China’s reforms at 30 and the “Beijing Consensus”.

December 2008 marks the 30th anniversary of China’s opening and reform. For much of the past decade China has been an engine of global economic growth. Its low priced exports have saved the world’s consumers hundreds of billons of dollars and its roaring demand for commodities has caused the cost of raw materials to soar, thus pumping billions of dollars into countries as far and wide as Angola, Brazil and Australia. It is in this context that the United Nations’ “China Human Development Report 2007/2008” (CHDR) was released. The document focuses on the current state of China’s development and provides policy recommendations to try and facilitate China’s ambition to reach a “moderately well off society” by 2020. This essay aims to analyze the CHDR and to examine whether or not China’s development “model”, also popularly known as “The Beijing Consensus”, can be exported to other countries in the developing world.

The theme of the UN’s current CHDR report is “Basic public services for 1.3 billion people”. Chief among the goals to be realized are compulsory education, basic medical care and public health and some form of viable social security. In these areas China has made enormous progress in the past 30 years to the point where its current Human Development Index (HDI) score is 0.781. The UN calls this “very close to high human development”. This statistic must be compared to China’s HDI in 1975, three years before the beginning of the formal reform process where it measured 0.53. (The Human Development Index is formulated on the basis of sub-indices that measure the following three aspects of human life: life expectancy from birth, level of education and real GDP per capita). China’s people and leadership have enormous pride in their development and the Chinese model of transforming what was just barely above the low-human development floor in the mid-1970s to a country bordering on high human development has become the envy of many in the developing world. The Chinese leadership has placed great emphasis on reaching a “relatively prosperous society” by 2020. Zheng Bijian, considered the architect of the “Peaceful Rise” slogan, writes that Beijing’s strategic plans call for China to arrive at a “modernized, medium-level developed country” in 2050.

Of crucial importance to a country’s development is education. The central government’s 2007 decision to make compulsory education free for all rural students is a major step forward in reducing the sharp inequalities that divide rural and urban China. This divide is best illustrated in the urban-to-rural per-capita income ratio, which stands at 3.33-1. When the distribution of spending on public services is taken into account this divide climbs to 5-6 to 1. This statistic represents the nation as a whole and does not take into account the regional disparities that exist between provincial capitals and less affluent rural counties. China’s leadership would like to boost education spending to four percent of GDP and has increased spending on education from 487 billion RMB in 2005 to 579 billion RMB in 2006- a 24 percent increase. However, spending on education still accounts for only 2.8 percent of GDP. The fight against illiteracy has also seen major success during the reform era. In 1980 the literacy rate was 67 percent, by 2006 it had reached 90 percent. While the definition of “literate” often differs by location, and the proportion of literate men has risen faster than that of women, the government has made great progress.

China’s system of health care also differs greatly by location. Those residing in the big east coast cities such as Beijing, Shanghai, Shenzhen and Dalian enjoy facilities that are in many ways comparable to those found in developed countries. These modern facilities are not solely confined to the east as many provincial capitals and big cities also provide top rate care to those who can afford to pay. Nevertheless, the Chinese government’s policy of “Socialism with Chinese Characteristics” has been unable to provide many of its citizens with socialized health care. As of 2006, the government only covered 18 percent of the cost of health care, while personal spending reached 49 percent and insurance picked up 32 percent. This amount from the government is an improvement from 2000 when it accounted for 15 percent. The urban-rural divide is evident in the allocation of health care funds which in 2005 saw only 25 percent of public health care resources going to rural areas which comprise almost 60 percent of the population. The government is trying to establish a rural health care system, which would provide basic medical insurance to the masses. In the long-term this is critical to China’s economic growth and in the short-term, as the global financial crisis begins to seriously impact China’s economy, the government will have a very difficult time persuading ordinary Chinese to consume and thus drive the domestic market.

The average savings rate among Chinese hovers around 45 percent. This is in large part due to the absence of an adequate social safety net. A serious illness of a family member can result in bankruptcy for Chinese families. Money that could be spent on consumption that would wean the Chinese economy off its dependence on exports is often stashed away for safe keeping in the event of a disaster. A 2005 report estimated that “extra discretionary personal expenditures on education and medical care have reduced total consumption by 581 billion RMB”.

In fairness to China it needs to be pointed out that even in developed countries health care is never evenly distributed. Perhaps the best example of this is the United States where the number of uninsured regularly hovers just below 50 million Americans or 16-17 percent of the population, and this is in the best of economic times. When Chinese leaders like Wen Jiabao talk of putting “People first” and developing a “Harmonious Society” they tend to mean it. Beijing has plans to put in place a basic medical care insurance plan for urban residents by 2010. The Hu Jintao- Wen Jiabao administration can be characterized as being much more to the left when compared to the previous administrations in the reform era. The term “Harmonious Society” is often mocked by foreigners as well as by some Chinese for being pure propaganda, but it would be wrong to dismiss this as an empty slogan. China’s leaders are acutely aware of China’s problems. At its core the pursuit of a “Harmonious Society” is about reducing the gap between the rich and the poor. Some areas of China are faring well in this regard. Despite its shopping streets full of luxury products and BMWs, Beijing, when counting those who hold a Beijing Hukou (residence permit) is, according to the United Nations Human Settlements Program, the most equal city in the world with a Gini coefficient score of .22. In contrast, Hong Kong is the most unequal city in Asia with a Gini coefficient score of .53. (The Beijing statistic omits the millions of migrant workers who also live in Beijing and who are often denied the social services of formal Beijing residents.) What the Beijing statistic does show is that it is possible for China to find ways to more equally distribute wealth and perhaps more importantly social services. While Beijing’s Gini coefficient is remarkable the coefficient for the country as a whole stands at .49, while a study by People’s University in Beijing calculated it to be .56.

Inequality in China is most evident when comparing urban to rural and from region to region. Even within the poorer provinces residents of the provincial capitals enjoy a living standard much higher than that of their less fortunate rural counterparts. The highest regional HDI was 47 percent higher than the lowest one and in cities like Shanghai and Beijing the life expectancy is now pushing 80 years while in poorer provinces like Guizhou it has yet to reach 70. In fact the HDI for Shanghai was .91 or comparable to European countries like Portugal, while in Tibet it is .62 or equivalent to many countries in Sub-Sahara Africa. In an effort to alleviate these imbalances the central government has been pushing transfer payments to less developed provinces. A major obstacle to localized rural development is the system of public finance. Many school, medical and social security fees are the responsibility of township and county governments who too often struggle to pay the salaries of their own staff, let alone engage in the finance of rural education. These transfer payments have been successful in many areas and are credited with facilitating the free compulsory rural education program beginning in 2007.

With Chinese officials celebrating 2008 as the 30th anniversary of the reform and opening period, modern China has spent as much time pursuing market oriented reforms as it has with Mao’s version of communism. The World Bank claims that China’s economic reforms have reduced the poverty rate in China from almost 80 percent in 1981 to 18 percent in 2005. During the same time the number of people in poverty fell from 835 million to 207 million. This “economic miracle”, as it is often called in the press, is something that many countries in Africa, Latin America and other parts of Asia would like to emulate. The fact that the Chinese system is widely considered by both Chinese and non-Chinese to be infested with rampant corruption makes the success of the past 30 years even more remarkable. China’s middle class while still emerging has in many locations arrived. In October 2004, the Chinese Academy of Social Science reported that China’s middle class stood at 247 million people, or 19 percent of the population. They predicted that it would reach 40 percent by 2020. The criteria used to define “middle class” were family assets worth between 150,000 and 300,000 RMB, or based on the exchange rate at the time 18,000 to 36,000 USD.

Storm Clouds on the Horizon?

For most of the reform era China has been fortunate to have avoided a major financial crisis. (It did endure several political crises) The current financial crisis may be different. Empirical evidence that the global financial crisis has hit China can be seen in both Beijing’s decision to push forward an economic stimulus package worth four trillion RMB (586 billion USD) and more recently the drop in both China’s imports and exports. November’s decline in exports is the largest since 1999 and the drop in imports is the biggest since bankers began keeping records in 1993. Many economists expected exports to rise by 15 percent and imports to rise by 12 percent over November 2007. Instead exports fell by 2.2 percent from the previous year while imports dropped by more than 17 percent. This means that China is not as insolated from the global market as its leaders would like. The old saying that “when America sneezes, China catches a cold” appears to hold true. This drop in exports, which are a key component to China’s development, is compounded by 67,000 factory closings in the first six months of 2008. While many new factories also opened during this period, China’s Pearl River Delta may be beginning to loose it status as the “world’s sweat shop”.

The Pearl River Delta is famous worldwide for the manufacture of cheap consumer goods. While the government actively encouraged this kind of foreign direct investment (FDI) into the region in the 1980’s and 1990’s, it is now looking to attract more value added products such as automobiles and computer chips instead of toys and tee shirts. Factories that were located in the Delta have either moved farther inland where wages are lower or have moved to other countries such as Indonesia and Vietnam. To compound the current economic situation, a stronger RMB which has appreciated by almost 20 percent against the U.S. dollar along with higher wages and new legislation strengthening workers rights have made doing business in China more costly. Migrant workers are already going home for the annual spring festival at the end of January. Many of these workers cannot find suitable work in the Delta region or are lured back to take advantage of higher grain prices, which makes farming more profitable. The fact that local governments and provincial government of Guangdong are in the process of moving up the value added chain in terms of manufacturing is testimony to the success of the regions economic reforms. Many of the region’s cities such as Guangzhou and Shenzhen have arrived at or are approaching the 10,000 USD per capita income bracket.

It is too early to predict what effect China’s economic stimulus package will have on maintaining China’s level of growth. The plan calls for many new rural infrastructure initiatives as well as water, electricity and low-income housing projects. It is not clear how much of the 586 billion dollars was already earmarked for development. Health care and education, which take up only 1.8 percent and just under 3 percent of the country’s GDP respectively, have only been allocated 1 percent of the 586 billion dollar stimulus package. If a key goal of the Chinese government is to encourage domestic consumption then this may be a political moment for the government to seriously invest in some form of viable rural health insurance program. With less fear of unforeseen medical emergencies crippling them financially, Chinese families in both rural and urban areas would be able to devote more of their income to consumption. This would benefit both the domestic economy as well as create more support for the Communist Party, as groups previously sidelined by the economic reforms would start to see palpable benefits of the reform era. The government’s concept of “Scientific Development” and the promotion of a “Harmonious Society” would be benefited by this. In 2007, household consumption made up only 35 percent of China’s GDP, by comparison the American rate was 72 percent. Given the current state of the economy, the consumption rate will fall just when Beijing needs it to rise more than ever. In the past public works projects like roads, airports and dams took up economic stimulus packages. This was the case in the late 1990s as China sidestepped the Asian financial crisis. However, this time it is different, and while health care and education do not carry the prestige of superhighways or fancy new airports they are at this stage in China’s development more important.

The financial crises will unlikely cause wide spread social unrest in China in the near future. (At least beyond what is normal in China) However, if it festers and begins to morph into a global depression, China’s lack of a viable social safety net will become a severe liability. Perhaps the Central government should see this as a political moment and thus an opportunity to lay a solid foundation for basic public services for its 1.3 billion people. Many in the western media tend to see China’s development as a glass half empty or largely focus on the negative aspects of China’s development such as corruption and pollution. This is a chance for China to show the world and more importantly its own people that the stated goal of “people first” development is not just an empty slogan. The Chinese path to development has been an inspiration to both people and governments in the developing world. How Beijing weathers the current storm is sure to be closely analyzed for its impact on China’s development model.

Is the “The Beijing Consensus” exportable?

The Chinese road to “a moderately prosperous society” is far from finished, but it has certainly lifted hundreds of millions of people out of abject poverty while also giving those in the developing world a model to try and emulate. There are many aspects of this model that developing countries can copy and modify to fit their own circumstances. However, the Chinese model of development as a whole is unique to specific Chinese conditions and is unlikely to be successfully duplicated in other parts of the world. With this said there are aspects of it that are present in many countries.

There has been a lot of media attention both inside and outside of China to the idea of a “Beijing Consensus”. Some disillusioned with the “Washington Consensus” have looked to China as a model and inspiration while others have viewed it as an environmental nightmare that exacerbates class divisions while the well connected pilfer formerly state owned assets. It is important to note that China’s path to development was never mapped out in a grand plan. Deng Xiaoping, who was largely responsible for launching the reforms, compared the reforms to “crossing the river by feeling the stones”. In other words there was no articulated step-by-step plan to reach the goal of a developed society. While China does in many ways have a top down development strategy and the government has promoted certain sectors of the economy through both cash infusions from state owned banks and through tax incentives, reform has been a rough ride. The fact that the “Beijing Consensus” rests on a policy of “non-interference” in a country’s internal affairs is an added advantage to many authoritarian leaders. The idea of achieving rapid economic growth while preserving one party rule is attractive to many leaders who do not share the West’s democratic ideals. However, several key factors that were all present in China have made this “Beijing Consensus” come to fruition. First, China 30 years ago had an enormous population that was poor by global standards. Second, China’s geographic location and close proximity to Hong Kong were instrumental in its early success. Third, the role of the Chinese Diaspora in terms of FDI was important. Finally, China’s political system itself was a major factor in its development. These four factors are found in China, but may not be present in other countries, thus limiting the chances of China’s model being exported in full.

One of China’s most important assets is its enormous population. This population, of which the vast majority was rural, played a key role in the establishment of manufacturing centers in the Pearl River Delta. China seemed to offer an unlimited source of cheap and too often exploitable labor. China’s migrant labor force, thought to number roughly 200 million people today, has been crucial to China’s economic success. In fact one study stated that 24 percent of China’s GDP is derived from migrant workers. When one group of workers would either become too skilled, too expensive or found another job there were always more workers fresh from the countryside willing to take their jobs. This limitless source of labor only added to China’s competitive advantage. It must be noted that migrant workers are found throughout China and are engaged in everything from construction work in Shanghai to agricultural laborers on cotton farms in the far western province of Xinjiang. While many developing countries do have tens if not hundreds of millions of rural poor, few have an economic engine like Hong Kong next door to serve as a launch pad for FDI.

The Pearl River Delta’s close proximity to Hong Kong was a major reason why Deng Xiaoping chose to experiment with certain reforms in this area. Hong Kong’s geographic location along with linguistic and cultural ties made it a great place to serve as a gateway to the Chinese market. In addition, Hong Kong had the legal foundation as well as business and managerial experience that made it even more attractive as a staging area for investment. From the time period of 1979 until 1995, 233 billion U.S. dollars or 59 percent of all FDI into China was funneled into the Chinese mainland through Hong Kong. This number fell to 140 billion or 32 percent from 1996 to 2002. The overall value of having this dynamo next door to China is impossible to calculate, but it is one key aspect that is commonly overlooked when comparing developmental models. The question one must ask is does Africa or Latin America have their own version of Hong Kong?

The role of the Chinese Diaspora was also a key factor in China’s development. It is difficult to gauge exactly how much FDI entering China was of Diaspora origin. Large amounts of cash coming through Hong Kong, and the Virgin Islands came from Taiwan. Because of Taiwanese government rules prohibiting certain investments in the Mainland, many Taiwanese businessmen invested through third countries. The African, South Asian and Latin American Diaspora do conduct business in their countries of ancestry, however they do not approach the levels of China.

Finally and perhaps most importantly the Chinese government had the political will and the leadership to make China’s economic miracle work. In many ways these policies focus on economic growth above all else, to the detriment of the environment, labor rights, civil society and any other factor that could impede economic growth. (It should be noted that this situation is starting to change and China’s civil society is beginning to take root especially in economically prosperous cities.) The fact that China is not a democratic society did help it in certain respects. The lack of a real political opposition meant that the Communist Party was able to do as it pleased in its modernization drive. For example if a road or dam needed to be built the party almost always was the ultimate arbitrator in the decision. While in some countries such as India a road might be delayed for months or even years because of local opposition, in China it is very difficult to halt such a project. The absence of an independent judiciary means that the Communist Party at the end of the day has the final say. This is not the case in many countries that are poor, but do have effective judicial oversight and a press that is willing to openly challenge the government. The Chinese media are increasingly willing to expose official misconduct, but they can and do get shutdown for pushing the line too far.

While these four examples are not the whole story of China’s development they are critical to understanding some of the necessary conditions needed for the “Beijing Consensus”. It is important to note that the Chinese government does not say much on exporting China’s developmental model. It is the media that play up the story. Beijing does not want to be seen as challenging the West and in particular Washington for global leadership. An active promotion of China’s development model would go against China’s policy of “maintaining a low profile” which is part of the foundation of China’s new diplomacy. Of equal importance many Chinese stress that each country must adopt a mode of development that is suitable to their specific conditions. Deng Xiaoping stressed this point to Ghana’s Jerry Rawlings in 1985 by telling him, “Please don't copy our model. If there is any experience on our part, it is to formulate policies in light of one's own national conditions.” Perhaps part of Beijing’s reluctance to push their model is that they do not want to be held responsible for a model that fails.

A top Beijing academic in the field of International Relations does not believe that this is a model that can be easily copied. He suggested that it was too early to decide if there even is a “Beijing Consensus”, and that China’s development model is China specific and is not useful to other countries. The China model does offer an alternative to the Washington Consensus. However, the circumstances surrounding China’s rise are difficult if not impossible to copy. The term “Beijing Consensus” gives a false impression that China’s model is one size fits all. This is not the case even in different parts of China much less Mozambique. Developing countries are wise to study China and take from China piece by piece what will benefit their own countries. For a country to take on the China model wholeheartedly without paying attention to their own circumstances would likely result in the same kinds of failures and disappointments that accompanied another development model named after another capital city, this one in the West.

* Chris Colley is a lecturer at Renmin (People’s) University’s School of International Studies in Beijing. He has lived in China since 2002.

* Please send comments to [email protected] or comment online at http://www.pambazuka.org/.

Notes

i.“China Human Development Report 2007/08”. United Nations Development Program- Beijing. Page 4. China Translation and Publishing Corporation. Beijing. November 2008.
ii. Bijian, Zheng. “China’s “Peaceful Rise” to Great-Power Status” Page 21. Foreign Affairs. September/October 2005.
iii. “China Human Development Report 2007/08”. United Nations Development Program- Beijing. Page 33. China Translation and Publishing Corporation. Beijing. November 2008.
iv. Ibid. Page 43.
v. Ibid. Page 8.
Ibid. Pages 48-52.
vi. Anderson, John. “China’s True Growth: No Myth or Miracle”. Page 13. Far Eastern Economic Review. September 2006.
vii. “China Human Development Report 2007/08”. United Nations Development Program- Beijing. Page 32. China Translation and Publishing Corporation. Beijing. November 2008.
viii. “State of the World’s Cities 2008/2009” Press Release. United Nations Human Settlements Programme. Nairobi Kenya.
xv.Fewsmith, Joseph. “Assessing Social Stability on the Eve of the 17th Party Congress.” China Leadership Monitor, No. 20. Winter 2007.
x. “China Human Development Report 2007/08”. United Nations Development Program- Beijing. Page 20. China Translation and Publishing Corporation. Beijing. November 2008.
xi. Ibid. Page 139. .
xii. Wroughton, Lesley. “More people living below poverty line- World Bank.” Reuters. August 26, 2008. Accessed on December 12, 2008. http://www.reuters.com/article/latestCrisis/idUSN26384266
xiii. Zhigang, Xin. “Dissecting China’ Middle Class.” China Daily. October 27, 2004. Accessed on December 12, 2008. http://www.chinadaily.com.cn/english/doc/2004-10/27/content_386060.htm
xiv. Chiang, Langi, Xin, Zhou. “China’s exports, imports fall as economy hits wall”. Reuters. December 11, 2008. Accessed on December 14, 2008. http://www.reuters.com/article/GCA-CreditCrisis/idUSTRE4B924D20081211
xv. Wong, Edward. “Factories Shut, China’s Workers are Suffering.” The New York Times. November 13, 2008. Accessed on December 14, 2008. http://www.nytimes.com/2008/11/14/world/asia/14china.html
xvi. Barboza, David. “China Unveils Sweeping Plan for Economy”. The New York Times. Novemebr 9, 2008. Accessed on December 14, 2008. http://www.nytimes.com/2008/11/10/world/asia/10china.html
xvii. Wheatly, Alan. “China economy at crossroads after 30 years of reform”. Reuters. December 13, 2008. Accessed on December 14, 2008. http://www.reuters.com/article/worldNews/idUSTRE4B94K420081212?virtualBrandChannel=10341
xviii. Ibid
xix. “China Human Development Report 2007/08”. United Nations Development Program- Beijing. Page 128. China Translation and Publishing Corporation. Beijing. November 2008.
xx. Chang, Ka-mun. Enright, Scott, E Edith. Enright, J Miachael. Regional Powerhouse: The Greater Pearl River Delta and the Rise of China. Page 22. John Wiley and Sons. Singapore. 2005.
xxi. Dialogue “Accountability comes under scrutiny”. CCTV 9. November 22, 2008.
xxii. Zang, Wei-Wei. “The allure of the Chinese model.” International Herald Tribune. November 1, 2006. Accessed on December 22, 2008. http://www.iht.com/articles/2006/11/01/opinion/edafrica.php
xxiii. Author’s personal conversation. Beijing. November 2008.