Saturday, 16 September 2017

China's Issues

Every country faces challenges and China is no exception. But by global yardsticks, China's issues are less critical than what most other countries face.  It is after all the one country in the world which does not face a serious growth challenge (at least as of now).  China is however such a large country that even a seemingly minor issue is of gigantic scale and one that will affect the whole world. This is why everybody in the world ought to take a much greater interest in this country.

This post is a compendium of social, political, economic and moral issues that China faces at this point of time, in no particular order

Maintaining GDP Growth : The "contract" between the Communist Party and the people is a simple one - Economic growth for political control. When economic growth falters, this contract will be put under strain. There are a number of challenges to maintaining economic growth and some of them are articulated below. You can't grow endlessly at 8%+. The inflexion point has come.

Quantum of Debt  : China's debt to GDP ratio is galloping and is now above 300%. Much of the growth over the last decade has been debt fuelled. Growth will seriously falter if debt is cut. That's why the elusive "soft landing" is proving so difficult for China. Just for comparison, India's debt to GDP %, which I often cry about is "only" 130%. The United States, of course is a leader at 350% !

Income inequality : Every country faces this problem, but China faces it as bad as the US. The Gini coefficient, a measure of income inequality is 0.42 (higher the number, greater the inequality). The US is 0.46. India is 0.35. China is starting to have first world problems

Ageing population : Because of the one child policy that was rigidly enforced until recently, China is rapidly ageing. It will be the first country in history to have an ageing problem before it got rich (remember, on a per capita basis, China is still middling). With a poor social security network, who is going to pay for the aged and take care of them in a decade or two. China has the peculiar problem of one grandchild for four grandparents.

Corruption : We have spoken of it in previous posts. It is a serious problem.

Environment : China faces an acute environmental problem. The government is actively tackling it, but the problem is a huge one and one that was allowed to build up to crisis levels over decades. China also faces an acute water problem (worse than India's). There aren't easy solutions. Much of the north is virtually a desert, but with teeming populations.

Restive provinces : The one thing China is absolutely terrible at is integrating people who are culturally different. 93% of China is a homogeneous Han (those who talk about diversity in China have no clue what diversity really means - come to India).  The two largest provinces Tibet and Xinjiang are restive and brutally suppressed

Rising nationalism : Very few Chinese would recognise this as an issue, but it really is. Anti foreigner sentiment is high - its easy for a large number of Chinese to be fanatically against a nation if whipped into a frenzy of perceived slights. The Chinese government is increasingly bullying in its approach - Japan (Senkaku), entire East Asia (Nine dash line), India (Doklam and Arunachal). The average citizen who only has access to government propaganda gets whipped into dangerous nationalism. The Chinese would do well to ponder over this - why do they have so few friends ?

A moral vacuum : To an outsider, this might seem to be a strange issue, but many Chinese would immediately relate to it. Firstly during the Cultural Revolution and then in the breakneck speed of economic growth, its ancient culture, beliefs and traditions have gone. Today money is the predominant (only) religion.  In other countries, religious and  social organisations provide a balance to the materialism. In China they do not exist, or if they rise, are brutally exterminated by the government (see what happened to Falun Gong). So many Chinese wonder - after money what? And they may then turn their attention to demanding a level of freedom not in consonance with what the party is comfortable with.

And so this is the real major issue that China has faced since the mid 1980s and continues to face now. What is the balance between economic freedom and growth and political and other freedoms. The first flare up came when Zhou Enlai died in 1976. The second major flare up came during the Tiananmen incident in 1989. Since then there has been an uneasy truce, but one which has never gone away. Some day it will rear its head again. How China confronts it, and who is in power in China to confront it, will have tremendous consequences for the world. 


Sriram Khé said...

Yes, it is brutal on every possible front that the "Communist Party" has reduced human existence to nothing but money, and any value other than money is snuffed out by the lethal arm of the government. I view this Chinese system as even worse than the Soviet system--because, there was a view of humanity that continued through the repressive Soviet system. It was also that underlying humanity that got rid of the Soviet Bloc. From the Orthodox church to writers to ballet, various aspects of humanity continued on behind the Iron Curtain. But, in China, it has been an annihilation.

BTW, a trivial question ... the debt-to-GDP ratios sound way high. Really? Those are the numbers?
And even then, we should tease out the public debt versus the household debt, right?

Ramesh said...

@Sriram - The debt to GDP ratios I have quoted are total debt - public, private, government all put together. In the US that number is high, but the assets to GDP ratio is also high - the US has far more assets than its borrowings. That doesn't mean its debt is not at ridiculous levels, but still at least as a nation, there is enough assets to cover the debt.

In China and India , large proportion of these debts have to be written off. China has more capability than India to absorb the writeoffs, but for both it will be a significant loss.

Anne in Salem said...

We hear of government projects like roads to nowhere and apartments built but never occupied that inflate the economic growth by employing thousands upon thousands of people. Such futile exercises can do nothing but increase government debt. What is the thought process - maintain China's image abroad no matter the eventual cost?

You do not mention education. Many far eastern countries have a reputation in the west for an intense, perhaps too intense, focus on education, significantly as a means to increasing personal wealth via a more lucrative career. Is education an issue? Has curriculum changed (beyond blotting out unsavory historic events)? If education is controlled locally, is it a reason to protest?

Anne in Salem said...

What about North Korea, which most of the world thinks China controls?

Ramesh said...

@Anne - That is the soft landing problem. In order to keep up growth, the government has continued to massively spend on infrastructure, including a number of white elephants and done so by taking on debt. Hence the high debt levels. Difficult to stop this addiction. If they stop the spending, growth will plummet.

China's education system is quite good by Asian standards. They have boosted primary education quite a bit and at university levels, they are having world class universities. Education is very affordable and the culture is of parents paying for it; so students passing out don't start life with huge debt. The only problem with education (as indeed with housing and lots of other things) is the peculiar hukou system. Your ID and permit is linked to your home town and you have to go there to avail of government services. That is a larger problem linked to migration.

Nobody in China cares about North Korea. North Korea will make lots of noise, but do very little. The Chinese leadership is pissed off because Kim is not doing their bidding , but otherwise they know that he won't do much other than sabre rattling which North Korea has done for decades. I think both China and South Korea are reconciled to the North having nuclear weapons, but know that they will not use them.

Deepa said...

I think 'rising nationalism' (directed against Pakistan) is an Indian issue as well. I think governments love to keep the fire fuelled to manipulate sentiments.

Moral vacuum - Again, this does seem to be catching up in India as well in spite of the religious and social orgs this is increasing. In fact ironically there is a materialistic approach in meeting religious and social commitments. I wonder if it is more a population (and the resulting competition) problem than having (or lack of) social checks.

North Korea - You bring such different perspective. Here they are shining the tips of their ICBMs just in case! :D

Ramesh said...

@Deepa - Oh yes, its an issue in many countries. But the level of nationalism in China is scary. Even the extremely educated elite can be whipped up.

The moral vacuum in India is a different one. Its a degradation of values, not of emptiness. I am de3eply saddened by how much values have degraded in Indian culture. Its universal - not restricted to pockets. That's an even dangerous problem than the one of emptiness in China.

North Korea - Your leader seems to be hell bent on provoking a war.

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