China will celebrate the 60th anniversary of its Communist regime today. The government is putting on a huge show, but the significance of the display of power and grandeur has more to do with the country’s future than its past, which has been patchy and violence-ridden even as the country has taken phenomenal strides to its present position. There is no doubt now that China is the new kid on the block, for it has emerged as an important global player on virtually all international platforms. As the second-largest and fastest-growing economy, it is at the heart of the multilateral effort to both stabilise the global economy and create a new framework for economic governance. However, to play this role effectively, it must undertake some significant reforms and reorientation in its domestic economy and, particularly, its financial sector. As large and as influential as it has become, many of its policies and institutions still reflect the legacy of an essentially mercantilist strategy for rapid growth. This will need to evolve, with greater emphasis on domestic sources of demand as well as a more sophisticated financial system that will provide global investors with an unmatched return-risk profile. In short, China at 60 is at the point of inflection between being a supremely successful emerging economy and a key global player.
Judging by the experience of the last six decades, it is not difficult to believe that the system can and will attempt the transition. The Chinese Communist Party may have been in power all this time, but it has effectively combined change and constancy in achieving the enormous economic success that it has. The Four Modernisations of 1978 brought in outward orientation, efficiency and incentives into a regime that was inward looking and ideology-driven. The “system” itself did not change by much; the mechanisms of the party and government remained essentially the same. But what surprised most outside observers was the speed with which the old system embraced the new set of economic objectives. The power of the regime to accommodate change has been seen time and again. China’s entry into the World Trade Organisation in 2001 was achieved with a much higher set of commitments than other, earlier signatories had made. But, this was seen as a necessary price to pay and the government made every effort to persuade domestic stakeholders of the wisdom of the move.
Having come this far this fast, the next steps towards global influence will be more difficult. The ability to use economic power with tact and diplomacy does not emerge overnight. China’s frictions with Taiwan and India underscore its tendencies to flex its muscles all too quickly. Its approach to Tibet and the Uighur community in Xinjiang highlights the lack of internal conflict resolution mechanisms. And, its support for oppressive regimes in Myanmar and in some African countries based on its perceptions of economic self-interest will restrict its credibility in a global leadership role. There is much to look back on with pride, but the challenges of transition to a larger global role are significant. Equally, since significant power shifts often cause conflict, it is important that the rest of the world engages with China in a peaceful way, and brings it into a web of international commitments and consultation arrangements, so that the world as a whole is able (along with China) to adjust to new realities in Asia and beyond.
