How Much Longer Will China's Growth Model Last?

How much longer will China's economy continue to achieve the 10 percent annual average growth rate it has been able to pull off over the last 30 years? The so-called "Beijing consensus" -- a combination of mixed ownership, basic property rights, and heavy government intervention, believed to be responsible for China's economic success -- is once again at the center of controversy.

Yang Yao, deputy dean of the National School of Development and the Director of the China Center for Economic Research at Peking University, has voiced skepticism over China's sustained economic growth in an article titled "The End of the Beijing Consensus" published in the U.S. magazine Foreign Affairs.

Yang says China's economy is now 12 times greater than it was in 1978, when it began economic reforms, but has created serious income inequality and internal and external imbalances. The overall Gini coefficient -- a measure of economic inequality where 0 equals perfect equality and 1 absolute inequality -- reached 0.47 in 2008. China's city dwellers earn three and a half times more than people in the countryside, the highest urban-rural income gap in the world. China has also encountered the so-called middle-income trap -- a situation that often arises when a country's per-capita GDP reaches the range of US$3,000 to $8,000, the economy stops growing, income inequality increases, and social conflicts erupt.

Another problem is the increasing sense of hopelessness due to government-led economic growth policies. Yang wrote, "The Tiananmen incident of April 5, 1976, the first spontaneous democratic movement in [China's] history, the June 4 movement of 1989, and numerous subsequent protests proved that the Chinese people are quite willing to stage organized resistance when their needs are not met by the state. The Chinese government has generally tried to deal with discontent through various 'pain relievers,'" such as migration programs aimed at lowering regional disparities and the "new countryside movement" to improve living conditions. But Chinese people will inevitably take part in a wider range of political processes, he said.

But others stress the benefits of China's economic growth strategy. Martin Jacques, a former British magazine editor and academic who caused a sensation with his book "When China Rules the World: The Rise of the Middle Kingdom and the End of the Western World," is critical of the West's misconceptions of China. Jacques says the humiliation China underwent from its defeat in the Opium War in the late 19th century until its colonization was an "exception" in its 2,000-year-old history and its ascendancy today marks a return to its former glory.  

Newsweek columnist Robert Samuelson recently admitted he was wrong to assume that China would come closer to Western interests and values as it economy grows and that China's communist dictatorship would become democratic with the country's economy joining the global economy as its domestic market became more liberalized. These experts believe that the financial crisis that erupted in the U.S. gave the Chinese a new-found confidence in their economic model.

The Economist magazine on Thursday discussed China's economic growth and political stability. "The early years of what China calls its 'reform and opening' after 1978 were marked by cycles of liberalization and repression. The turning-points were usually marked by political crisis: dissent on the streets, leadership struggles, or both. Now, however, the only big protest movements are repressed ones among ethnic minorities in Tibet and Xinjiang. China's big cities are hardly roiled by political turmoil," it said.

There are no signs of a rift within China's leadership, which will see a generational change between 2012 and 2013. Andrew Nathan of Columbia University predicted a smooth road ahead in the transfer of power to Vice President Xi Jinping and First Vice-Premier Li Keqiang. Russel Moses, an analyst residing in Beijing, said, "The argument in policy-making circles where reform is concerned is 'how much more authoritarian should we be?' not 'how do we embark on Western-style democracy?'" 

Yet experts say China's leaders should not be complacent. As the Economist wrote, "a tight grip is actually a sign of a weak hand."