China appears to be a stable country well on the way to high-income prosperity
This week’s column comes to you from China where I have been travelling for 10 days. The last time I was here was about 15 years ago and the changes since then are quite amazing. Much of this was expected from all that one had read about the Chinese growth. But there were some surprises.
Like all Indian visitors, I was struck by the quality of the infrastructure in Beijing. Of the many things that one could talk about, one thing that impressed me most was the quality of the pavements — broad, even, well-paved and disabled-friendly. This is the case not just in the main streets in Beijing but also in side streets and in the smaller cities that I visited. Maybe I am over-reacting because of the total lack of concern for pedestrians in Delhi, but the quality of pavements is a good test of urban governance.
The state of urban areas reflects China’s huge investments in infrastructure which are the staple of many an account from economic and financial analysts. Some have suggested that there has been a great deal of over-investment. But I saw no evidence of under-used infrastructure. Roads are crowded with vehicles in Beijing and outside, and the subway and buses run full at most times of the day. The flights I took were fully occupied and airports looked quite congested with users. The rather full utilisation of the transport facilities does not suggest any over-investment at least in this area of infrastructure.
My visit coincided with the celebration of the 30th anniversary of World Bank-China relations at which I was a peripheral invitee. Several things about the tone of this celebration were interesting for an Indian. I was pleasantly surprised by the frank acceptance of the role of the World Bank in shaping policy and China’s openness to ideas from others about economic management. But there were also references to the need for a healthy dose of independence to tailor policies to suit national conditions. China listened to the Bank’s advice on market-based development but calibrated the pace of reform in its own way. What struck me was the eagerness to listen — quite different from the “already tried it, been there” attitude of the Indian bureaucracy to every bit of external advice.
The focus of the discussion at the celebration was on China’s transition from a middle-income to a high-income country. There was expression of a certain apprehension that globally every such transition has come with a slowdown in growth, which, given its demographics, China cannot afford. One question was the sources of demand growth that could fuel the transition and the answer was that it would come from rapid urbanisation (and the related infrastructure requirements), from the expansion of higher education and from the promotion of innovation.
Gary Becker, who spoke at the celebration, argued that the transition from low to middle income can be managed if incentives are right, a capacity to absorb imported technology is available and if the basics of human resource development, like school education and health care, are provided. But, he argued, the transition from middle to high income is more difficult and requires a capacity to innovate and develop new products and processes domestically. This can only be done with a more rapid expansion of higher education and improvements in its quality.
This emphasis on higher education and innovation as the key to future growth seems to be reflected already in Chinese policy with large investments in universities. As for innovation, in one area, renewable energy, China is racing ahead of most other countries not just in the application of solar and wind power but in the manufacturing capacities required for these purposes.
What are the risks that confront this Chinese model of development, a Chinese bureaucrat asked. My off-the-cuff response was that it could be potential shortages of high-skill labour and rising wages for such labour that would erode enterprise savings. This is a product of the demographics of China where the one-child policy implemented in the 1980s and 1990s means that there is serious narrowing of the age cohort relevant for higher education.
This one-child policy has also led to something that older people call the “little prince and princess” syndrome, with one child being spoilt by two parents and four grandparents. I met one of them who was our tourist guide. One could see the elements of a spoilt child in his petulant objections to any interruption or questions. They are very different from the disciplined and almost docile Chinese of the older generation. Will these little princes and princesses accept the discipline of an authoritarian state?
The pressure for democratisation and the limited capacity of the Communist Party to handle it is one potential source of instability. China is a much more homogeneous country than India and it has the police power to handle its minority problems in Sinkiang and Tibet. The pressure for democracy will come, if at all, from a rapidly growing skilled labour and professional class that the transition from middle to high income will bring in its wake. Will this labour aristocracy be bought off with high wages or will they demand more democracy than what is on offer now?
The police power of the state is well hidden. One normally assumes that authoritarian countries will have overly officious and intrusive security people, but that was not the case in China. The immigration and customs formalities were quick and courteous. There are many traffic cops in the streets and they actually manage traffic unlike some whom we know. This efficiency was evident also in other services — hotel, airline and local transport bookings made online turned out exactly as promised even though many of the service providers were in the public sector.
The overall impression of China from this short visit is of a stable country well on the way to high-income prosperity and a governance system that may be corrupt, but that performs and delivers. This contradicts some more systematic analysis of Chinese prospects and may well be just a traveller’s tale. All I can say is that I will need much more evidence to believe stories about China hurtling towards a crisis than has been presented in the pessimistic assessments.
