Politics Holding Back Economic Reforms
Heading into the National Day holiday, and on the cusp of a yet-to-be-scheduled leadership transition, The New York Times’ Andrew Jacobs reports that political distractions have prevented the Communist Party from making the tough decisions needed to address China’s slumping economic growth:
Although the departing government has tried in recent months to address decelerating growth by easing bank loan restrictions, increasing pensions and offering tax breaks to small businesses, a lack of consensus among the top stewards of the economy has stymied a more muscular response, insiders say.
Similarly, many analysts question whether the incoming leadership has the political will to overcome the resistance of the so-called princelings and other well-connected families that have prospered under the current system.
China’s standard economic formula, they say, is losing its potency: overzealous government investment and lagging consumer spending are creating serious imbalances that are expected to lead to a much more painful reckoning, perhaps not long after the new raft of younger leaders assumes power in early 2013.
“There are tough choices to make, but the central government appears to be so paralyzed they are just sitting on their hands,” said Ho-Fung Hung, a political economist at Johns Hopkins University in Baltimore. “The situation is looking increasingly dire.”
China’s economy is expected to grow 7.7 percent in the first three quarters of 2012, according to a Tsinghua University think tank, and Reuters reports that a vice governor of the People’s Bank of China reiterated the desire of policymakers to steer growth lower. Still, the slowdown has impacted all levels of the economy — China’s largest steelmaker announced Thursday that it had shut down a mill in Shanghai, and the China Daily reports that confidence among small and medium-sized enterprises has slid amid declining trade volumes. While the regime has relied on blistering economic growth to bring about social stability and preserve its own legitimacy, data collected by Richard A. Easterlin of the University of Southern California shows that growth may be outpacing happiness. Also from The New York Times:
As the recent riots at a Foxconn factory in northern China demonstrate, growth alone, even at sustained, spectacular rates, has not produced the kind of life satisfaction crucial to a stable society — an experience that shows how critically important good jobs and a strong social safety net are to people’s happiness.
Starting in 1990, as China moved to a free-market economy, real per-capita consumption and gross domestic product doubled, then doubled again. Most households now have at least one color TV. Refrigerators and washing machines — rare before 1990 — are common in cities.
Yet there is no evidence that the Chinese people are, on average, any happier, according to an analysis of survey data that colleagues and I conducted. If anything, they are less satisfied than in 1990, and the burden of decreasing satisfaction has fallen hardest on the bottom third of the population in wealth. Satisfaction among Chinese in even the upper third has risen only moderately.