“Governance of China and the momentum of reforms”

Yongsheng Zhang has a post up at the East Asia Forum, discussing the 12th Five Year Plan. There seems to be a lot of commentary on it today, so this will probably be the first of a few posts on it:

New momentum is needed to overcome these obstacles. The pressure for reform that China needs is currently coming from four principal directions.

The first is the fear of economic crisis. The high-export, high-investment economy is unbalanced and unstable, and the accumulation of existing risks will become dangerous in time. Another risk is from the potential slow-down of growth. Existing risks are masked by high growth. For instance, huge local government debt is underwritten by sale of government land, the high revenue of which is based on high growth. Once growth slows down, this arrangement will be unsustainable.

Second is the need to enhance the ruling party’s legitimacy. As China’s economy grows rapidly the needs of its people are changing. Economic success will not be enough to guarantee the legitimacy of party rule. Korea and Taiwan are both examples in which the ruling parties were unable to sustain their legitimacy on the basis of economic success. As we can see in China, the regions with more social conflicts are not the poor regions, but the regions with a relatively more advanced economy. Reforms directed to build democratic processes and the rule of law are needed to deepen the legitimacy of the CCP.

Third, China needs to integrate with the international community. Although China is on its way to becoming the world’s economic powerhouse, this will not be enough to convince the world to embrace its success. Its values and institutions need to be acceptable to the rest of the world as well. The boycott of the Olympic torch relay and some rejections of attempted overseas acquisitions by China’s SOEs exemplify the difficulties faced.

The fourth driver for momentum is regional competition. Baechler argues that competition by political units with the same cultural background in Western Europe led to the development of modern growth and constitutional rule. Some analysts see competition among ambitious regional leaders in China as potentially providing a similar impetus for economic growth and institutional evolution.

Regional institutional experiments have been emerging throughout China in the last few years. These include land reform in Chengdu, grassroots elections in Jiangsu and Yunnan, crackdowns on organised crime and the promotion of ‘red’ (revolutionary) songs in Chongqing, free medicare in Shenmu, official property openings in Aletai. The successes and failures of these pilot reforms are valuable learning experiences for other regions, and for national institutions.

Despite the good intentions behind these projects, the success of reform schemes will continue to be haphazard in the absence of strong rule of law, and checks and balances on government power. Regional experiments tend to be initiated, controlled, and dominated by strong regional leaders, so there is probability that some initiatives might lead to bad outcomes and high social costs if these strong leaders make poor decisions or simply pursue populism. Government economic opportunism presents another serious challenge, but without the kind of civil society that can flourish under strong rule of law, it will be difficult to curb government power.

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