Books: Questions that haunt China

Many look in awe on the rising Asian monolith, but Will Hutton thinks it could all go wrong - and explains why. Howard Davies finds his prognosis persuasive.

by Howard Davies
Last Updated: 31 Aug 2010

It has become a cliche to say so, but the China growth story of the past quarter-century has been astonishing. Since the dramatic Deng Xiaoping-led policy volte-face at the end of the 1970s, China has grown by about 10% a year, with little sign of a slowdown. Massive trade surpluses have accumulated, especially with the US, and China's share of world manufacturing continues to rise. In his recent pre-budget speech, Gordon Brown, who visited China last year, noted - apropos of nothing very obvious - that 75% of the toys bought last Christmas in Britain were made in China.

The big question now debated wherever two or three economists or globalisation wonks are gathered is: can this rapid growth continue? The world has come to depend on it. Quite apart from the gloomy effect on children if Santa's sack turned out to be only 25% full, China's low labour costs and cheap production have held down inflation everywhere and allowed developed countries to grow rapidly without price pressures emerging.

Optimists point to the absence of any clear signs of a forthcoming slowdown. They cite China's enormous savings rate (about 45% of GDP) as a sign of confidence and of a build-up of capacity for future expansion. They note the political and social stability created by China's - shall we say - disciplined approach to politics and labour relations, and highlight the skill of its political leaders and economic managers, such as governor Zhou Xiaochuan of the People's Bank.

But there is an important 'but'. Gloom-mongers argue that China is trying to pull off a trick that no other country has managed. Normally, as countries liberalise their economies and as GDP-per-head rises, more political freedom is demanded. If you put political freedom on the X-axis and economic freedom on the Y-axis, China is in the top left-hand corner of the chart, a position few countries have occupied for a sustained period. When a government begins to grant economic freedom, demands for political involvement usually follow. Pessimists point to growing signs of unrest, especially where peasants are displaced by new factories, and maintain that if China's growth rate were to slip, the social pressures would boil over.

Hutton is closer to the pessimists than he is to Dr Pangloss. He maintains that 'China is caught with the current model, which ... sooner or later will fail, because of a banking crisis or simply a crisis of over-investment and excess supply. The consequent social reaction will provoke a political crisis.' That crisis could well spill over into a regional conflict, especially if China tries to take over Taiwan.

This sounds a grim prospect. Does the other horn of the dilemma look a more comfortable place to sit? Not obviously so. 'To rebalance China's growth on the basis of more normal levels of investment and consumption, together with fuller participation in the knowledge economy,' says Hutton, 'requires the building of an institutional structure, a welfare system and property rights - which would be inconsistent with one-party communist rule.'

Hutton supports this poor prognosis with a persuasive analysis of the profile of China's exports - largely manufactured goods from subsidiaries of multinationals; of the myriad failures among state-owned enterprises (SOEs); and of the travails of the banks, where bad debts were allowed to pile up as SOEs failed. So far, so depressing.

But what is Hutton's solution? The former apostle of New Labour recommends what amounts to New Communism. The 'Western interest,' he intones, 'is for China to supplement communism, build its own enlightenment institutions ... and become a state that actively wants to uphold the values and processes of international governance'. Sadly, the US and Britain, with their go-it-alone foreign policy, are setting a poor example.

The Writing on the Wall is not, therefore, just another breathless review of the Chinese economic miracle. Hutton gives us his assessment of globalisation, too, and a reprise of the analysis in his latest book The World We're In. There's familiar material on the impact of globalisation on Western employment (smaller than many think), on the growing insecurity of much employment and on the growth of income inequality, particularly in the English-speaking world.

This will be familiar stuff to past readers of the Hutton oeuvre, and the freshest chapters are those on the structure of the Chinese economy, which are a thoughtful and useful corrective to the gushing praise of the uncritical sinofans.

Whether the Chinese leadership will have the wisdom to revise its view of communism or of Mao Zedong is more open to question. I suspect we'll have to wait a while for the Chinese translation of this book to appear in Beijing.

The Writing on the Wall
Will Hutton
Little, Brown £20.00 MT price £18.00
To order, visit

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