China: World’s Number Two Also Faces Major Issues

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The U.S. is the not the only major power trying to find solutions. China is too.

No, they are not grappling with taxes, budgets and deficits as in the U.S. Rather, China must deal with economic reform, environmental problems and political change. They need to shift from an economy built on exports and heavy internal infrastructure investments towards a more sustainable emphasis on domestic spending. In addition, the hyper growth development model has led to widespread environmental degradation. Lastly, most of the 1.3 billion people in China want political change. The Communist party and its 80 million members control, according to the New York Times, the economy, the courts, the news media, the military, educational institutions, civic life and the day-to-day affairs of citizens. And roughly 400 top party Central Committee leaders control the Communist party. Wealth is concentrated where the power is and corruption is rampant. And, we think we have problems.

The Communist Party Congress has been meeting in Beijing since last Thursday. Current leader Hu Jintao outlined his party’s policies that first day. It was a major event. He has been in office ten years and this was only his second such public address.  He called for broader economic and political reform. China’s economic progress in the last decade has been phenomenal, increasing GDP four fold. Yet, even Mr. Hu admitted that China’s development is “unbalanced, uncoordinated and unsustainable.”

Regarding political change, Mr. Hu said last week that “we will never copy a Western political system.” Four years ago, as the U.S. and Europe dealt with the financial crisis, China boasted of the triumph of its model of authoritarian politics which “produced strong, sustainable economic growth.”

Recently, there have been worldwide concerns that Chinese economic growth has been slowing; from a 14% real increase in 2007 down to 7.5% in 2012. However, September and October were stronger, primarily based on major increases in exports and new infrastructure projects, particularly railways. Barron’s reported Saturday that “the doomsday scenarios of hard landings are far-fetched.” Even so, the days of double digit economic growth for China seem to be over. Mr. Hu indicated that he thought economic growth over the next decade will be roughly 7% per year. This pace would likely put China’s economic machine ahead of the U.S. by 2020.

We’re all connected worldwide these days. The fragile recovery and potential fiscal cliff in the U.S. and the continuing problems in the Eurozone are key issues for China in the future. In March, Xi Jinping will take over from retiring President Hu. We’ll be watching closely as the new government deals with its economic, environmental and political issues. Let’s hope China and the U.S. both solve their major issues successfully.