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Is China Choking on Success?

China’s citizens are paying a steep price for rapid economic growth. The government struggles to mask environmental problems, yet China is home to seven of the world’s 10 most polluted cities. Smog often blankets the nation’s cities. Robert A. Manning, senior fellow at the Atlantic Council’s Brent Scowcroft Center for International Security and former US State Department official, points out that rapid urbanization and energy demand contribute to the pollution. China invests in renewables, but these aren’t keeping up with rapid growth, so 70 percent of the nation’s energy still comes from coal. China’s leaders recognize the challenges, and reports like China 2030 from the World Bank urge reform, yet many special interests benefit from the growth-driven economy. For more than three decades, the government emphasized rapid growth to create jobs, prosperity and stability. Citizens vent online, rejecting the side effects of growth. Manning concludes that “Beijing confronts a credibility and accountability crisis on a near daily basis.” – YaleGlobal

Is China Choking on Success?

Smog enveloping China’s cities could be a metaphor for its dangerous, unsustainable growth
Robert A. Manning
YaleGlobal, 15 February 2013
Smothered: China's leaders must juggle the consequences of rapid growth, including a blanket of smog over cities; nationalistic responses to territorial disputes provide but a temporary distraction

BEIJING: A popular app on smartphones in Beijing is the US Embassy’s Air Quality Index measurement. No wonder: Until last year, even as the air in China’s capitol has increasingly come to resemble that of an airport smoking area, its ruling elite have refused to make public its air-quality levels or even admit a problem. The levels of the nasty particulate PM2.5 – which measures 2.5 microns or less, small enough to enter lungs and bloodstreams – are some 40 times higher than the 25 micrograms per cubic meter deemed an acceptable level by the World Health Organization.

The entire city of Beijing is choking on its success, subjected to air quality that’s the equivalent of smoking two packs a day.

Air quality is so bad that the Beijing government temporarily shut down more than 100 factories and ordered many government vehicles off the streets. According to a recent New York Times report, Beijing has reached new records for pollution, “beyond index” measurements, according to US Embassy Twitter account. Moreover, such pollution is surging all over northern China. Complaints have gone viral on China’s blogosphere, with even state news media reporting it.

The putrid, poisonous air is an apt metaphor for the current Chinese predicament and challenges facing China’s new leaders: The state-centric economic model is unsustainable, exceeding the limits of utility. China’s citizens are paying a steep environmental price for breakneck development over the past 34 years – and increasingly question the legitimacy of a political elite and policies lacking in transparency and accountability.

Putrid air is an apt metaphor for the Chinese predicament: The state-centric economic model is unsustainable.

Beijing is not alone. Consider that China features seven of the world’s 10 most polluted cities, and then game out a new wave of urbanization over the coming generation projected to add 350 million more to the country’s urban population. By 2025 there will be 221 Chinese cities with a million or more people living in them – well connected with smartphones. By comparison, Europe has 35 cities with 1 million or more.

China’s rapid urbanization contributes to continuing growth of energy demand, which helps explain why despite large-scale investments in nuclear power, wind and solar, 70 percent of its energy still comes from coal, a percentage that’s remained steady over the past two decades.

The smog encapsulates many core problems that must be overcome to keep China on a growth trajectory to meet the needs of its citizens, particularly a growing middle class. In a rare bit of candor, Wang Yuesi, an atmospheric physicist and member of a government working group on haze reduction, told the Financial Times that “coal burning and car emissions” interacting with a particular weather pattern were the immediate cause of the problem. Remarkably, Wang added, “Only if reform of the political system is put on the agenda will the economic system and the [environmental] management system be able to catch up.”

Xi Jinping and his colleagues, expected to take the reins of power in March, are all too aware of the depth of problems facing China, of which the smog is so emblematic. China’s state-centered, investment-driven export growth model is clearly one of diminishing returns.

This was the premise of China 2030, a report last year co-sponsored by the World Bank and the Chinese State Development and Reform Commission, a leading policy body. China 2030 outlines the sweeping reforms necessary if Beijing is to realize its goal of becoming “a modern, harmonious, created, and high income society.”

China’s state-centered, investment-driven export growth model is clearly one of diminishing returns.

As the report states, “Realizing China’s vision for 2030 will demand a new development strategy” – one that requires strengthening the rule of law, with a greater role for private markets and “increased competition in the economy.” Importantly, the strategy argues that “reforms of state enterprises and banks would help align their corporate governance arrangements with the requirements of and permit competition with the private sector on a level playing field.”

The strategy also argues for a new strategic direction of “green growth,” viewing environmental protection and climate-change mitigation not as burdens, but as growth opportunities. Beyond the toll on public health, it’s estimated that environmental damage accounts for roughly 5 percent of annual GDP loss.

Although incoming President Xi and many in the standing politburo are viewed as likely reformers, thus far there are few signs of a seachange in China’s approach to development. The Chinese political elite are part of a wide network encompassing those who lead state banks and state-owned enterprises. Thus, it’s no surprise that China’s major state-owned oil companies have lobbied against enforcing higher fuel-efficiency standards, even as the number of autos in Beijing has jumped from 3 million in 2008 to more than 5 million in 2012.

This is the dilemma for China’s leaders, who know they must pursue far-reaching reforms that will have no small impact on the endemic corruption and the perquisites that come with Communist Party membership and government jobs, which benefit much of China’s upper echelon. But leaders appear somewhat perplexed as to how to implement specific new policies, navigating between competing interest groups. Instead, recent efforts to keep economic growth in the 7 to 8 percent range have involved more stimulus spending, with state banks funneling renminbi to Chinese state-owned industry.

The price of breakneck growth? Environmental damage, inequality and a development model that has run its course.

Over time, such behavior will only make growth and reform that much more difficult. These internal dilemmas may help explain Beijing’s assertive, nationalist actions over disputed islets in the East China Sea with Japan and the South China Sea with the Philippines, Vietnam and Malaysia. The maritime disputes may be a popular short-term distraction, but won’t alleviate pressures for change.

However, at the end of the day, the legitimacy of the China’s ruling Communist Party has been based on performance. And more than three decades of double-digit economic growth have been part of a successful social contract. But the price of breakneck growth has been enormous environmental damage, growing inequality and a development model that has run its course. In the face of 400 million internet users and increasing access to smartphones, ubiquitous social media sites and blogs, Beijing confronts a credibility and accountability crisis on a near daily basis.

In a sense, China and the US face somewhat similar challenges. The China 2030 report could represent Beijing’s version of the report from the bipartisan Simpson-Bowles Commission, appointed by President Barack Obama, which proposed in 2010 a broad array of tax, budget and entitlement policy reforms that have been met with a stony silence from both the Obama administration and congressional Republicans. Both major powers understand the challenges awaiting them, but find it extremely difficult to contemplate, let alone implement, the actual steps required.

One suspects that sooner or later both Beijing and Washington will likely gradually take on reform steps in a piecemeal approach. Former Chinese leader Deng Xiaoping, now deceased, described his approach to reform as, “crossing the river by feeling for stones.” That pragmatic approach is likely to be followed by his successors, but whether they can do so and keep China’s economic wheels turning sufficiently, let alone without making it still more difficult to breathe, is another question.

 

Robert A. Manning is a senior fellow at the Atlantic Council’s Brent Scowcroft Center for International Security and its Strategic Foresight Initiative.  He previously served in the US State Department as a senior advisor to the Assistant Secretary for East Asia and the Pacific (1989-1993), on the Secretary’s Policy Planning staff (2004-2008) and on the National Intelligence Council Strategic Futures Group (2008-2012).

Rights:Copyright © 2013 Yale Center for the Study of Globalization

Comments on this Article

28 February 2013
An interesting article by Robert A. Manning and some interesting elaboration by Steve M.
I wonder if the “development model" is basically the same as the United States used in the latter half of the 19th century up until the 1930s, i.e., the exploitation of cheap land, cheap labor, and lax enforcement of laws” is based on that developed in England in at the beginning of the Industrial Revolution. It sounds very similar.
As a large part of China’s problems are due to the use of fossil fuels ie coal, oil and natural gas I wonder if a follow up could be done on what sort of costs China would face in transitioning to renewable energy sources eg solar, wind etc.
Nai,
"comoetition" sounds like a typo (or speako) to me.
-Matthew Rosenbaum , Australia
26 February 2013
China's "development model" is basically the same as the United States used in the latter half of the 19th century up until the 1930s, i.e., the exploitation of cheap land, cheap labor, and lax enforcement of laws. The difference was that the US's development was based on private capital and a laissez-faire approach to capitalism by government, whereas China's has been more state-directed. Both approaches worked because of that triumvirate.
The result of cheap land has been enormous discontent as land is basically confiscated from peasants (bought at agricultural use prices and then used for commercial purposes).
The result of cheap labor has been income inequality This has been exacerbated by the fact that a large portion of China's industry is the OEM industry, where products are produced to be sold under someone else's name. The highly-paid jobs like design, engineering, administration, sales & marketing are retained in the country of the company that has the patents. Thus the only people making serious money are the factory owners, not the workers in the factory.
The result of lax enforcement of laws has been an environmental nightmare. Air pollution, water pollution, soil pollution, soil erosion, desertification, even contamination of manufactured products like baby formula and toothpaste.
It's a sad commentary.
-Steve M , Thailand
17 February 2013
Is there really a word called "comoetition"(para.10, last line)?
-Nai , Taiwan