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Cooperating with the dragon

by Hans Dembowski
In domestic matters, China is implementing policies western donors would like to see in force in other developing countries. Progress is particularly surprising as the country is still poorer than recently estimated. [ By Hans Dembowski ]

No doubt, China’s Communist Party is repressive and violent. This regime blatantly abuses human rights and shows no interest in democracy. To all those, who fear China, it came as no surprise that the regime lately announced that free local elections will not be held until at least 2017 even in Hong Kong, the port town the People’s Republic peacefully took over from Britain a decade ago. Conservatives tend to consider China a rising authoritarian power that will one day – rather sooner than later – challenge the hegemony of the United States. They urge OECD governments “to keep the dragon in check”. In this view, military confrontation is inevitable in the long run, and cooperation with Beijing will only foster a hostile dictatorship.

The opposing view is that China is modernising under an authoritarian – but not cleptocratic – government in a similar way other Asian countries did before. In this view, China is likely to prove a cooperative member of the international community in the long run and should therefore be courted for true and binding partnership.

Indeed, China is domestically implementing policies western donors would like to see enforced in other developing countries. Beijing has announced measures to improve health care in rural areas. Last month, a new labour-contract law took effect, even though employers warned that the step may increase wage costs by up to 40 % this year. The new law strengthens workers’ rights. China is thus installing the kind of safety nets World Bank experts like to discuss in theory. Late last year, moreover, Beijing announced that tax revenues had risen by 30 % – thanks not only to economic growth and high profits, but also to more stringent revenue collection and a crackdown on evasion.

Modernisation is not only about free elections. It is just as much about a dynamic economy, able institutions and progress in terms of education, health care and other social services. And on these counts, China’s government deserves praise. In the past decades, the People’s Republic actually enjoyed the kind of export-led growth “structural adjustment” was supposed to bring about. That liberalisation-blueprint was promoted by the World Bank and the International Monetary Fund in the 1990s, but largely failed in Africa and Latin America. Structural adjustment tried to substitute government action with market interaction in as many fields as possible. Beijing never fell for that ideology, and its approach of government-led market development proved far more successful, in many aspects resembling the path taken by Japan, South Korea, Taiwan and other Asian countries before.

What a government does at home and what it promotes abroad are, of course, quite different matters. Today, China’s financial clout is a force to be reckoned with, and fears of destructive impacts in Africa and other poor regions of the world are not unwarranted. It is therefore a good thing that Robert Zoellick, the World Bank president, has been striving to cooperate with this Asian giant on development lending – and apparently successfully so, though he did not elaborate details at the end of his trip to China in late December. It is fitting that international newspapers reported in late January that the Chinese scholar Lin Yifu was likely to become the World Bank’s next chief economist.

Zoellick is the rare example of a conservative American who understands just how impressive it is that China is implementing prudent policy (though certainly not democracy) at home and how important it will be that China does not undermine improving governance elsewhere.
The promising trend is particularly surprising as recent data show that China is still poorer than generally thought. In an international survey, which included China, the World Bank checked prices of more than 1000 consumer items in order to better assess the purchasing power of national currencies. According to the official exchange rate, China’s gross domestic product is worth $ 2.2 trillion. In terms of purchasing power, it is worth $ 5.2 trillion – but before the reassessment the estimate had been of $ 8.9 trillion. In other than financial respects, China is thus progressing faster than proponents of the modernisation school would have hoped – and that may also apply to its role as an international donor. Debt sustainability, after all, is certainly something Beijing is interested in.