Back in Oct 2012 I spotted a new book by economist Dambisa Moyo on the rise of the Chinese economy and the pressure on global resources. The thesis of that book was challenging then and now in 2014 we are getting used to the idea it is the Chinese economy rather than the US one which influences trade and global business health.
As Dambisa notes in her introduction to a talk she gave at TED Global last year Is China the new idol for emerging economies?
From the transcript – here are some of the key points
“there’s understandably a deep-seated presumption among Westerners that the whole world will decide to adopt private capitalism as the model of economic growth, liberal democracy, and will continue to prioritize political rights over economic rights.”
“However, I am saying that on balance, they worry more about where their living standard improvements are going to come from, and how it is their governments can deliver for them, than whether or not the government was elected by democracy.”
“The fact of the matter is that this has become a very poignant question because there is for the first time in a long time a real challenge to the Western ideological systems of politics and economics, and this is a system that is embodied by China. And rather than have private capitalism, they have state capitalism. Instead of liberal democracy, they have de-prioritized the democratic system. And they have also decided to prioritize economic rights over political rights. I put it to you today that it is this system that is embodied by China that is gathering momentum amongst people in the emerging markets as the system to follow, because they believe increasingly that it is the system that will promise the best and fastest improvements in living standards in the shortest period of time”.
You get the idea. This kind of thinking is very challenging to us in the West but we are a minority.
She goes on to state that China’s record in lifting 300m of its people out of poverty and improve their living standards dramatically. OK that is excellent but the next point is one where I have serious misgivings.
Second, China has been able to meaningfully improve its income inequality without changing the political construct…However, these two countries have the identical GINI Coefficient, which is a measure of income equality. Perhaps what is more disturbing is that China’s income equality has been improving in recent times, whereas that of the United States has been declining.”
And the slide for this is shown below. From my research the trajectory of the Gini numbers does not follow what other sources indicate.
In other words – income inequality has been rising in China as well as in the U.S and this is not a point I would raise in support of any arguments in favour of the Chinese model because it is plainly wrong.
The Economist (magazine) noted that China released Gini numbers for the first time in 12 years and the number of .474 was not supported by real research.
In the China Digital Times they raised extreme doubts on the Gini numbers when commenting on the same news item. Tracking Chinese statistics is extremely difficult but some other indicators could be used such as the massive growth in the number of billionaires in China.
The Wall St Journal in an Oct 2013 article – Number of Chinese Billionaires Skyrockets
“It also implies a widening of wealth inequality,” she added. According to a survey by researchers at China’s Southwestern University of Finance, the top 1% of Chinese families own some $1.6 million in assets, compared to an average of $368,000 per Chinese family.”
According to some UBS sourced numbers there are now 157 billionaires in China.
“The US tops the list with 515 billionaires having an eye popping net worth of $2,064 billion. This is over three times the number of billionaires in China, which has the world’s second largest billionaire population of 157. The total worth of the Chinese billionaires is $384 billion—about one-fifth of corresponding US figure.”
Whatever the number – other indicators on credit growth and banking suggest that China has some major financial challenges to surmount this year.
It doesn’t make any sense to me to over sell the Chinese success story by quoting unsupported Gini numbers.
I believe we also do not get a real idea of the level of public and private dissent inside China itself. As living standards have been raised – expectations on other matters are also rising.
In most rapidly changing economies regardless of the politics what we see are small elites grabbing power and the money that goes with that. The difference in China is that we don’t hear much about this because the media is very tightly controlled still.
Dambisa’s thesis is that “economic growth is a prerequisite for democracy” rather than the other way around.
“What this is telling us is that we need to first establish a middle class that is able to hold the government accountable. But perhaps it’s also telling us that we should be worried about going around the world and shoehorning democracy, because ultimately we run the risk of ending up with illiberal democracies, democracies that in some sense could be worse than the authoritarian governments that they seek to replace.”
My question is when we get to the point where the “middle class” in China wants something different – how is that to be navigated? What does the West do then? Do we continue to stand by in the face of human rights inequities because it makes economic sense or what? And how do we interpret protest in China – not so easy. “One way to make sense of this disparity is to understand this: in post-Tiananmen China, not all protests are created equal.”
In other words – I believe that Chinese citizens on the ground are every bit as interested in human rights but we don’t get to hear about it and now most of the economic benefits have been delivered to the tradeoff is going to become more apparent.
And this is where Dambisa ends her talk. From the transcript again
“But I put it to you that if the United States and European countries want to remain globally influential, they may have to consider cooperating in the short term in order to compete, and by that, they might have to focus more aggressively on economic outcomes to help create the middle class and therefore be able to hold government accountable and create the democracies that we really want.”
All things considered it is a well delivered presentation although I remain unconvinced on the Gini
Note: China’s Infrastructure Footprint in Africa suggests that Chinese projects in Africa are mostly focussed on power generation and transport especially rail. There was a comment in Dambisa’s talk that mentions the Cairo to Capetown road was 9000 miles. Not true – it is closer to 4,800 miles or 10,300Km and while there may be Chinese input on that roading project it is far less significant that the rail or hydro projects in Africa. A mis step like that can be distracting but the main point still stands – Chinese infrastructure projects in Africa are vast and noteworthy.