News July 14, 2020

China Faces Tough Decisions and Stronger Headwinds

China has had great success, but the era of miracle growth is over. Citizen needs and expectations are rising, and deferred reforms are riskier and more necessary, explain Jean Oi and Thomas Fingar on the World Class Podcast
A Chinese day trader reacts as he watches a stock ticker at a local brokerage house on August 27, 2015 in Beijing, China
A Chinese day trader reacts as he watches a stock ticker at a local brokerage house on August 27, 2015 in Beijing, China. Photo: Getty Images

Even though China has made tremendous strides over the past 40 years, the road ahead promises to be more difficult and dependent on the choices of political leaders, Jean Oi told host Michael McFaul on the World Class Podcast. Economic growth was slowing even before the COVID-19 pandemic, but past success has exacerbated old and created new and difficult challenges, said Oi, who summarized the findings of Fateful Decisions: Choices That Will Shape China’s Future, the recently published Stanford University Press book she co-edited with Thomas Fingar.

The conditions that allowed for China’s rapid growth have changed greatly in recent years, explained Oi, who is a senior fellow at the Freeman Spogli Institute for International Studies and director of the China Program at the Shorenstein Asia-Pacific Research Center (APARC). The demographic dividend is over, future growth will depend on improvements to human capital, and health and elder care will require higher expenditures.

The roughly 70 percent of the population that has only known high growth expects and demands more from the party-state, she said. The external environment has become less favorable because of China’s own behavior, the rise of economic competitors determined to follow China’s path of export-led growth, and friction with the United States and other major economies. The Chinese people, foreign firms, and other governments are now more demanding and less patient, Oi noted.

China’s demographic and economic situations are very different than in the “miracle growth” era. The once-abundant supply of young workers eager to move from farm to factory to fill low-skill, low-wage jobs has been exhausted, she explained. As the labor pool shrinks because of low birth rates, wages are rising and new jobs are requiring higher skills and more education. Fewer workers and smaller families now must support an aging society with expensive health needs.

“China was able to get a lot of mileage without really engaging in thorough reform,” said Oi. “But how much further can it go with the current model? China already did the easy reforms, and everything left requires tough decisions [which are] going to challenge the core principles of this socialist system.”

Although China is not an unstoppable juggernaut and will not achieve the kind of growth and influence predicted by many, it is unlikely to become a failed state, said Tom Fingar, a fellow at APARC.

Because China’s number one goal is sustained economic progress sufficient to satisfy its demanding people, Fingar judges that continued dependence on the rules-based international order will constrain Beijing’s aspirations and ability to disrupt that order and displace the United States. China’s success has been achieved by working with and within the U.S.-led global order.

Chinese officials chafe at U.S. preeminence and want a larger say in shaping the global system, but they know China is not ready to assume primary responsibility for system maintenance. If they want to continue to grow, which is essential to maintain domestic stability and the communist party-led state, they must continue or behave as a responsible stakeholder within the international system, he said.

“It needs the international order to achieve its higher priority domestic objectives,” said Fingar. “The idea that China would do things militarily, politically, or diplomatically that would have an adverse effect on its ability to sustain economic growth is not plausible. China’s leaders want to stay in power more than they want to dethrone the United States.”

“The idea that China would do things militarily, politically, or diplomatically that would have an adverse effect on its ability to sustain economic growth is not plausible.”
Thomas Fingar
Shorenstein APARC Fellow

Fingar added that he believes the most consequential decisions China will have to make going forward are those concerning its economy. Its “miracle” growth is over, and the international environment is much more competitive and challenging, and a lot less accommodating than it was, he said. Achieving even much lower levels of growth, meeting citizen demands, and retaining legitimacy will be much harder and more dependent on the choices of political leaders.

“Part of that is because of China's success, but a lot of it is because of China's ham-handed actions,” Fingar noted. “They've managed to alienate almost every country and major player in the international system. The situation is not irretrievable, but it makes it harder to follow the export-led growth model that they have pursued.”

Thomas Fingar

Shorenstein APARC Fellow
Thomas Fingar

Jean Oi

Senior Fellow at the Freeman Spogli Institute for International Studies
Jean Oi, China Program Director

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