Winds of change in China

By Mike Mosettig

Two women wear face masks while walking on a polluted evening in Beijing, China on Oct. 24, 2014. Photo by Wang Zhao/AFP/Getty Images

Two women wear face masks while walking on a polluted evening in Beijing, China on Oct. 24, 2014. Photo by Wang Zhao/AFP/Getty Images

Even in a country and economy as large as China, sometimes the small stuff matters.

After years of protesting against the U.S. Embassy posting Beijing’s horrendous pollution numbers on its website, China now allows emission statistics to go on iPhone apps and for lawsuits to be filed against industrial polluters. Soon, the central government will be issuing monthly unemployment statistics, as Western governments have been doing for decades. And all land transactions, a source of much local friction in recent years, will be audited and available for public scrutiny.

These small straws in the wind, as well as bigger ones, are the evidence behind a new Asia Society Policy Institute study that argues the latest economic reforms, announced at the Communist Party’s Third Plenum last November, are for real and merit the description of game-changer. The report compares the latest reforms, aimed at maintaining China’s economic growth through more market mechanisms, with those initiated by Deng Xiaoping in 1992 and another round accompanying China’s 2001 admission to the World Trade Organization.

“China is embracing an advanced economy rule book,” said the report’s principal author Daniel Rosen, a former National Security Council staffer in the Clinton administration. He said China’s President Xi Jinping pushed real reforms in order to keep China’s economy growing at an annual 6 percent rate. A slowdown to 3 percent would be trouble, Rosen added, and a slide to 1 percent growth would create a social and political crisis in a country of 1.4 billion that churns out 7 million new university graduates every year looking for good jobs.

The reform program was announced last year with eight major objectives and already has been translated into hundreds of new regulations and instructions aimed at creating what Rosen called “more of a regulatory state” along the lines of other advanced economies.

But skeptics abound, acknowledged Rosen and Brookings Institution analyst Kenneth Lieberthal at the unveiling of the Asia Society report. Xi has to persuade thousands of lower-level officials as well as bosses of state-owned enterprises, many of whom have become vastly wealthy from current arrangements, to get with the program. So far, a major weapon has been fear, with the unleashing of thousands of anti-corruption investigations run by the party, not through the courts, and which have led to dozens of suicides.

And China confronts real long-term economic minuses, Rosen said, including an aging work force, diminishing returns from massive investments in factories, transportation and public works projects, and a developing air and water environmental crisis in a coal-dependent economy.

Indeed, some less optimistic views about reform and Chinese economic growth were on offer on the Asia Society’s China File website, including a conversation about the study. David Hoffman of the Conference Board China Center said numerous reforms so far, such as the proposed Shanghai Free Trade Zone, exist more on paper than reality. Houze Song of the Paulson Institute warned the reforms might come too slowly for China to confront some current and real economic problems, including a slowing global economy and ever higher corporate and local government debt.

Joined by IBM Vice President Dan Padilla, a former Bush administration official, Rosen and Lieberthal said the projected reforms will force the United States and other competitors and investors to adjust their game plans. But Padilla emphasized the reforms, which he labeled “a decisive break,” are driven by domestic concerns and that Washington should realize, “it is not all about us.”

The changes, aimed at a 2020 goal line, will not be readily visible to President Barack Obama and other Pacific nation leaders arriving in Beijing in early November for the APEC summit. What will be noticeable is a host Chinese president who has consolidated increasing powers in his hands, putting himself in charge of several committees to make sure the reforms get implemented. What Xi and his entourage want to make less visible for the meeting is Beijing’s pollution. Pictures of Beijing marathoners running with masks recently went viral on social media. As during the 2008 Olympics, the city will be partially closed down. Indeed, action on climate change is one potential area of agreement between the U.S. and China, Lieberthal said.

As all the Asia Society meeting participants noted, Xi’s aim is to strengthen, not weaken, one party rule in his country, even if a more market-oriented economy inevitably unleashes forces that diminish government and party power.

And should the Chinese economy successfully make it through this third transformation, what might it look like, with a $14 trillion gross domestic product combined with its national idiosyncrasies?

“Think of Italy with 1.4 billion people,” said Rosen.

Michael D. Mosettig was the PBS NewsHour’s foreign affairs and defense editor from 1985 to 2012. He now watches wonks push policy in Washington’s multitude of think tanks and writes occasional dispatches on what those scholars and wannabe secretaries of state have in mind for Europe, Asia and Latin America.

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