Growth, Consumption and Political Stability in China

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The paradoxical coexistence of
economic liberalism and political
authoritarianism in China
Carmen Amado Mendes
Universidade de Coimbra
Centro de Estudos Sociais
Summary
•
•
•
•
Market Socialism & Authoritarianism
Chinese growth strategy: investments
Public Finances: savings
Changes in social stratification and
household consumption
• Will the Middle classes bring about
political instability and democracy?
Market Socialism
Deng Xiaoping reforms
• 1978
• The second generation of Chinese leaders
begin the policy of opening up to the
outside world
• Capitalist elements are introduced into the
economic regime
Authoritarianism
• Economic reforms continue
– Fourth generation (Hu-Wen)
– Fifth generation (Xi-Li)
• But, political and human rights regime with
Chinese characteristics
• Government discourse: citizens are not
prepared for democratization
– avoid USSR-style collapse
• Primary source of legitimacy: Economy
Chinese growth strategy
Growth lead by
– Investments
– Exports
• Low consumption
• Very high savings rate
• The pervasiveness of the state in the
economy impairs the growth of middle
classes, and therefore preserves political
stability
A successful and unique growth
strategy
GDP Growth Rate (% )
16,0%
14,0%
12,0%
10,0%
8,0%
6,0%
4,0%
2,0%
Source: Chinese Statistical Yearbook 2009
20
07
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
0,0%
Public Finances: savings and
investments
• The Chinese state controls the financial
system
• Borrows from its citizens
• Compensating the low tax receipts
• Gains the ability to influence the allocation
of resources across sectors
• This allowed the construction of
infrastructures
The thrifty Chinese
Net National Saving (% of GNI)
China
USA
Germany
20
04
20
06
19
98
20
00
20
02
19
94
19
96
19
90
19
92
India
19
86
19
88
19
82
19
84
50
45
40
35
30
25
20
15
10
5
0
An investment-led strategy
GDP = C + I + G + (X − M)
Contributions to Growth of Real GDP
70
60
50
1981-1990
40
1991-2000
30
2001-2005
20
10
0
Private
Consumption
Investment
Government
Consumption
Net Exports
Source: McKinsey Global Institute (2006)
Chinese investment rates
Unique in the history of economic growth
• High investment rates have occurred in other Asian countries
but for very short periods.
Gross Fixed Capital Formation / GDP (%)
20
06
20
08
20
04
20
00
20
02
19
98
19
96
19
92
19
94
19
88
19
90
19
84
19
86
19
82
19
78
19
80
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
China overtakes Japan
2nd World Economy
Source: International Monetary Fund (IMF)
Forecast: 40% by 2040?
Share of World Output
30%
25%
20%
15%
10%
5%
0%
1980
1990
Western Europe
2000
USA
China
India
Source: Angus Maddison database
2008
Japan
Changes in social stratification
Share of real urban disposable income by income class
120
100
1985
80
1995
60
2005
2015
40
2025
20
0
Poor
Lower aspirants Upper aspirants
Affluent
Source: McKinsey Global Institute (2006)
Global
Private consumption in China
2008: 37% of GDP (IMF data)
Share of Real GDP (% )
60
50
40
1981-1990
30
1991-2000
20
2001-2005
10
0
Private
Consumption
Investment
Government
Consumption
Net Exports
Source: McKinsey Global Institute (2006)
Middle Class growth?
• National wealth has increased
undoubtedly
• But the state is retaining most power over
national resources. Clues:
– private consumption share of GDP
– investment-led strategy
• Authoritarianism
State grandeur
Individual impotence
• National pride is fed by
– The economic emergence of China
– Mega-events, 2008 Olympic Games, 2010
Expo Shanghai
• Growing feeling of individual vulnerability
and impotence
– Collective rights over individual rights
– State above citizen
Stability and Authoritarianism
• Priorities: economic growth and social
stability
– led to collective apathy regarding political and
cultural issues
– Tiananmen, Tibet, Human Rights
• Authoritarianism continues with Xi Jinping
• Maoism is back: State above individual
Middle classes and the quest for
democracy
• Pessimists: the economic satisfaction of
the middle classes increases political
stability and reduces prospects for
democracy
• Optimists: middle class culture is
conducive to democratization. Increased
consumer choice leads to the desire for
political choice.
Conclusions
• High savings signify a constraint on
consumer choice
– wealth created by workers is allocated
according to the government’s wishes
• The increasing access to goods and
consumer choice of the middle classes will
lead to the desire for political choice.
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