Recently, I had the honor of attending a lunch hosted by the College of International Studies regarding US-China relations and the reform contradictions facing China’s new leadership. The talk featured Dr. Yukon Huang, a Senior Fellow at the Carnegie Endowment for International Peace, who has a book coming out titled Cracking the China Conundrum: Why Conventional Wisdom Fails.
In his talk, Dr. Huang discussed China’s present leadership change, and the desire of the current administration to be transformative, modernizing China, and elevating China. While Trump is geared toward short-term issues, the Communist Party is thinking forward, to the midcentury. China has its work cut out for it: abroad, China has to deal with negative perceptions of the country and trade and investment tensions with the West, and at home, China faces deteriorating debt, growth slow-down, corruption, and income and lifestyle disparities.
Americans, on the other hand, fail to recognize themselves as the leading economic power, and cast aspirations on China. There is no relationship between US and China trade values, contrary to the perception of the US public. This raises the question: why do we think there is a connection? Although so many of the products bear the label “Made in China,” the label simply refers to assembly. Only a small portion of the money stays in China. Further, while many Americans believe that US companies invest too much in China, only 1.5% of America’s foreign investment goes to China, and the European Union invests more in China than the US does. Apple, the US company, actually has no investment in China, as FoxCon is a Taiwanese company.
The fact is, the more innovative a country is, the slower it grows. China tries very hard to be innovative. China’s growth is inspired by decentralized provincial competition. Economically speaking, Chinese officials aim to meet economic targets, which lead to reforms, and their success is rewarded by promotion, thereby motivating them to reach for targets once again. In terms the sociopolitical, the government attempts to contain social unrest through conditional autonomy, and repression with concession to maintain stability. One of the key aspects of the Chinese administration is the officials hailing from different provinces than those which they govern.
Growth began at special economic zones (SEZ) because incentives are given to the SEZs. The Chinese government pours money and incentives to the coast. Further, Dr. Huang corruption in China generates growth because the state owns all resources, and doesn’t get high returns. Corruptions allows the transfer of resources to the private sector.
Ultimately, Dr. Huang argues that the debt in China is beneficial because most of the debt went into finance this transition, which holds promise for the future. Dr. Huang concludes the talk by stating that China is unique, and unlike any other economy in the world. I look forward to reading his book and learning more on the topic!