Book review: Uprising, by George Magnus

Uprising takes a cautious and sceptical view of the future of the Chinese economic miracle, but Howard Davies would still be minded to have a punt out east.

by Howard Davies
Last Updated: 05 Nov 2010

Books on China, and especially on the Chinese economy, come thick and fast these days. Uprising, in spite of its subtitle referring generally to emerging markets, is essentially one of those. So the time-poor reader struggling to choose between this and Wayne Rooney's autobiography for her commute, needs the answer to two questions. What is the author's comparative advantage: his USP, in the language of marketing? And where's the beef? In other words, what is his distinctive point of view?

As for the first question, Magnus writes from the perspective of an economic adviser to an investment bank - UBS, as it happens. So while he focuses much of his attention on politics and the macroeconomy, he is also interested in the implications for investment strategy. Is it smart to place a heavy bet on the growing dominance of Chinese companies or will they struggle to succeed against global competition? There are many other books which would tell you more about the Communist party or the residual influence of Confucianism. You pays your money and you takes your choice.

Uprising is, however, distinctive in the somewhat sceptical position it takes on the China miracle. For the most part, George Magnus is not an enthusiast of the straight-line extrapolations so beloved of the BRIC-makers of Goldman Sachs. He does not regard the relentless rise of China as inevitable. He believes there are many factors to be taken into account other than investment and savings rates, which in the past have explained the relative wealth and influence of countries. He points to the example of Japan, which in the 1980s was said to be about to conquer the globe.

Part of his argument is short term in nature. He is worried about the recent very rapid growth in bank lending. He is alarmed by the huge borrowing by local authority platforms to invest in projects of dubious value, and about the continued global and domestic financial imbalances. What he says on these subjects is accurate, but the Chinese have been here before, and their financial authorities have so far shown considerable skill in bursting bubbles and disarming ticking time bombs - more than has been shown by their Western counterparts. There are already signs that some of the dangerous trends to which he refers are bending.

His more interesting analysis is demographic and political. It is not as well understood as it should be that China is ageing very rapidly indeed. This is partly due to the one child policy, now undergoing some review. In this respect, China is quite unlike India. Unless there is a very marked change in family practices, by 2050 the over 60s will make up 31% of the population, up from 12% today. The dependency ratio, which is now 11%, will be 40% by 2050. So while today nine people of working age support each retired person, by 2050 there will only be 2.5 workers doing so.

There are demographic challenges in terms of the balance between rural and urban employment as well. There are simply too many people in the countryside, and their productivity has been growing slowly. But the Chinese are nervous about the capacity of their cities to absorb this surplus workforce without generating unrest.

Magnus also points to what he sees as institutional weaknesses in China. The rule of law is doubtful and inflexible. He thinks the Chinese 'don't do much that is new and that wasn't pioneered in the West'.

While China has a trade surplus in high-tech goods, 'this is mostly about goods made in China, as a result of foreign technology companies' production in China, rather than by China'. He has a point, but the Chinese understand it well and are investing heavily in their universities. I would not wish to bet against their ability to develop Nobel prize winners in the future - though whether the government will, after recent events, be quite so keen for their scientists to accept those prizes is a moot point.

Magnus's most alarming observations come in the field of politics. Liu Xiaobo's Nobel prize has reminded us of the oppressive element in Chinese politics. Magnus thinks this will increasingly prove to be a competitive problem for the Chinese, quite apart from the moral and ethical dimensions. He thinks that 'sooner or later, rising living standards and the spread of modernity through the country are going to generate a growing public clamour for political participation and institutional reform'. However, the Communist party has proved itself to be remarkably adaptive in the past and may surprise us again in the future.

Overall, Uprising is a useful corrective to some of the more breathless and overenthusiastic tracts on China's inevitable path to world domination. But I still think it will prove wise to be overweight in emerging markets for the next decade or more.

Uprising: Will emerging markets shape or shake the world economy?
George Magnus
John Wiley £19.99

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