Subject: Fwd: What to Watch for in China in 2011 - Atlantic - DAMIEN MA
From: "Michael Andrews" <[email-masked]>
To: "Eric Schwerin" <[email-masked]>, "Devon Archer" <[email-masked]>, "Hunter Biden" <[email-masked]>, "Curtis Hastings" <[email-masked]>, "Neil Callahan" <[email-masked]>
Date: Wed, 29 Dec 2010 12:16:07 -0500

I find this article very interesting. I need to do more reading to  
determine if it is directionally correct and if so we need to talk. MPA
>
> What to Watch for in China in 2011
> DEC 29 2010, 11:23 AM ET
>
> China had quite a year in 2010; in fact, quite the decade. I think  
> it's safe to say that China ended the first decade of the 21st  
> century in a very different place than parts of the developed world.  
> It dusted off the effects of the "Great Recession" and emerged the  
> world's #2 economy, surpassing Japan. Meanwhile, Europe seems to be  
> gripped by uncertainty and waywardness, dealing a setback to one of  
> the most momentous regional integration stories of the last half  
> century.
>
> MORE ON CHINA:
> Peter Osnos: How China Elevates the Nobel Peace Prize
> Mitch Moxley: Rent a White Guy
> Megan McArdle: Should China Rethink High Speed Rail?
> 2010 opened with the brouhaha over Google's threat to pull out of  
> China, shortly followed by Beijing's muscular posture toward US arms  
> sales to Taiwan, with threats to sanction US companies. Bickering  
> over currency, an assertive Beijing exerting claims in the South  
> China Sea, and finally a move on currency before the G20 in June  
> punctuated the spring and summer. With a little reprieve, Beijing  
> then careened into conflict with Japan over a fishing boat incident,  
> which had the unintended effect of catapulting obscure metals called  
> rare earths to dominate headlines. Of course, the crescendo came  
> during midterm elections when a preponderance of anti-China  
> political ads dotted websites and television screens, as well as a  
> currency bill that wound its way through the House of  
> Representatives. And of course, few could forget Beijing's ill- 
> advised and stubborn protestation against the Nobel Peace Prize (if  
> Liu Xiaobo was virtually unknown in China before this episode, he  
> sure is well-known now). Yet the year's denouement was not  
> accompanied by the rancor that defined Copenhagen last year, but a  
> gentility that saw a China willing to compromise, helping to salvage  
> the climate change process.
>
> Whew, that's a lot, and I may have omitted items. So what's in store  
> for 2011?
>
> Other than President Hu Jintao's January state visit to Washington-- 
> on which I will write when the time arrives--one of the most  
> important developments will be the final contents of the 12th Five- 
> Year Plan and how China begins to execute it. The plan will be  
> formally ratified by the Chinese legislature in March 2011, when the  
> numerous moving pieces that compose the broad plan will be put into  
> action. In a previous post, I've raised some questions to which the  
> Chinese will have to address in the next few years in their plan, so  
> I won't regurgitate them here. Instead, I want to draw attention to  
> a recent op-ed by Yu Yongding, an Oxford-educated former adviser to  
> the Chinese central bank, who offers a sober assessment of what's at  
> stake for China over the next several years:
>
> Painful adjustments needed to sustain advancement in the face of  
> anemic innovation, slow tech upgrades and social tensions
>
> China's per-capita income, at $3,800, has surpassed the threshold  
> for a middle-income country.
> But even as economists and strategists busily extrapolate its future  
> growth path to predict when it will catch up to the United States,  
> the mood in China became somber and subdued in 2010. Indeed, Premier  
> Wen Jiabao sees China's growth as "unstable, unbalanced,  
> uncoordinated and ultimately unsustainable".
>
>
> Economic growth, of course, has never been linear in any country.
>
> Throughout history, there are countless examples of middle-income  
> countries becoming stuck in that category for decades or eventually  
> falling back to low-income status. The Nobel laureate economist  
> Michael Spence has pointed out that after WWII, only a handful of  
> countries were able to grow to a fully industrialized level of  
> development.
>
> China's progress over the past three decades is a successful  
> variation on the East Asian growth model that stems from the initial  
> conditions created by a planned socialist economy. That growth  
> pattern has now almost exhausted its potential. So China has reached  
> a crucial juncture: without painful structural adjustments, the  
> momentum of its economic growth could suddenly be lost.
> I think Yu quite accurately captures the mood that percolates  
> beneath the current optimism over a Chinese economic juggernaut,  
> both internally and externally. Not to say that China will not see  
> solid grow--most economists are still projecting enviable growth  
> rates of 8-9 percent--but the sustainability of how it is growing is  
> under serious scrutiny. People like Yu are increasingly warning  
> against complacency that can lead to a middle-income trap or  
> Japanese-style lost decade. Yu goes on to say:
>
>
> After decades of rapid expansion, China has become the workshop of  
> the global economy. The problem is that it is no more than a  
> workshop. A lack of innovation and creation are the economy's  
> Achilles' heel.
>
> For example, in terms of volume, China has become the world's  
> largest car producer, churning out 17 million vehicles this year.  
> But the proportion of models developed by domestic carmakers is  
> negligible.
>
> In an era of rapid technological progress, creativity and  
> innovation, the global economic landscape can change rapidly.  
> Without a strong capacity for innovation and creativity, even a  
> giant has feet of clay. And when a giant falls, many get hurt.
>
> While China's living standards have dramatically risen over the past  
> 30 years, the gap between rich and poor has sharply widened.
>
> Income distribution has remained skewed in favor of the rich for too  
> long, and the government has failed to provide decent public goods.  
> With the contrast between the opulent lifestyles of the rich and the  
> slow improvement of basic living conditions for the poor fomenting  
> social tension, a serious backlash is brewing.
>
> So arrives the 12th FYP, which in theory aims to tackle some of the  
> structural challenges that will head off longer-term pain. But the  
> outstanding question remains whether China's leaders will pursue the  
> right policies with the kind of urgency necessary. Major economic  
> adjustments are usually never pleasant, and most leaders would  
> prefer to minimize the pain on the largest swath of the population  
> possible during that process. The Chinese are no different in this  
> regard, but how much heavy-lifting can they tolerate?
>
> Yu and a similarly reform-minded lot are advocating temerity over  
> timidity, likely in a bid to influence the direction of debate as  
> there are forces inevitably arrayed against them. Plenty of  
> interests in China eschew these changes that will involve taking  
> away some of their wealth, likely prompting a vigorous defense of  
> the status quo. There remains a window of opportunity to push  
> forcefully for what Yu calls a "different road," as drafters of the  
> plan continue to revise and churn until next year. Either way, an  
> interest-based political and policy battle is likely under way that  
> will shape how China grows over the next decade. We'll see how the  
> story develops.
>
> With that, I'll be back in 2011. Happy New Year (新年快乐)!
>