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ASIA
JULY 19, 1999 VOL. 154 NO. 2
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Predicting the Future of China
With the People's Republic about to turn 50, TIME and the World Economic Forum convened a panel of experts in Beijing to envision the next half-century
The Economic Puzzle
Nicholas Lardy, senior fellow, Brookings Institution: China's record in generating growth and improvements in productivity, as opposed to simply accumulating capital, is not very impressive. It is difficult to foresee how, in the next 50 years, China can move to an economy where technological innovation--a knowledge-based economy--generates a large portion of its growth.
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CNN, TIME, Asiaweek and Fortune examine China at 50
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Fan Gang, director, National Economic Research Institute: If you look at the fast-growing countries of the past 50 years, they were all in one way or another run by authoritarian governments, Japan being an exception. But in the next 50 years democracies will have an edge. In the past, the best economic model was the fast and successful catch-up country. The emphasis was on assembly-type operations, labor discipline and low-end skills. It is quite possible in the next 50 years to have a dramatically different model.
Andy Xie, executive director, Morgan Stanley Dean Witter: The most important development in China's future will be the movement toward the rule of law. It's the foundation of a modern economy--in which people with ideas create wealth, not the people who have control over capital. This transition is not going to be an entirely smooth one. Too many people in China are still focused on capital-intensive industries.
Fan: Globalization, especially of the financial markets, implies that entrepreneurs don't have to rely on the local capital market. So the role of the government in managing finance to provide capital is diminished. And that's very good for small, innovative entrepreneurs. In Asia it's likely that we'll have two business models: the more traditional one that emphasizes basic skills and disciplines, and another that emphasizes innovation and ideas. It is likely that democracy fosters the new model and creates conditions for it to succeed better than authoritarian governments could. So the relationship between politics and economics is going to be quite different from what the world has known before.
Xie: If you look at ethnic Chinese in the region, you'll see they have a common set of characteristics. For example, they're very risk-taking, very entrepreneurial. On the other hand, they have not been able to create big, successful corporations. In the next 50 years, we'll see increasing use of information technology. So a higher level of organization will not be as important as before. This is what Bill Gates has been talking about: empowering individuals in small organizations. This works very much in favor of Chinese culture. If you're worried that somehow China has not created big successful corporations, in the long-term this trend might work out in China's favor.
Fan: There's something else starting to emerge that's very important. Recently we had a constitutional change that gave private ownership legal protection. More and more people realized the importance of the ownership issue, the property rights issue.
Huang: But there has to be a dynamic process. In the past, growth came from the fact that society was stable. In the future, returns will be coming from dynamic, mobile people and capital, and therefore there has to be some sort of legal system to accommodate that. The demand for a different type of political and legal system will increase relative to the demand for a stable and traditional system. I would associate growth with democracy and the rule of law. We ought to invest more in creating those types of political institutions that reward people for their innovativeness and energy.
Fan: Why weren't democracy and growth compatible before? Previously, growth was controlled by the government. The ownership was in the state, so there was no middle class, no private owners, no fundamental framework for democracy. Why couldn't China tolerate demonstrations before? Because if you had a demonstration on the street, the whole economy stopped. Not like in South Korea, where they can have student demonstrations every day but the economy keeps going. This is why I think private ownership is fundamental.
Huang: As long as you have growth, you can use the benefits of growth to pacify the losers. Instead of using a political authoritarian system to suppress dissent, what you do is manage growth and then use its benefits to pacify those left behind. That's how democracy solved that problem.
Heading to the City
Zhang Yunling, director, Chinese Academy of Social Sciences: I think you'll see continuous globalization and technological innovation in the future. China's economy will be based more on high-tech. However, since China is such a large country, vast areas will be relatively backward. In the next 50 years, 80% of the population will move to urban areas. They will not rely on agriculture for their livelihood. That's a fundamental change in society: 500 million people will move, changing their lives, changing culture, changing values.
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