Five Challenges China Must Meet by 2034

China’s resurgence has been driven by a combination of private entrepreneurship and top-down bureaucratic capitalism; by an unmatched and unchecked culture of engineering ambition; of rote learning and educational experimentation; of sophisticated tastes along with basic concerns with food safety; of a China at once cosmopolitan and confused in its new global roles. How will those conflicting strategies, shortcomings, and achievements play out in the future? How do we imagine this great and resurgent nation with its embedded conflicts and challenges will look in 2034?

We pose five challenges that must be met. They are dealing with the environment; successfully making the shift from an infrastructure state to a consumer society; becoming an innovative economy; having a positive impact on the world order; and finally, and perhaps most importantly, making the transition from Xi Jinping’s “Seven No’s” to a more sustainable political model. Each is addressed below.

Environment. Today, China has 16 of the 20 dirtiest cities in the world, a mostly befouled freshwater system, and growing desertification. We are confident progress will be made here, because no one is more hurt by environmental degradation in China than the Chinese people themselves. Environmental remediation has become a matter of national priority. In recent years, we have seen remarkable investments being made in every environmental asset class from nuclear power stations to wind farms, solar panels, and hydroelectric facilities. There is broad perceived need from the top of the government in Beijing down to the provinces and the villages at the very bottom on the importance of these issues and a demonstrated ability to act on them. There is little debate on either the scope of environmental challenge or the science. Global climate change is not an area of controversy in China. We expect with significant government subsidies that over the next two decades, Chinese firms will emerge as the global leaders in clean energy.

Infrastructure State to Consumer Economy. The massive investment in infrastructure of the past 35 years, most recently as a result of the government’s 2008 stimulus package, will run out of steam by 2034 as the current population migration from the country to the city begins to slow. There will still be significant new infrastructure needs for the over 60% of China’s population living there. This will include everything from sewers and water to quality schools. Their future prosperity, however, will depend on sharp increases in domestic consumer spending. This will depend in turn on dramatic improvements in the pension and other social safety nets to drive down domestic savings rates and release the necessary spending power. We believe that the political will exists to make this happen. Nonetheless, a sustainable and growing consumer economy depends on service sector reforms, especially in the banking sector, to meet the needs of lower cap private-sector borrowers at the base of the pyramid. We are not sure this will happen because of institutional rigidities.

An Innovation Economy. Enormous investments have been made in science and technology in Chinese universities. Similarly, hundreds of thousands of Chinese students who study abroad are concentrating overwhelmingly on science and technology. A focus on encouraging indigenous innovative capabilities, however, has not been the strength of China’s educational system. Politics has. Central concepts of liberal education, which are valued so highly in the West and aim to liberate the individual to be a critical thinker and active citizen, are currently the subject of experimental programs in China. They are highly valued by educational leaders, if not yet by senior government leaders (see below). All this suggests a struggle in the realm of education, for without the depoliticization of education, China can hardly lead in education and, by extension, innovation. This is in spite of the fact that no country is counting more on education for its future than China. We see these tensions and shortfalls as likely continuing to be a challenge in 2034, even though the number of people receiving higher education will have doubled to over 62 million students.

The Chinese World Order. We do not see an inevitable military collision between the USA and China: Chinese-American competition will be primarily economic, not military, in nature over the next two decades. But more pressing for China is China’s need for and desire to embody and project, in some form, universal values of civilization. In the past, it was a set of broadly shared values — of how families, communities, and states are organized — that defined the governance of the empire over the centuries. This was a primary reason why Chinese civilization spread over East Asia. Historically, Chinese civilization had an enormous amount of soft power. This is not the case today. It is a responsible member of many global organizations, but not a leader of them in the broadest sense. It does not shape values. Today, the world respects China for its growing hard power — an infrastructure state with a military at the core — but not its soft power. We see few signs of this changing by 2034.

The Seven No’s. Within months of Xi Jinping’s accession to power, the Chinese Communist Party issued a directive banning discussion of “dangerous” topics. Universities and media were to cease discussing what had been areas of open argument for years. Whether this was Xi’s deep conviction or a short-term political maneuver is critical in assessing what 2034 will look like.

In brief, the Seven No’s that cannot be discussed or promoted, and in the order presented in the now famous Document No. 9 were:

  1. Western constitutional democracy including an independent judiciary, nationalized army, and general elections
  2. Universal values, such as human rights
  3. Civil society and other Western theories of governance
  4. A limited state role in the economy
  5. Freedom of the press
  6. Discussion of past Party mistakes
  7. Criticism of an emerging capitalistic class

If this directive reflects real policy, then we are faced with a China that may be open to greater economic reform while remaining politically regressive. Having Seven No’s is hardly supportive of a culture of innovation, as it denies the very foundation upon which innovation has flourished elsewhere. Can China truly advance in this and other realms if its political system remains fearful of open debate about China’s future?

In sum, we see China making real progress in many areas by 2034. In one area, however, deep uncertainties exist which must cause even the most pro-China investors to want to hedge their bets.

Abrami, Kirby, and McFarlan are the coauthors of the forthcoming book, Can China Lead?: Reaching the Limits of Power and Growth (HBR Press, February 2014).

China’s Next Great Transition An HBR Insight Center

Read Original Post from the Harvard Business Review


Leave a reply

Your email address will not be published. Required fields are marked *


ERROR: si-captcha.php plugin says captcha_library not found.