From Great Leap Forward to Confident Stride, But can China Prevent Itself from Stumbling? By David Bond

Exeter, November 2014. There are signs that China is struggling with the reforms required to realise its potential during a millennia prematurely labeled ‘Asia’s Century’. In three decades China has undergone a transformation of staggering proportions witnessing unprecedented economic growth. The question that remains is whether President Xi Jinpeng can create the conditions within China that will deliver the growth necessary for ‘China’s Dream’. This question will as well be heavily influenced by China’s demographics, which will probably be a seismic game changer. It is possible that China may stumble on its 21st Century journey in attempting to deliver this ‘dream’ as President Xi now wrestles with the dilemma of implementing the policy changes necessary to continue China’s economic growth whilst limiting the change to the workforce’s age structure and insatiable economic aspirations. China’s economy is not without its own problems as William Wilson recently outlined, “China surpassed the United States in outstanding corporate debt last year, amounting to $14.2 trillion. Moreover, the credit quality of Asian corporate debt is much lower than in the West.” The amount of household debt now held in China is approaching the levels the UK experienced between 2001-2007. Such levels of personal debt were assessed as being toxic in the West and contributed, in part, to the slow economic growth post-crash. Radical social and economic reforms are necessary; what is required from the Central Committee, therefore, is action and not inertia.

China has experienced tremendous social change in the past, but the results have not always been terribly impressive. Mao’s Great Leap Forward in 1958-61 was intended to deliver a rapid transformation from an agrarian economy into a communist society through industrialisation and collectivisation. It delivered, however, The Great Famine resulting in 30 million deaths with Mao introducing systematic terror, coercion and forced labour in striving for transformation. A return to such practices in the 21st Century is highly unlikely however, and especially with Xi Jinpeng. The Chinese President is evidently, and intentionally, stepping out of the shadows of the Central Committee. He has solidified his power base, adopted greater executive powers and appears to be forging an identity as Statesman rather than pantomime ‘princeling’. President Xi’s personal experience whilst working in Liangjiahe, on a farm for seven years, should have engendered some empathy with the majority of Chinese people – his abhorrence towards the endemic corruption that exists within government is surely evidence of that. This empathy should serve him well; it is often forgotten that China remains an extraordinarily poor country with around one billion Chinese living in abject poverty on less than $4 a day. Policy reforms therefore, need to address the inequality that exists in China and make society more equitable; he of all of the ‘princelings’ will know that.

The more sophisticated reforms of the late 1970s delivered two basic aims: developing the Chinese economy and controlling the population. Thereafter, China opened its doors to foreign trade and created a manufacturing based market economy and introduced the ‘One Child Policy’. Implemented in 1979, this population control measure has significantly slowed Chinese fertility rates (presently between 1.5 and 1.6 births per woman) and was partly responsible for the demographic dividend that assisted China whilst realising year-on-year gains of 10% gross domestic product (GDP). However, some analysts now assert that such economic growth is unlikely to continue; the signs are that it is already slowing with GDP for 2012 (7.7%) and 2013 (7.6%) falling short of projections.   And, to compound the problem China’s population is ageing, and it is doing so very quickly. The ‘demographic dividend’ that has boosted China’s industries will in a few years become a ‘demographic deficit’. In dealing with this problem, more emphasis on society providing care for the elderly will be necessary. What should be a concern for the Communist Party is that even when unpopular policies like this are relaxed, as was the case last year, cultural changes within society and affordability issues have resulted in a surprising apathy towards larger families. Xinhua, a Chinese paper, recently outlined that whilst “11 million couples have been granted a permit to have a second child since the country relaxed its family planning policy at the end of last year, statistics from the National Health and Family Planning Commission shows that only 700,000 had filed birth applications.” It is possible the cost of sending additional children through an expensive education system, with limited capacity, is preventing parents from extending their families. The government therefore, should add the issue of affordable and available education to its ‘to do list’.

China is not unique in facing this problem, and by 2050 in excess of 60 countries will have populations where over 30% are 60 years or older. Significantly, only a third of those countries affected possess adequate social welfare schemes to address this problem. Significantly, China is not one of those countries and they currently possess a ridiculously low average retirement age (50 years for women and 60 for men). This is accompanied by an archaic pension system that is higher for those in urban areas and Special Economic Zones (SEZ) than it is in the countryside (the 56% living in the countryside can expect a quarter of what those residing in the SEZs receive); such disparity is an obvious source of irritation for those Chinese below the poverty line. Such economic disparity, exacerbated by the ethnic tension that exists in such a vast and diverse country is creating frictions that if not addressed could threaten President Xi’s vision. The problem for China is stark and the Ministry of Human Resources and Social Security (MHRSS) have acknowledged its existence, stating that they will provide policy solutions by 2020. Many observers contend that this is not quick enough.

Current predictions are that by 2050 there will be almost 420 million pensioners in China. In 2000, there were 6 workers for every retiree, but by 2030 this ratio will have fallen to just 2:1. This development will unquestionably undermine the ‘4-2-1 model’ of familial support that has been lauded as a means of contemporary Chinese workers sustaining their immediate family. Whilst it is likely that a small proportion of Chinese workers could sustain such responsibilities, Stratfor’s George Friedman stated “The China we think of, the China where people are earning more than $20,000 a year, well, that China is maybe 60 million people.” If Friedman’s figures are accurate then pension reform and other welfare policies will be necessary to provide for the majority in their dotage. Presently, the average retirement age in China is 53 years and better nutrition and greater access to modern medicine has resulted in an average life expectancy of 75 years of age. Whilst increasing the retirement age is a suggestion there is a deep and broad objection to this proposal – 70% of those polled in eleven Chinese cities recently objected to raising of the pension age. The MHRSS have indicated that they will legislate on such issues by 2020, but they need to address this quickly as China’s work force, that has so long delivered the demographic dividend the country needed, is now shrinking. For example, there were 3.4 million less workers in China in 2012 than in 2011. China’s workforce is dwindling and whilst it has traditionally been structured on high-volume, low to medium-skilled manufacturing it is now increasingly finding this a highly competitive environment, as William Wilson stated “China’s decade of double-digit wage growth is causing it to lose lower-end manufacturing to less costly countries like Vietnam and the Philippines.

President Xi is clear on his vision: ‘China’s Dream’ of increasing economic power and asserting greater influence across Asia and possibly, globally too. However, presently one billion Chinese remain in poverty, its workforce is ageing rapidly and the welfare provision for these future pensioners is both inequitable and likely inadequate. Moreover, the impending ‘demographic deficit’, low birth rate, on-going corruption and poorly structured economy could result in China stumbling just at the point when everyone expected it to stride purposefully through the 21st Century and emerging as the sole hegemonic power. What is required now in is innovation. Numerous social and economic reforms, briefly outlined, are required to truly unlock the enormous potential whilst addressing the obvious problems. These observations are not criticisms. Over the past 30 years China has done the hard work remarkably well by developing its economy and utilising its mass, but what is now required is the leadership and innovation to do the ‘harder’ work. President Xi must deliver greater governance, re-structure the economy and raise living standards for all and not just the few. Whilst the Central Committee has acknowledged these problems exist there appears more inertia than action in the 18th Plenum and waiting until 2020 might not be soon enough. There is a perception of inertia and a stumble is beckoning….

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