Twofish's Blog

July 3, 2006

Counterpoint to Kristoff

Filed under: china, finance — twofish @ 8:36 am

Nicholas Kristoff wrote a very good piece on the NYT about why he things that China is headed for some political turbulence. It’s a very good piece, but as with the piece by Stephen Roach, I disagree with most of it.
The most important is that Kristoff thinks that it is unlikely that Chinese economic growth will continue at current rates, whereas (barring serious economic mismanagement), I think that China has a good ten to twenty year run ahead of it. Chinese economic growth at this point is based on taking unproductive peasants off the land, putting them in factories where they are more productive. You can have a burst of economic growth doing this even if you have a seriously broken economic system (like the Soviet Union in the 1950’s) and this will give China about ten to twenty years of breathing space to insure that it doesn’t hit a brick wall.  The population crash that China is going to have around 2020, might be bad thing if there were no sources of productivity to boost, but China is operating nowhere near its technological limits.
It’s also interesting that Kristoff thinks labor costs rising and more concern for the environment are bad things. Increased labor costs means higher wages, which isn’t a bad thing. The only situation where it can be bad is if it overshoots productivity in which case you have inflation or unemployment, but there is such a huge mass of untapped labor out there, that this is unlikely barring some serious economic mismanagement. Low wage jobs might move to Vietnam or Bangledesh, but they are just as likely to move to the Chinese interior, which will raise standards of living there.

Also the fact that people are no longer afraid of speaking out is hardly a bad thing. It might be bad if what they were demanding was something that the Party could not deliver, but for the most part, it isn’t. It’s also hard to identify many groups which would be rationally better off, if the Party collapsed.

The other thing that can give the Party quite a bit of breathing space is that while there are a lot of pent up demands on the system, these demands are conflicting or at least non-aligned. If you look at what a university graduate wants, its very different from want a peasant wants, and this makes collective action very difficult. At this point, there isn’t an all-compassing ideology that unites the population against the Party as there was in 1989, and it is really hard to see what that might be.

The analogy that I’d bring up isn’t Taiwan and South Korea-1985 but rather Taiwan and South Korea – 1975. In both cases, once you had grievances, it took about a decade for there to be enough popular mobilization against in system, and in both cases a lot of the power structure of the old system survived into the new one.

One final thing, and this might be odd thing to say, but pluralistic societies look a lot fragile than they are.  In a well-institutionalized system, you see people demonstrating and screaming at each other, and you think that the whole thing is going to collapse, but it somehow doesn’t.  It’s somewhere between a hope and a guess, but I have this feeling that people are going to find out in the next three to five years, that China’s institutions are going to be a lot more flexible and resilient than people (including people within the government itself) have given them credit for.

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