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ASIA
JULY 19, 1999 VOL. 154 NO. 2
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Fan: I'm very optimistic about the next 50 years. The gap between China and the developed world will be narrower, both in terms of economic growth and in institutions. Chinese are very pragmatic. They will find solutions to the current crisis.
Huang: It's also possible that China will not have caught up with the West in 50 years, even though China is making good economic progress. But the per capita income gap could become larger. China could be closer to the West politically, but economically it could be more distant.
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CNN, TIME, Asiaweek and Fortune examine China at 50
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Huang: We tend to think about democratic political institutions as a result of economic growth. But political and legal institutions can also be important sources of economic growth. To generate growth you need an appropriate set of political and legal institutions first. Rather than thinking of these things as a result of economic growth, think of them as preconditions of growth. If that view is widespread, you may very well see China moving ahead a little bit faster than it has in the past 20 years on the legal and political front.
Zhang: Globalization presents another challenge. It is too massive, too quick. A country like China is still in transition from rural to industrialized, so it has to meet so many challenges suddenly.
Huang: True, but critics of globalization often look at labor displacement as a negative social impact. It's the opposite in developing countries, where it's the owners of capital who are hurt. Labor actually benefits from globalization. Capital moves to places where capital is scarce, and that creates jobs. In China, peasants gain because they produce things that we have a comparative advantage in. Let me come back to the rule of law. There are two ways to create it. One is that politicians believe in the rule of law as a good system and therefore implement it. But the more fundamental driver is globalization of the asset market. If you don't have rule of law, capital leaves. Capital earns low returns in countries that don't have good rule of law. Human capital also leaves, so if you don't have good intellectual-property-rights protection, then people with a lot of human capital will leave. That kind of driver is more important than the ideology of the politicians.
Fan: Let's just say it will be a bumpy road. More Chinese will integrate into the high-tech sector. America's Silicon Valley can be a partly Chinese territory; there are so many Chinese working there. That's part of globalization.
Military Power
Zhang: If the economy continues to speed up, China will develop militarily. But I don't think it will become a major power for two reasons. First, if it did, the society and economy probably would collapse. The experience of the Soviet Union shows that if you become a superpower by military but not economic means, you don't survive. Second, it's almost impossible for China to catch up. Why should we? As Deng Xiaoping said, China needs "a long-term peaceful environment," to feed the people, to make a stable transition, to modernize. Economic development has replaced military strength, and a stable, cooperative relationship has replaced the ideological gap of the cold war. Still, there's been a great shift since the Kosovo crisis. Chinese are worried about future U.S. domination. It's clear that the U.S. will dominate the world in the next 50 years. If we fail to maintain a stable and peaceful relationship, China will have to use more resources to develop its military strength. I don't think China wants to dominate Asia, but its influence in the region will become bigger. If the U.S. can accept China's growing influence in the region and China can accept the continuing U.S. influence in the region, we'll find a common space where we can sit together. Otherwise, there will be confrontation.
Can the Center Hold?
Huang: Within China, the localities will gain more independence from the center politically. They have gained economic resources in the reform era. The movement toward more political autonomy, with local elections at the county level or higher--that can very well be a possibility. There's a complexity in managing such a large country, and it's only going to increase. As that complexity increases, it favors local government over central government. Currently, there's a division of labor between central government and local government. Local government manages the economy, and the central government manages politics. In the future that relationship can reverse a little bit: the central government takes on more of a financial role, and local governments take on a more political role.
Lardy: It is inevitable as you move to a market economy that the central government is the big loser in the short run. But if the market really takes hold in China, local governments are going to lose a lot of the power that they have accumulated over economic functions during the last two decades.
Huang: The reason why those centralizing traditions prevailed over the past 2,000 years was that China didn't have any growth, right? And international integration was non-existent. We're going to see a mixture of traditions--old political traditions, but there are new factors on the horizon that would move against those political traditions.
Fan: All East Asian countries have a few common things: morality is important, social norms are important. In Asian countries there isn't much religion. So when you have economic growth you always face this problem because there is no religion or strong ideological identity for the people.
Huang: Also market interactions require trust, right? Regardless of what the government does, there is an objective demand for those social things. They are stabilizers, and I'm absolutely mystified why the government is cracking down on a group like Falun Gong. Apparently the movement was born in the northeast where there's a lot of unemployment. So people sought this sort of mystic way of life to help deal with their economic problems. A government should welcome that, because it's pacifying these people. It's kind of an opiate of the masses.
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