Recently, I read a widely discussed book called “China’s Trapped Transition” by Minxin Pei. Pei challenges popular arguments about China’s development as a neo-authoritarian regime: that economic development will provoke better governance; that gradualism works well to promote economic growth; that economic growth in China will eventually lead to democratization; and that authoritarianism is a better system to sustain economic development.
The underlying assessment of Pei’s book is that China has reached a phase in which its growth is stagnant. China’s political system, Pei argues, cannot be reformed because of its deep-rooted corruption issues and due to the lack of institutional infrastructure to address these issues. Pei labels China’s situation as “self-destructive political dynamics inherent in an autocracy caught up in rapid socioeconomic change.” While Pei provides credible statistics and evidence to support his assessment, he fails to incorporate an ongoing major factor of competition between China’s socialist ideology and capitalist ideology in other parts of the world. A re-visit of Pei’s assessment, published in 2006, is necessary because China has hitherto maintained its growth (more or less) while its system remains unchanged, and in some ways seems even stronger.
In the past decade or so, many (optimists) have emphasized the importance of remarkable economic growth that bumped China to the status second largest economy in the world and that pulled hundreds of millions of people out of poverty. Without ignoring this fact, Pei argues that such growth is unsustainable in the long haul—incomplete economic liberalization in a non-democratic state creates problems, which would threaten to stall China’s positive economic trajectory. These problems, according to Pei, were derived from the deterioration in governance, which directly translates into low-quality growth – that is, the growth is achieved at the expense of underinvestment in human capital, large income disparities, and damage to the environment.
Furthermore, Pei stresses that the Chinese Communist Party’s (CCP) inherent institutional weaknesses are caused by pervasive corruption and by the lack of mechanisms to address it, which hinders growth. Indeed, as Professor He Weifang from the Peking University pointed out in a panel discussion held at the Brookings Institute in late 2012, the absence of judicial independence and the rule of law in China is likely to impede its economic growth and prosperity in the future.
While the CCP has demonstrated its power to resist democratization, its strategy of gradual economic reform failed to remove the state’s interference from key political institutions. As such, economic growth in such a non-democratic state will not sustain without meaningful political reform. The political institutions that maintain power relations and enforce the rules are vital to the functioning of markets. In China’s semi-transformed economy, the CCP’s tight grip on the banking system and its control over the state-owned enterprises (SOEs) creates much grievance for the private sector. In a free market economy, private business and small-to-medium enterprises (SMEs) are the backbone for growth. Without fair competitions between the SOEs and the private sector (as opposed to the current policy of favoritism towards the SOEs in regards to contract procurement and loan interest rates), growth will not sustain over time.
During the adoption of gradual economic reforms over the past three decades, the CCP has shifted power to the local government and to the lower level elites, creating a predatory state in which corruption has become the core issue and the stumbling block to China’s transition to democracy. This political decentralization has been successful in stimulating economic initiatives. Nevertheless, the predatory state has also led to greater corruption both at the local and at the central level. As Pei stated, “In the decentralized predatory state, corruption tends to be centralized as well, with the regime’s top leaders being the most corrupt figures and gaining a larger share of the looted wealth.”
Recent corruption crack-down cases, such as those targeting Bo Xilai and other regime leaders, echoed Pei’s assessment of China’s trapped transition: a decentralized predatory state allows ruling elites to enjoy personal gains via corruption, yet such corrupt governing body hinders societal growth as a nation.
To reduce predatory behavior of state officials and economic elites, institutional changes must occur—greater government transparency, accountability, and the implementation of rule of law. These institutional changes will not materialize without democratic political reforms, which fundamentally contradict the CCP’s socialist ideology. This socialist ideology is the root of the CCP’s establishment and is what the Party proclaims as a better system than capitalism. As such, allowing political reforms would be to acknowledge that socialism fails to sustain a state’s survival—an ultimate humiliation that the CCP would not endure.
Despite all efforts to safeguard its ideology, China could soon exhaust all of its resources as its growth comes to a halt. As Pei points out, China can no longer provide health care, education, infrastructure, justice, and other major functions expected of a modern state; much of its resources are used to maintain the status quo. Indeed, the CCP has spent much of its energy and finances to spy on its citizens’ physical and cyber activities in order to secure its power and personal wealth. Pei also believes that China has progressed as far as it can within its current political infrastructure, and any further (democratic) reform will threaten the Party’s authority.
If political reform does occur, Pei argues that it will be regime driven rather than stemming from the demands of economic and social elites or from the labor and peasant classes. Pei’s prediction, in my opinion, seems relatively askew. On the one hand, I would agree that the ultimate decision to undertake political reform in China must be made by the regime—though this is extremely unlikely to take place.
The CCP has placed itself in a stabilized power position to control and suppress public behavior and to extract support from the “new” elite groups. On the other hand, continued outbreaks of social unrest and large public protests throughout China in the past few years should not be completely ignored as possible drivers of democratic reform. After all, no one can predict China’s future with confidence, hence the various school of thoughts and analyses, including Pei’s. The fact is that Pei’s China’s Trapped Transition was published in 2006, and China has thus far maintained its economic path without reforming its political system. When discussing China’s trapped transition period, perhaps there needs to be a clearer definition of the term “in the long haul.”
Michelle Chen is Program Assistant for Asia at CIPE.