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For China's New Leaders, Massive Growth Means High Hopes And Hidden Traps

Guards in an underground passage between Tiananmen Square and the Forbidden City
Guards in an underground passage between Tiananmen Square and the Forbidden City
Shujie Yao*

Beginning this week, there will be a new generation of Chinese leaders. The world’s media are all highly attentive to China’s coming changes and the policy direction of China’s new leaders. I’d like to share my personal views, focused on the domestic issues such as the economy and the government.

I believe the focus of the new Chinese government must be people’s livelihood, clean governance and the environment protection.

Indisputably over the past ten years, under the leadership of Hu Jintao and Wen Jiabao, China has seen the most astonishing economic growth. The biggest catalyst for China's rapid rise was its joining the WTO at the end of 2001. Catapulted by this, China was able to be fully integrated into the world economic system, and see its inherent demographic and talent advantages flourish. It took China just 10 years to reach the level of internationalization, and international division of labor that many developed countries had required more than 30 years to achieve.

From 2001 to 2011, China's per capita GDP grew from less than $1,000 to $ 5,500 GDP and its total GDP has grown from $1.3 trillion to $7.5 trillion.

With an average annual growth rate of 20%, China has become the world’s largest exporter and was the second largest trading nation in 2010. By the end of 2011 it had foreign exchange reserves of $3.2 trillion, accounting for one-third of the total world reserves and three times that of the second-largest foreign exchange reserve, those of Japan.

Meanwhile, China also ranked as the world’s number one producer of more than 220 kinds of major industrial and agricultural products including grain, cotton, cloth, steel, cement, coal, electricity, cars, computers, mobile phones. Among the major industrial products such as computers and mobile phones, China accounts for more than a 70% share of world production. In other words, by now, consumers around the world depend onChinato turn out these products.

The past 10 years has been a singular period for the Chinese in confirming their international status.China’s total GDP continued to exceed five of the seven richest Western industrialized countries (G7),Italy,France, theUnited Kingdom,GermanyandJapan. In 13 years’ time, most probably,Chinawill overtake theU.S.as the world's largest economy.

China's rapid economic development is based on the high-speed development of its education, science and technology.Chinahas continuously increased spending on research and development, increasing over the past decade from less than 1% of GDP to 1.8% of the total GDP.

Critical voices

Enrollment rate for higher education has risen from 5% in 1996 to 23% in 2011. The millions of university graduates and postgraduate graduates each year are the main force in changing the structure of human capital and are an important guarantee of China’s further development.

At the same time as this fast development, a variety of voices critical of the government have been heard, especially from the Chinese people themselves, coming one after another. Why is that?

Polarization among the people, corruption and pollution have become the country’s three biggest curses – and the biggest threat to China’s stability and sustainable development.

The individual complaints and discontent are a demonstration of people’s lack of social well-being. The government should not ignore such sentiments coming from the people. Since the goal of development is the happiness of the people, when people lack a sense of well-being, the government must reflect.

It is not so much about why people are grumbling and dissatisfied, since their income has increased and they have had a better education, but about the real roots of the discontent.

The reasons are very simple. Chinese people are unhappy not because their income has decreased or their living standard has gone down, but because they feel that the increase of their living standards and income are not proportional to the efforts they have put in. Meanwhile, there’s a minority of people whose multiplying income is far beyond ordinary folk’s imagination. In other words, a widening wealth divide is what makes the public feel unhappy and discontent, in relative terms.

People’s second source of discontent is that there are more and more government officials who are enjoying more and more privileges, and the phenomenon has been legalized. That is to say without institutional reform, bureaucratization and hostility between the Government and the people will become a historical certainty.

Billions, not millions

Worst of all is the increasingly rampant corruption. In the past decade, not only has corruption not been effectively restrained, but actually has proliferated. For instance, a sub-division level urban management official in Guangdong, caught recently, owns as many as 22 apartments. Certain high-ranking officials involved in corruption are alleged to have colossal sums, not in millions of RMB, but in billions of American dollars.

Just the past five years alone, some 670,000 officials have been investigated by the Inspection Department of the Communist Party’s Commission for Discipline.

Where do these astronomical sums of money come from? The stock market and the housing market.

Money in the stock market is hollowed out. Who did it? Who causes the housing prices to soar? Ordinary people, even if they work hard all their lives without more than the basic food and drink, still cannot afford to buy a small apartment of 50 square meters? With China’s nearly 2,500 listed companies, bank profits exceed the profits of all other companies. And the profits of the two largest state-owned enterprises exceed the total of the top 500 private enterprises.

The monopoly of state-run enterprises and corruption exist at the expense of the interests of the people. Meanwhile, the high investment and export-led economic growth model faces unprecedented challenges, relying on cheap labor and the exploitation of natural resources.

One can’t turn the clock back, We can’t deny what China has achieved in the past decade. But the problems and challenges accumulated in the past ten years can’t be overlooked either. Denying the performance is unfair and would be in bad conscience, whereas ignoring the problems will not solve the issues or prevent China from falling into the so-called middle income trap.

Adam Smith criticized 18th and 19th centuryChina in saying it had fallen into a "stable and backward" status. If China does not resolve its current problems, it will fall into another "stable and backward" state.

This is why China’s new leadership must carry on the recent heritage and open up to the future, carry forward the good while overcoming the problems in a timely manner.

*Shujie Yao is the Head of School of Contemporary Chinese Studies at the University of Nottingham, UK

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