Is China Trapped in Transition? Implications for Future Reforms

Here is the special report of the Oxford Founation for Law, Justice and Society China Programme:

Abstract: This special report examines the thesis that China’s transition is stalled. Minxin Pei, of the Carnegie Endowment for International Peace, and one of the main proponents of this provocative thesis, opens the discussion by summarizing his arguments in China’s Trapped Transition: The Limits of Developmental Autocracy . The subsequent briefs examine Pei’s arguments and evidence, as well as the general thesis that China is caught in “partial reform equilibrium,” by looking at reforms across a wide range of areas: politics, the economy, governance, the legal system, banking, and foreign investment.

Joseph Fewsmith of Boston University argues China’s political system will resist democratization for a substantial period of time for many of the reasons that Pei suggests, and that this will distort patterns of growth and governance.
Nevertheless, China’s political system is more capable of change, of confronting established interests, and of adapting to changing circumstances than the trapped transition thesis would maintain.

Barry Naughton of the University of California San Diego takes issue with Pei’s claims about economic stagnation. He argues that China’s economic policy-makers in fact have become increasingly decisive over the last decade, and that the economic system is more capable, resilient, and likely to be successful than ever before.

While acknowledging that China faces significant governance challenges, Dali Yang of the University of Chicago argues that there has been impressive progress in social development and economic change, and that the major efforts to construct a modern regulatory state have paid dividends in increased transparency, efficiency, and fairness of the state.

Randall Peerenboom argues that it is too early to conclude that China is trapped in transition. China has made remarkable progress in a short time in improving the legal system, outperforming the average country in its lower-middle income class on rule of law and related good governance indicators, by following the “East Asian Model.”

Jacques deLisle of the University of Pennsylvania similarly concludes that the verdict is not yet in on legal reforms, but that it is too early to conclude China legal and political reforms are stalled. While acknowledging that there are formidable obstacles to full realization of rule of law in China, he points out that a number of factors suggest reforms will continue.

Michael Dowdle of Cornell University raises several methodological issues that challenge the fundamental assumptions of Pei’s argument. He argues that the standard frameworks we use to evaluate legal systems are based on developed countries that have successfully made the transition. Judged by those standards, developing countries surely fail, but then so would have the U.S . and other successful countries at similar stages of development, even though they eventually transcended the problems typically found in developing countries, including China.

Victor Shih of Northwestern University points out that the banking system has improved significantly from the time Pei was writing. However, he also notes that the well-being of the financial sector remains intimately linked with the Communist party-state. Thus, the key indicators for the future of China are political ones. Lester Ross, managing partner of the Beijing office of Wilmer Cutler Pickering Hale and Dorr LLP, finds that although the rate of increase of foreign direct investment has slowed and its proportion of total investment in China has declined, market access and new forms of foreign investment have generally continued to expand. While there has been a reaction on the part of some in the government against foreign investment, it has been largely sector-specific rather than systemic.

In his response, Minxin Pei focuses on the meaning and logic of partial reform equilibrium in a decentralized predatory authoritarian state; the standards and benchmarks for assessing whether China is in fact trapped in transition; and the crucial issue of whether China’s gradualist approach has been successful.

Discussions nowadays about China are all too often overly polemical: one is either a dragon-slayer, or a panda-hugger, a China-basher, or a Chinapologist. As this set of policy briefs demonstrates, the reality is more complex. Anyone attempting to come to grips with such a large developing country as China will have a difficult time dealing with the conflicting evidence, the lack of clear standards for assessing performance, and the dearth of successful models.

The briefs address several major themes and topics. What are the appropriate standards, indicators or benchmarks for determining whether a country is trapped in transition? How does China compare to other countries at a similar level of development? Has China’s gradualist approach to reforms been successful, or has it delayed the day of reckoning, or worse yet locked China into a trap where entrenched special interests are able to block further reforms? Why do so many countries, after an initial period of rapid growth and reform, experience the “middle-income blues”? What lessons can be learned from Euro-American or East Asian countries that have successfully overcome the middle-income blues? What should China, given its particular circumstances, do to ensure that reforms do not stall? And what would be the consequences for China and t he world if China was in fact trapped in transition?

The participants found much of value in Pei’s analysis. There was considerable common ground, as well as areas of contention. While most participants do not see China as trapped in transition at this point, they all recognize that there are serious problems, and that China’s transition could become stalled, as Pei suggests.

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