Every country faces challenges and China is no exception. But by global yardsticks, China’s issues are less critical than what most other countries face. It is after all the one country in the world which does not face a serious growth challenge (at least as of now). China is however such a large country that even a seemingly minor issue is of gigantic scale and one that will affect the whole world. This is why everybody in the world ought to take a much greater interest in this country.
This post is a compendium of social, political, economic and moral issues that China faces at this point of time, in no particular order
Maintaining GDP Growth : The “contract” between the Communist Party and the people is a simple one – Economic growth for political control. When economic growth falters, this contract will be put under strain. There are a number of challenges to maintaining economic growth and some of them are articulated below. You can’t grow endlessly at 8%+. The inflexion point has come.
Quantum of Debt : China’s debt to GDP ratio is galloping and is now above 300%. Much of the growth over the last decade has been debt fuelled. Growth will seriously falter if debt is cut. That’s why the elusive “soft landing” is proving so difficult for China. Just for comparison, India’s debt to GDP %, which I often cry about is “only” 130%. The United States, of course is a leader at 350% !
Income inequality : Every country faces this problem, but China faces it as bad as the US. The Gini coefficient, a measure of income inequality is 0.42 (higher the number, greater the inequality). The US is 0.46. India is 0.35. China is starting to have first world problems
Ageing population : Because of the one child policy that was rigidly enforced until recently, China is rapidly ageing. It will be the first country in history to have an ageing problem before it got rich (remember, on a per capita basis, China is still middling). With a poor social security network, who is going to pay for the aged and take care of them in a decade or two. China has the peculiar problem of one grandchild for four grandparents.
Corruption : We have spoken of it in previous posts. It is a serious problem.
Environment : China faces an acute environmental problem. The government is actively tackling it, but the problem is a huge one and one that was allowed to build up to crisis levels over decades. China also faces an acute water problem (worse than India’s). There aren’t easy solutions. Much of the north is virtually a desert, but with teeming populations.
Restive provinces : The one thing China is absolutely terrible at is integrating people who are culturally different. 93% of China is a homogeneous Han (those who talk about diversity in China have no clue what diversity really means – come to India). The two largest provinces Tibet and Xinjiang are restive and brutally suppressed
: Very few Chinese would recognise this as an issue, but it really is. Anti foreigner sentiment is high – its easy for a large number of Chinese to be fanatically against a nation if whipped into a frenzy of perceived slights. The Chinese government is increasingly bullying in its approach – Japan (Senkaku
), entire East Asia (Nine dash line
), India (Doklam
and Arunachal). The average citizen who only has access to government propaganda gets whipped into dangerous nationalism. The Chinese would do well to ponder over this – why do they have so few friends ?
A moral vacuum
: To an outsider, this might seem to be a strange issue, but many Chinese would immediately relate to it. Firstly during the Cultural Revolution
and then in the breakneck speed of economic growth, its ancient culture, beliefs and traditions have gone. Today money is the predominant (only) religion. In other countries, religious and social organisations provide a balance to the materialism. In China they do not exist, or if they rise, are brutally exterminated by the government (see what happened to Falun Gong
). So many Chinese wonder – after money what? And they may then turn their attention to demanding a level of freedom not in consonance with what the party is comfortable with.
And so this is the real major issue that China has faced since the mid 1980s and continues to face now. What is the balance between economic freedom and growth and political and other freedoms. The first flare up came when Zhou Enlai died in 1976. The second major flare up came during the Tiananmen incident in 1989. Since then there has been an uneasy truce, but one which has never gone away. Some day it will rear its head again. How China confronts it, and who is in power in China to confront it, will have tremendous consequences for the world.