Ken Lieberthal: China has a very capable political system that has evolved enormously in the
30 years of post-Mao reforms, so that it is by now relatively decentralized, dynamic,
entrepreneurial, pragmatic.
It's not the old communist system that one might think of.
Having said that and having noted that this country has had a streak of economic growth
that is the envy of the world, at the end of the day, they are in deep trouble.
They confront dramatic challenges that the leaders are very well aware of, and frankly,
extremely concerned about at this point.
Maybe comparing China's situation with the US situation is instructive in highlighting
some of China's major challenges.
The US in per capita GDP is number one in the world, China ranks below number 100 in
the world.
The US is richly endowed with natural resources on a per capita basis.
China has an average per capita availability of natural resources.
It had about 25% of the global per capita average and so it's really very poorly end
out.
The US has demographic profile, age distribution of its population that among the advanced
industrial countries, it is the most favorable.
That's largely because of immigration filling in the younger ranks.
China has had a demographic advantage since the reforms began, a relatively large number
of working age population in relation to those who are dependants, either too young or too
old to work.
That advantage is now turning around on a dime, and China by the Year 2030 will have
the demographic profile of Japan, or Italy, or in the US, the State of Florida.
China also has followed a development model that is based on several key assumptions which
were good assumptions for several decades, but are now basically exhaustive.
Laborers are becoming far more demanding; it is moving China out of their low end of
the manufacturing sector.
China's environmental catastrophe is so profound at this point that they realize they can no
longer afford to develop at unlimited cost of the environment.
Within that, their biggest single problem is usable water.
They face a crisis in usable water that is so severe; it's already caused them to move
more than 50 million people to different parts of the country because they can no longer
live where they were.
Thirdly, they assume the world would tolerate almost unlimited increases in Chinese exports,
but ever since the global financial crisis become clear that that capacity is no longer
there in nearly the degree that they had it before.
They've already laid out a new development model that they want to shift to over the
coming five years, and in a typical fashion, there's a five-year plan that describes that
model.
The problem is that the old model is now hard-baked into the DNA of the Communist Party and the
way the political system functions.
Economic growth is a necessary outcome of the way the incentives are structured for
key political leaders throughout the country, going to be at least three years before we
have leaders who will even think seriously about changing those incentives.
In the meantime, the negative repercussions of the current development model will keep
escalating.
The outsiders look at that like an unstoppable machine, but from their side, this is a place
that is extremely difficult to manage.
Let me add two more points if I can.
Wen Jiabao, the Chinese Premier has commented and I think it is a comment we're taking seriously
that as the outside world looks at China, they see what the 1.3 billion people can do
and sit there awestruck, but as we look at China, we see every accomplishment as needing
to be divided by 1.3 billion, and with a denominator that large, everything looks very difficult.
I mean he is absolutely right in that.
I think the real way to see China is as a relatively developed, reasonably modern country
of about 450 million people that live on islands in a sea of a developing country with a population
of over 800 million people.
And the interaction between those islands and that sea is absolutely pervasive.
And so you really need to appreciate that this is an extraordinarily difficult set of
issues in managing that relationship and gradually moving more into the island side, and more
out of the developing country side.
The problems are more profound than most outsiders realize.
I think the leaders have done a reasonably good job of handling it to date, but this
is something that no leader forgets, and that no outsider who studies China can forget either.