China Comment

Energy, Environment, and Economy

A Weak China?

In the Washington Post, John Pomfret, former WP Beijing Bureau Chief and author of Chinese Lessons: Five Classmates and the Story of New China (2006), argues that China is not going to become a superpower. His argument is a bit misleading, however. He demonstrates that China faces challenges, but he admits China’s GDP will outpace the United States’ in size. 

Pomfret’s four challenges, while intriguing, appear to be the wrong challenges to address. Despite them, China will still become a superpower. In this article, I explain why his challenges are not the most apt. Then I suggest four different challenges to China’s growth.

Pomfret calls attention to four challenges; “dire demographics, an overrated economy, an environment under siege and an ideology that doesn’t travel well.”

Dire Demographics… But Room for Expansion

Pomfret successfully argues “that as the working-age population shrinks, labor costs will rise.” In China’s coastal provinces, labor costs have already risen, partially due to reduced migrant labor flows. It is also true that after 2013, China’s labor force will peak at 900 million and subsequently the elderly will be more numerous than adolescents and children. And there are nearly 119 males born for every 100 females, which will create tensions.  

But, it is also true that despite decades of posting productivity gains, China is still underutilizing its human capital. Its workers have not yet realized the full potential of productivity gains that workers in other countries have realized- which means that China still has a vast, untapped potential for growth.

Chinese labor productivity has grown from (in 1995 RMB values) around 5000RMB per worker in 1979 to 21,500 RMB per worker in 2005 (or roughly $3100). (Holz, 166 and He & Kuijs, 6) And productivity grew at around 8.7% per year from 2000-2006. (The OECD defines Labor Productivity as GDP per hour worked) The US Labor Productivity value-added per worker is currently ranked sixth in the world by the OECD, behind Luxemborg, Norway, the Netherlands, Ireland, and Belgium.) 

Japan and South Korea, which similar to China started at a low base for productivity, are currently at 71% and 41% of US productivity ratings. Regrettably, it appears these OECD numbers have not been adjusted for PPP (Purchasing Power Parity). However, the point remains, South Korea had low productivity and a majority of citizens employed in agriculture back in the 1960s. Now, only 7.5% of its population works in agriculture.

China still has up to 43% of its population employed in agriculture (due to the nearly 200 million migrant workers who retain rural residencies, the number is probably more like 30%, but that is still an overly-high number). This underutilization and underemployment of workers demonstrates China still has much room to grow, and many more productivity gains to realize– its rise is not yet finished.

Overrated Economy… But Massive Purchasing Power

Pomfret rightfully criticises Keidel at the Carnegie Foundation for a July 2008 extremely pro-China growth article. Keidel assumes China will maintain over 7% yearly growth rates through 2030. These estimates may prove to be overly optimistic. However, China’s economy is still deregulating and expanding. It may not grow as fast as Keidel assumes, but barring massive inflation and energy shortages, the sheer amount of human capital and potential for development will allow it to expand at a healthy clip.

Pomfret wanders a bit into strange territory when he argues China cannot become a superpower simply because GDP per capita is so low. But why does low per capita GDP preclude development of a strong country? If GDP is high enough, China can finance a modern military, and its state-owned businesses can purchase overseas energy and mineral resources.

With even modest GDP growth, the domestic market can serve a middle class of perhaps 400 million (or 100 million, depending on the estimate), which is larger than almost all Western countries’ populations! If China is a giant in terms of worldwide trade, it can have greater influence in trade contracts with countries like Brazil and the Central Asian nations, marginalizing the United States.

Note: In later articles I hope to explore China’s middle class, its productivity in detail, and how China’s aging might effect domestic policies. I would love to go into greater detail on these items here, but then this post might become thesis-length. 

Environmental Problems… A Legitimate Challenge; But It Can Be Overcome

Pomfret is correct that China faces environmental problems. Elizabeth Economy and other scholars have detailed this in numerous books and articles. And environmental pressures can cause societies to implode, as Jared Diamond famously argued in Collapse.

However, China may be able to make fighting its pollution an opportunity for societal and technological development. China could allow NGOs and private groups greater chances to challenge local development and expose corrupt practices. Or, China could continue to suppress cross-provincial border NGOs, and could fail to develop technological innovation. The future of China and its environment could be dire, as Pomfret believes, or it could be positive should Chinese invent innovative environmental solutions (See Prospects for China’s NGOs for more info on Chinese NGOs).

Bankrupt Ideology… But The Country Is Just Now Developing Its “Mission” (See Maslow’s Hierarchy)

Pomfret’s argument about China’s ideological intellectual bankruptcy is interesting. He makes a good point about how China’s one-party system can stifle innovative thoughts. But China is still developing its mission, and there may come a time when China’s ideology can be successfully exported. (Please see the last section of my article on Maslow’s Hierarchy).

In contrast to the United States’ private think tank minds, and European NGO leaders, China has yet to produce many world-respected political theorists to propogate its philosophy. Its famous discursive-thinking thinkers and personalities; Wu Jinglian (economist), Bao Tong (politician), and Gao Xingjian (author) are either retired, marginalized, or living in exile.

(Note: This is not to say China lacks independent thinkers; CASS (The Chinese Academy of Social Sciences) has been known for producing innovative thought. And University scholars such as Shi Yinhong have done innovative work in regards to foreign policy. But in one example of stifling creativity, the State closed the innovative Journal “Strategy and Management” when they felt its authors strayed too far from the party line; Other thinkers contribute valuable intra-China thoughts on nationalism and how China should relate to the rest of the world, but Chinese views on how the world should be ordered internationally are less often elucidated, and have less of a world-wide impact. China has also long taken a non-voting and non-leadership position on the UN Security Council.)

Conclusion

Pomfret is right, China faces challenges. But these challenges are not dire enough to hobble its rise to global superpower status. Only the environmental challenge appears to be a potentially growth-derailing problem, and it could yet be overcome.

In response to Pomfret’s proposal, I suggest a few different problems China is facing that may delay its rise. To succeed as a superpower, China most needs to ensure energy supplies, tame inflation, deal with dissent/protests/petitioning by instituting a rule of law, and provide social services. (If the last two items are combined, then I would list Pomfret’s “environmental” challenge).

I hope to explore these problems in a future article and would like to hear your opinions on what four problems you believe are most important for China to overcome.

(My further response, based on your feedback, is here).

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30 July, 2008 - Posted by | China Economy, China Future | , , , , , , ,

11 Comments »

  1. First of all, I see two problems with the overarching “superpower” status. One is definitional and the other temporal. I think the term “superpower” needs to be disaggregated somewhat into whether you mean an economic or military superpower, or both. There’s also a tendency to conflate the term superpower to mean hegemon. To achieve proper hegemonic status, I think one must have BOTH overwhelming economic power and a preponderance of military strength. In our contemporary world, only the United States comes close to qualifying. Of course, any discussion of “superpower” bring to light the issue of “power” itself. But that’s a complicated discussion that requires sustained debate. On the temporal issue, one needs to outline a timeframe of when to expect China to clinch that “superpower” status. The idea of “catching up” presupposes that the US and EU are to remain stagnant, which would allow China to supercede them in 2020, 2030, 2050, 20XX, etc at current rates of respective growth. And if we are to hypothetically use the US in 2008 as the bar by which to gauge whether superpower status has been achieved, that means China’s GDP has to multiply by roughly 8 times to even reach parity with the current US level on a per capita GDP basis (China’s GDP is 1/4 of US’ but population is 4 times that of the US).

    Now, turning to the four points Pomfret highlighted and that you refuted, I’d just offer some additional thoughts (this is not meant to endorse or reject either Pomfret’s or your points).

    One, while it’s probably true that untapped labor productivity in China could spur further growth, I’m not sure whether labor productivity is necessarily a good indicator of economic prowess. To increase labor productivity you need a host of different inputs to promote it, such as technology, education. Those things just take a long time to permeate. So this is a temporal issue.

    Two, there is pent-up demand as you say in China’s burgeoning middle class. But because of fundamental market imbalances, supply may become increasingly incapable of meeting that demand. Pricing reform is needed in China’s energy sectors. And China’s financial system is not particularly sound. Those are serious problems that China must address to one, develop the jobs that would utilize more high-end labor and two, to ensure that it maintains a stable macro economy.

    Three, the environmental problems are very serious. And it’s possible that a concerted focus could solve some of the most pressing ones. I tend to agree that the silver lining here is the promotion of innovation and technological leaps in environmental and efficiency technologies. But in the short term, however, inefficient industries are going to be treated harshly as stringent policies from the top curb their output or simply hang them out to dry. A microcosm of this is the industrial shutdown around Beijing for the Olympics, which will surely disrupt regional economic growth to some extent. What happens when environmental standards impact heavy industry in a big way, causing shutdowns, layoffs, leading to general social discontent?

    Four, actually, China’s current model of development has invited some envy, particularly among undemocratic countries. That certainly counts as some sort of “ideational” power in terms of ideology. China is one of the remaining major countries that has maintained a single party system AND a flourishing economy. Historically, theories of developmentalism assume that economic liberalization leads to political democratization. But so far, China has eluded the fundamental assumptions of that theory. Regimes in the developing world find such a political economy model rather appealing, I think, and this may be a realization of Mao’s old dream of leading the “third world.”

    So, what do we see going forward then? I don’t think anyone has a clear idea. But whoever can predict with precision will surely be financially sound for the rest of their lives.

    Comment by Damien | 31 July, 2008

  2. […] China as a Super Power (the rebuttal): While others think it will happen (reply to Washington Post article). […]

    Pingback by Michael Netzley, CommunicateAsia, corporate communication, Asia, Web 2.0 | 31 July, 2008

  3. The term “Superpower” comes from the world of geopolitics. They use terms like regional power as well as Great Power. Think of WWI, when the Great Powers went to war with each other. After WWII, the USA and USSR each emerged as something new which had never been seen before: Great Powers with truly global reach. They concerned themselves not with their own spheres of influence, but with every nation worldwide. Hence, a new term was needed, Superpower.

    With the collapse of the USSR, the USA is the only remaining superpower. The term has been greatly abused, when its real meaning is “Great Power”. China, for instance, will never be a superpower as it has no interests in, say, the Caribbean, or the Pacific islands. It is a mere Great Power, but of course people don’t understand geopolitics, so the term Superpower is bandied about. THus the source of the confusion.

    You also see people misusing the term “Second world” not to mean the Soviet bloc, but developing nations. First world = the free Western nations, second world = behind the Iron Curtain, third world = everyone else.

    Comment by Mr. Ningbo | 31 July, 2008

  4. And one addendum to the point about labor productivity. An increase in productivity is typically positively related to an increase in mechanization. The reason that something like 3% of US work force is in agricultural, but still produces enough for the entire country and export is because of extremely efficient mechanized processes that require less human capital.

    Though I’m not a labor expert on China, my sense is that job creation is certainly a much higher priority than ramping up labor productivity (which, if you agree with the above assessment, would come at the cost of jobs). If you were Hu Jintao or Wen Jiabao, who are generally viewed as more populist in orientation, you’d probably be much more concerned about ensuring more or less full employment. That said, if China seriously develops other highly viable sectors in the services industry or others, then that would solve some of the employment issues. But again, those jobs in the so-called “new econonmy” require a certain level of education to obtain. I just think that structurally, China cannot move to a similar dynamic as the US or Western Europe in the foresseable future. But this issue alone does not preclude China from being perceived as a “superpower,” however you choose to define it.

    Comment by Damien | 31 July, 2008

  5. @Damien
    Well, the Americans have it good. They have so much flat lands that mechanized agricultural processes are easy to implement. Much of the arable lands in China are on hills so it’s hard to mechanize. Also, planting and maintaining rice crops with machines is a very oil intensive process compared to other crops so I don’t think it’s economically sound. They certainly can improve efficiency by some mechanization, but I think the big thing for China is better high yield genetically engineered species of rice.

    Comment by asdf | 1 August, 2008

  6. Dear Damien and Mr Ningbo,

    Thanks for the involved responses.

    I agree with your statements about the need for a clear definition of “superpower”. Pomfret didn’t appear to give a clear definition, and partially as a result neither did I.

    I think when people think about superpower they are generally thinking of two things.

    1.) The academic definition would be similar to the ones provided by Mr. Ningbo and Damien.

    2.) I would suppose that the general public, whom Pomfret was writing for, generally seem to see a superpower as an “overwhelming force” that has the ability to influence geopolitical events. The general public would have considered the USSR to be an unequivocal superpower along with the United States, because both countries could project their power around the world. The American general public also feared the Japanese economic superpower. Based on those criterion and the release of several bestselling China Rising and China Threat books, the general public believes China could be an unequivocal superpower in world influence due to its economic power. And as a result, many “fear” that China will develop a strong and threatening military power.

    If I had to make a straight argument for China becoming a superpower or not, rather than merely dealing with Pomfret’s evaluation, I’d like to first set up a disclaimer. Prognostications about anything farther in the future than 3-5 years are probably not very useful. I love predicting China’s future and the world’s future, but simply so many things can change– new inventions, new wars, that could change everything!

    You’ll see little argument with me about it being a little strange arguing that China will definitely pass the United States’ economy around the date of 2030 which I believe Keidel suggested. China definitely has a good chance to reach that level, but disagree with Keidel since I think energy demands might pull back against China’s expansion. If I remember correctly, your work deals with that area, so I’d be interested in seeing what you have to say on that issue.

    IN REPLY TO ONE- You make a good point about labor productivity needing a lot of inputs. China’s labor productivity is definitely worth further study. Its amount of college-going students increased from 1.5 M to 3.5M+ in the past 6 years, I believe (I will try to find the numbers if I use them in an article). While this doesn’t say much for the quality of current graduates… (Just where would all their quality new teachers have appeared from? The Chinese students and recent grads I spoke to generally seemed to spend most of their time texting or skipping classes, and studies I’ve seen seem to back up assertions that Chinese Colleges aren’t quite up to International Levels.)

    However, China does appear to be serious about investing in education. Hu Jintao and the Party now are providing free rural education. And infrastructure investments are through the stratosphere. China is planning on building more roads than are present in the US! There’s a good Economist article on the phenomenon, and the already-rapid progress. I traveled on a few of the new roads in northern China and in Yunnan and I must say, they are far superior to the older roads on both routes- they will do wonders for inter-provincial transit of materials.

    IN REPLY TO TWO- Agreed. I think China can address these issuesWe’ll see what happens.

    IN REPLY TO THREE- Most definitely agreed. If the environment degrades, it will create health issues and food supply issues- which could drag everything else down and require massive government intervention to allay. I think the only way for China to get out of its environmental mess is innovation. Until it’s economically useful for them to shutter coal mines, they’re going to keep the “full employment” over the environment. I recently read that due to the recent coal shortages, a lot of the “wildcatting” illegal mines were reopening.

    IN REPLY TO FOUR- It’s a good point. But I don’t see any other countries following a model similar to China’s that show any signs of success.

    >>So, what do we see going forward then? I don’t think anyone has a clear idea. But whoever can predict with precision will surely be financially sound for the rest of their lives.

    Haha.

    Re: Full Employment
    I agree, Hu and Wen probably in favor of that, but it appears both of them realize innovation and technology is the best way to ensure job creation since they have presided over China’s entry into the WTO and a massive enrichment of the Country. And their successor Xi Jinping has a degree in economics, which may imply a more nuanced predeliction toward economic growth.

    While you are correct about the need for massive education to ensure a move up the job ladder, I think the fact that china is two countries- a developed coast and an undeveloped interior might alleviate this problem. The mfg. workers can move to the interior, and the coastal workers can work in the knowledge economy. And eventually, the entire country’s education levels will rise. (This is a bit rosy a picture of the future, but it’s a real possibility.)

    Thanks again for the thoughts!

    Comment by chinacomment | 2 August, 2008

  7. I think we can go back and forth on this for a while and comments on a blog are not necessarily the best avenue to air views.

    Just want to simply say that Pomfret would not have felt compelled to demystify the notion of China as a rising superpower if the US media is less provocative on that front. Since weaving a story about rivalry is a lot more compelling than a story about positive engagement on both sides, we see much hyperventilating and colorful hyperboles in a media landscape rife with cliches that involve some iteration of a “waking dragon.” And of course, this sort of coverage triggers debates like the ones in which we’ve engaged in the blogosphere.

    As someone who works in Washington, I know the echo chamber that exists in this city is a powerful shaper of views, particularly on China. You have a constant flow of debates between the dragon slayers and the panda huggers. To me, the issue of whether China’s a weak or strong power is somewhat irrelevant since that silly dichotomy is the wrong approach in the first place.

    But alas, the institutionalized culture is difficult to smash. I don’t work specifically in the energy area.

    To answer your question, I analyze political risk in and the political economy of China, of which energy issues are a component. I cover everything from the macroeconomy to social instability.

    Comment by Damien | 3 August, 2008

  8. […] Pomfret is in the China will not be a superpower corner, while China Comment says it will. Pomfret puts forth his views in a recent Washington Post article, entitled, “A Long Wait at the Gate to Greatness” and China Comment rebuts them in a post, entitled, “A Weak China?” […]

    Pingback by China As Superpower. Yes Or No. | Business88 | 4 August, 2008

  9. […] “China As Superpower. Yes Or No” on a “debate” between John Pomfret and China Comment regarding whether or not China will become a superpower. Got a comment to that post from Mark […]

    Pingback by John Pomfret As China Basher? What Is A Superpower Anyway? | Business88 | 4 August, 2008

  10. Dear Damien,
    >>I think we can go back and forth on this for a while and comments on a blog are not necessarily the best avenue to air views.

    True enough, though I tend to think of blog writing as a slightly dumbed-down version of intellectual discourse in journals. Email/Forum Posts or in-person round-table discussion would probably be best for bouncing ideas around.

    >>Just want to simply say that Pomfret would not have felt compelled to demystify the notion of China as a rising superpower if the US media is less provocative on that front.

    I agree. I understand where Pomfret is coming from. But I think that on the one hand, he perhaps misidentified the most pressing challenges; and on the other hand, he committed a “sin” similar to the one he was opposing, but instead of single-mindedly lauding China, he comes close to a narrow dismissal of China.

    >>You have a constant flow of debates between the dragon slayers and the panda huggers

    Oh, I know about that. I worked on the Hill for a short time and attended Heritage Foundation lectures and some of the Hill hearings.

    >I analyze political risk in and the political economy of China, of which energy issues are a component. I cover everything from the macroeconomy to social instability.

    That’s quite a broad and challenging assignment. I wish you luck!

    Comment by chinacomment | 5 August, 2008

  11. […] A Weak China? […]

    Pingback by Lucky 8 « China Comment | 19 February, 2009


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