

Randall Peerenboom, on the other hand, does stick to his central theme. His book is nowhere near as lively as Hutton’s, but it is perceptive. We can, he argues, treat China as a problem or a paradigm. Increasingly, many developing countries are not only benefiting from China’s economic emergence, but also see the People’s Republic as a model to follow.

Peerenboom embraces Hutton’s arguments about whether China’s rise is sustainable. He admits that there are significant uncertainties about how wealthy China will become, whether it will respect the rule of law and, crucially, whether it can manage the transition to democracy. But while Hutton sounds the alarm bells, he is optimistic. China, he points out, has exceeded everybody’s expectations. Rising wealth will bring with it citizens’ demands for legal and political reform. The Chinese leadership is pragmatic. The collective aim is to restore China to its former glory. I would not bet against it.

From The Sunday Times, January 21 2007

Comments

The key question that China poses for many of us is this; is a plural democratic system that which best guarantees economic success? If China can become an economic behemoth without political liberalisation it will be quite a blow for those of us who argue that democracy offers advantages beyond personal liberty.

One model one might look to is Singapore; described by a senior regional correspondent as 'The world's most successful fascist state.' Singapore has thrived without having a democratic system worthy of the name. But look again and Singapore points to China's future problems.

Already the Lees have worried aloud that the island needs to become more 'creative'. Indeed 'Creative' the electronics company is a great case in point - it makes sound cards and mp3 players. It's mp3 players are very good, they work pretty much as well as the iPod, but the bottom line is they're like an iPod designed by a Communist committee. Bricks are sexier. The result - Apple ships millions more iPods than Creative does Zens.

Singapore's government, like China's, hopes that its people can become innovators in business and design without any of that blue sky thinking creeping into the realm of politics. So for them the question is whether one can compartmentalise liberalisation and innovation. The Hutton camp, myself included, would have serious doubts about whether that's possible - and if you subscribe to the notion set out by the author of 'The J Curve' totalitarian systems hit an economic ceiling far quicker than free societies.

That said those who hope for the collapse of communism in China might think carefully about what they wish for. Evolution rather than revolution will serve the world better in the long term. Not only would it be a massive brake n the world economy it would also add to all the ills such as global warming, nuclear proliferation and the possibly outbreak of a killer virus that so many of us fret about at the moment.

China will be a fascinating watch over the next 15 years. But my hot tip is that by the end of the century India will have outstripped China economically.

Why? Because IP is the oil of the 21st century - it's where the wealth is, and ultimately India is a much better candidate to challenge the US ad Europe as an IP powerhouse than China. The reasons - cultural. Cultures are like oil tankers - they take eons to shift. East Asia and China in particular is still crippled by a cultural fear of failure and by a Confucian intellectual framework that discourages challenging the wisdom of elders and teachers.

Indian culture on the other hand is in love with ideas. Put two Indians together and you have a debate, three and you have the beginnings of a political party. Watch this space

Posted by: Jonathan at January 22, 2007 03:44 AM

The review should have mentioned that all 20 companies that feature in the FOrbes 500 are SOEs. While their revenues are considerable, they are protected monopolies in key sectors. Most are inward-looking and barely competitive by international standards. Look no further than no. 14, the Agricultural Bank of China, the basketcase of a pretty looney financial system.

Posted by: p schneider at February 10, 2007 12:37 AM