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One advantage that the government enjoys in this situation is that the renminbi is a non-tradeable currency and therefore not subject to volatile movement or speculation. The government has hitherto resisted the temptation to liberalize the capital account and allow the renminbi to float, which would have the effect of enhancing the renminbi’s role, promoting China ’s financial position and making it easier for Chinese firms to invest abroad. The main downside with such a strategy is that the savings which have underpi
Whatever the consequences of the global recession, there are powerful reasons for believing that the present growth model is unsustainable in the long run, and probably even in the medium term. Indeed, there has been a growing recognition amongst Chinese policy-makers and advisors that important modifications already need to be made to the model ushered in by Deng and intimately associated with his successor Jiang Zemin. [465] That process, championed by Hu Jintao, has already begun, with a shift away from the neo-liberal excesses of the nineties and towards a more harmonious society, echoing an older Confucian theme, with a new emphasis on egalitarianism, greater weight attached to social protection, a desire to lessen the importance of exports and increase that of domestic consumer spending, and a turn away from the influence of the United States — or ‘de-Americanization’, as it has become known. [466] Such changes are likely to be hastened by the global crisis and attempts to mitigate its effects.
Economic growth ca
A growing problem is that the priority attached to breakneck economic growth above all else has resulted in China moving in a very short space of time from being a highly egalitarian society to becoming one of the most unequal in the world. [468] The causes of that inequality are threefold: the growing gulf between the coastal and interior provinces, with the richest province enjoying a per capita GDP ten times that of the poorest (compared with 8:1 in Brazil, for example); [469] between urban and rural areas; and between those in the formal economy and those dependent on informal economic activities. [470] This is leading to growing social tension — evident, for example, in the relationship between migrant workers and local residents in the cities — which threatens to undermine the cohesiveness of society and the broad consensus that has hitherto sustained the reform programme. [471] The government has already begun to pay much greater attention to promoting a more egalitarian approach, though so far with limited effect.
A key question here is the financial ability of the state to act in the ways that are needed. In the early reform period, decentralization was deliberately encouraged, with central revenue falling from 34 per cent of GDP in 1978 to a mere 6 per cent in 1995, according to the Chinese economist Hu Angang. [472] The state found itself increasingly shorn of many of its old sources of revenue and responsibility. [473] Expenditure by the central state, in its turn, came to account for a rapidly declining proportion of GDP: 31 per cent in 1978, reaching a trough of around 11 per cent in 1995. By the mid nineties there was deep concern about the loss of central state capacity that this involved, including the latter’s ability to promote balanced development between the regions, and a determined attempt was made to reverse the process. There were even fears that individual provinces were begi
[463] Yu Yongding, ‘Opinions on Structure Reform and Exchange Rate Regimes’, pp. 1, 6–8.
[464] Interview with Yu Yongding, Singapore, 3 March 2006; and Yu Yongding, ‘Opinions on Structure Reform and Exchange Rate Regimes’.
[465] Yu Yongding, ‘ China ’s Structural Adjustment’, pp. 1–5.
[466] Interview with Zhu Wenhui, Beijing, 20 November 2006; interview with Fang Ning, Beijing, 7 December 2005; and interview with Wang Hui, Beijing, 23 May 2006.
[467] Ibid., p. 2.
[468] Peter Nolan, China at the Crossroads (Cambridge: Polity Press, 2004), p. 15.
[469] Maddison, Chinese Economic Performance in the Long Run, p. 98.
[470] Wang Zhengyi, ‘Conceptualising Economic Security and Governance’, pp. 531-4; Zheng Yongnian, Will China Become Democratic? pp. 296–301.
[471] Gittings, The Changing Face of China , pp. 274-5.
[472] Quoted in Zheng Yongnian, Discovering Chinese Nationalism in China , p. 32.
[473] Wang Zhengyi, ‘Conceptualising Economic Security and Governance’, pp. 534-5.
[474] Zheng Yongnian, Will China Become Democratic?, pp. 104- 5.
[475] Ibid., pp. 136-7.
[476] Zheng Yongnian, Discovering Chinese Nationalism in China , p. 32.
[477] Nolan, China at the Crossroads, p. 30. Chinese tax revenues increased by 22 per cent in 2006 and by 20 per cent in 2005, which suggests that this process is continuing.
[478] David Shambaugh, ‘The Rise of China and Asia’s New Dynamics’, in Shambaugh, ed., Power Shift: China and Asia’s New Dynamics (Berkeley: University of California Press, 2005), p. 18.
[479] ‘Year of the Three Big Headaches’, South China Morning Post, 4 January 2007.
[480] ‘ China ’s Priorities’, Financial Times, 9 March 2008.
[481] Yu Yongding, ‘ China ’s Structural Adjustment’, p. 5.