Grappling with China's prosperity paradox

FT.com

A habitual western estimation of China charts its uninterrupted ascent to global hegemony. It will soon overtake the US as the world's largest economy. Fast forward a few decades and it will assume the mantle of the pre-eminent power. Some time in between, its political system will make the transition to something resembling democracy.

It is a beguilingly simple thesis, one particularly attractive to the western business executives who have joined the China gold rush. Yet what strikes me whenever I visit Beijing is that the more strident China's leaders sound on the global stage, the more insecure they seem at home.

China is certainly making its presence felt internationally. The hide-your-strength strategy of Deng Xiaoping has made way for an unabashed assertiveness that unsettles neighbours and worries the US. Long-standing maritime disputes in the East and South China seas have become military flashpoints. The Chinese blogosphere overflows with calls for the country's leaders to teach old enemies a lesson.

Policy makers in Beijing insist that China has no interest in global dominion. The idea of empire, they say, runs against all historic tradition. The ruling elite also protests that it acts as a restraint on the nationalist fervour in cyberspace. But, yes, officials say, the Middle Kingdom has reached a point when it expects to get its way on issues of national interest. And, no, it is not about to take lectures from western powers that exploited and invaded China over more than a century.

In part, the new assertiveness is a straightforward reflection of commercial ties. Politics follows economics: China's expanding geopolitical interests are a consequence of multiplying trade and investment relationships. There has also been, however, a discernible change of mindset. Much as officials still say that, as a "developing” country, China cannot carry the burden of international governance, they are dismissive of the idea that it should sign up as a stakeholder in a set of rules made in Washington.

Talk among officials about Xi Jinping, the incoming president, emphasises continuity over change. The guiding principles were laid down at last year's Communist party congress. Westerners curious about strategic direction are offered exhaustive (and exhausting) accounts of the proceedings. There is one thing, however, on which everyone seems to agree. Xi will be stronger than Hu Jintao. The new president, it is said, has a tighter grip on the levers of power.

Beijing insists it does not want clashes abroad to disrupt economic progress. Logic says that must be right. Yet it is hard to miss the sharper edge to the rhetoric when conversation turns to disputes with Japan in the East China Sea and with Vietnam, the Philippines and others in the South China Sea. The risk of a military clash, particularly with Japan in the waters around the Senkaku (or, in Chinese, Diaoyu) islands is far from negligible. Alongside it lies the danger of a collision between the Chinese navy and the US Pacific fleet.

Xi is right to worry about stability at home. China's economic trajectory is clear enough. A slowing global economy will soon collide with his country's ageing demographic profile. The labour force has peaked; the country is about to grow older. Fast. So the new leadership has promised to accelerate as yet fairly vague economic reforms.

Mindful of popular discontent, Xi has pledged to scrap bureaucratic pomp and excess and to crack down on corruption. Party officials are these days careful about wearing expensive watches. The plan is to press on with a rebalancing of the economy towards domestic demand. So far the party has not done a bad job. The next stage will be harder. Corruption is embedded in the fabric of the economy. Freeing up capital for investment in dynamic sectors risks confrontation with the bosses of big state-owned enterprises. All the while, China's great fear is of falling into the middle-income trap.

Turn to politics and it is hard to find any hint of significant reform. Rising incomes and the explosion of social media have rewritten the terms of China's social and political discourse. The censors struggle to keep up with the more than 300 million users of the weibo microblogging sites. Google is blocked but everyone seems to have a way of accessing their Gmail.

The response to recent popular protests – whether about corruption, heavy handed censorship or lethal levels of pollution in Beijing – has been calibrated to avoid confrontation. There have been hints that the party could reform the arbitrary detention system known as "re-education through labour”. But suggest a redistribution of power between state and citizens and the response of officials is stony-faced. The modernisation programme promoted by Wen Jiabao, the outgoing prime minister, looks unlikely to survive his departure.

What's missing is a recognition that the power shift between state and individual is already under way. The party thinks the answer to social and political unrest is economic growth. But prosperity generates its own dynamic – as the source of, rather than an antidote to, rising pressure for political change.

There is no great clamour in China for western democracy. The party remains the nation's guardian. But the simple fact of joining the middle class leads ordinary citizens to demand transparent, accountable government. Prosperity gives them a vital stake in the rule of law; and the digital revolution provides a means to press their case. For now, the party thinks otherwise. The consequence is a China that looks at once stronger and more fragile.

Copyright The Financial Times Limited 2013.