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China’s Lost Decade

China Photos/Getty Images
A tourist posing with a sculpture of Deng Xiaoping at the West China Cultural Industries Fair in Xian, Shaanxi Province, October 2010

It’s hard to believe, but just twenty years ago China was on the verge of abandoning the market reforms that have since propelled it to its current position as a world power. Conservatives had used the 1989 Tiananmen massacre to reverse the country’s economic direction. Many felt that China needed to return to a more Soviet-style economic system, with stronger central planning and tighter regulation of people’s personal lives.

But China had a first-among-equals, Deng Xiaoping, who would have none of it. Although already an old man—he would die five years later aged ninety-two—he launched a brilliant guerrilla campaign. Almost surreptitiously, he left the capital in early 1992 for China’s freewheeling south, making speeches that extolled reforms. He declared that China’s biggest threat was from the left, not the right, and is credited with uttering the credo of China’s early reform era: to get rich is glorious. When conservatives blocked official media from carrying his remarks, he used his influence to publish his pro-reform message in regional newspapers. Eventually, the center’s resistance crumbled and Deng put economic reformers in key positions of power, unleashing a twenty-year boom. Political change remained off-limits, but almost anything else went; and it is defensible to say that China was freer and more dynamic than at any point in its modern history.

All of which brings us to today. Economic and political reformers are again on the defensive, with the economy increasingly dominated by pro-state forces that are squeezing private enterprise. The economy is slowing, with housing prices falling, foreign investment down, and consumer sales sluggish. Many economists advocating reforms of Chinese statism have been stifled—censors have banned the press and television from using the word “monopoly” in describing state enterprises. Socially, rising expectations mean people aren’t as easily satisfied with the Deng-era emphasis on achieving prosperity and enlarging personal opportunities; many also want to have more say over how their lives are shaped. But calls for political or social reform are blocked by a sophisticated “stability-maintenance” apparatus that keeps a lid on the tens of thousands of protests that beset the country each year and punishes outspoken critics of the regime.1

The new group of leaders, which takes over later this year, might have a raft of reforms in mind, but optimists are wary. Ten years ago most China experts proclaimed the incoming team of Party Secretary Hu Jintao and Premier Wen Jiabao to be laden with reformers; they turned out to be technocratic caretakers.

The difference between the stasis now and then is that China lacks a paramount leader like Deng who can challenge the logjam of competing interests, bureaucracies, and regions. Lacking the legitimacy that would be conferred by democracy or tradition, China’s current rulers must seek consensus, leaving them unable to challenge entrenched interests. Today’s China features Deng’s political repression but without his era’s dynamism—a country still hurtling forward, but its speed slowing and direction unclear.

Stagnant China? This isn’t the story that became accepted over the past decade. No country growing at double-digit rates could be thought of as declining; surely the label better describes sclerotic Europe or the politically paralyzed United States. The past ten years have seen a constant drumbeat of stories about China—either as the world’s next great thing or the next great enemy—but all repeating the mantra that China is changing, as if this were unique among the world’s nations. China fever peaked in 2008, first with Beijing hosting the summer Olympics and, after the global economic crash later that year, with China as the last bastion of global economic growth. Few then described it as beset by structural issues that would seriously hobble its rise.2

And yet this view is now widespread inside China, even at the highest echelons. Top leaders regularly invoke the need for systemic reforms, while Chinese economists say the next decade will be more important than the past three, when reforms were launched and China took off. The topic is also slated to be discussed at the upcoming Party congress, when China’s leadership for the next decade is to be appointed. A recent study by the World Bank and the Chinese government’s Development Research Center declared in uncharacteristically bold language that China risked crisis if it didn’t reform its system, adding that “calls for reform within the country have never been louder.”3

How China got to this point is the subject of three new books focusing on economics and business. All are written by highly qualified observers eager to make sense of China’s growing malaise. They come at it from different angles—one is a leading American essayist and journalist, another a Chinese government insider, and the third works at a Washington think tank—but their conclusions are strikingly similar: China needs more than a few tweaks to regain the dynamism of past years and reach a new level of development. All implicitly or explicitly make clear that most of all, China’s economic challenges are political.

The most ambitious of the three is James Fallows’s China Airborne. That might seem odd because Fallows focuses on one particular industry, aviation. But he uses it as a window on China’s effort to change its economy, something it must do during its next phase. Aimed at a general audience, it eschews many of the technical arguments found in the other two books, but for most readers it is an excellent one-volume look at the economic and political challenges of the post–China fever era.

One of Fallows’s great strengths is his impartiality and fair-mindedness. He starts out with sensible caveats, which too many—even those of us living in China—forget when speaking of this vast country of 1.3 billion. He says that what struck him most about living in China is how diverse it is, with regions as different from each other as many countries:

Such observations may sound banal—China, land of contrasts!—but I have come to think that really absorbing them is one of the greatest challenges for the outside world in reckoning with China and its rise.

His focus on aviation stems from his passion for flying—an earlier book of his discusses the aviation industry’s mess.4 This leads him to experience firsthand many memorable scenes. In one, he copilots a Cirrus propeller plane from an inland province to the coast. In between is a mountain range but air traffic controllers don’t respond to their requests to change altitude—a good example of the poor training and low standards that still are widespread in many professions. (Eventually, a commercial jet heard the pleas and relayed them to the controllers, who finally responded.)

Chinese aviation is a particularly telling subject. The country’s current five-year economic plan, which started in 2011, has China spending the equivalent of $200 billion on new airports, navigation systems, and planes. The country’s fleet is to increase to 4,500 planes from 2,600—representing half of new passenger plane sales in the world. The need is equally great: China has only 175 airports, compared with one thousand commercial airports in the United States, not to mention four thousand airstrips for enthusiasts and private pilots.

And here we begin to see China’s problems. China has a stunted civil aviation sector, not so much because of its level of development, but because of its authoritarian political system. Airspace is controlled by the military, with small corridors doled out to civilian use. In 2006, the military ordered Shanghai’s Pudong airport to shut down for several hours with no reason given—analogous, he says, to the US Air Force arbitrarily ordering Los Angeles’s LAX closed. The corridors are so narrow that flights pile up, while military restrictions force planes to fly at fuel-wasting low altitudes. This is a leading reason why Chinese domestic flights use twice the fuel per kilometer than the international standard, meaning that China could double its air traffic at no additional environmental cost if it simply adopted international norms. It’s one of the many fascinating facts that Fallows reveals, capturing at once the country’s hobbled civil society but also the opportunity for improvement.

Fallows also dissects China’s quest to build a passenger jet. The only manufacturer, the Commercial Aircraft Group of China, is in government hands. It has produced two models, mostly based on foreign technology, but neither is commercially usable, owing to their cost and weight. The lay reader may wonder why China can’t pirate a Boeing 737—an older model that is still a workhorse for many airlines. Fallows explains this by showing how much of China’s economic prowess is due to customers being “happy with crappy”—most don’t care that China’s products aren’t first-rate because they’re much cheaper. In the aircraft industry, this is less workable—how many airlines buy cheap but unreliable Russian planes?

China’s production methods are also unsuited to building ultra-complex machines: when assembling an iPad or a running shoe or even a car, if the first batch is defective, the manufacturer can adjust the production line and toss out the lemons. This works for much production in China but, obviously, wouldn’t work with aircraft. That leads Fallows to another memorable quote: “The Chinese can go to the moon long before they build an airliner.” A moon shot is a one-time event and requires brute engineering, while a jetliner is an immensely sophisticated amalgam of hardware and software that has to work flawlessly for decades.

Fallows argues that achieving this level of competence isn’t a given. To explain why, he detours to China’s education and political systems. Like the United States for many years after the September 11 terrorist attacks, today’s China is in a state of “permanent emergency,” in which the security apparatus is constantly cracking down. A string of events have convinced authorities that they are under siege: the 2008 Tibet and 2009 Xinjiang riots, the award of the Nobel Prize to Liu Xiaobo in 2010, last year’s Arab Spring, and now the leadership transition. Although many—probably most—Chinese remain happily ignorant of China’s parallel society of jails and guobao (secret police) agents, they sense it indirectly. Access to foreign websites in China, for example, is painfully slow because of the regime’s filtering software—a far cry from the 1990s, when China was ahead of the United States in cell phone networks, the then-cutting-edge telecommunications infrastructure. Once they are on the Internet, users will find that almost all foreign social media sites are banned.

Not getting onto Facebook might seem trivial, but it is a reminder to many Chinese—especially those educated abroad who might return home—that China is one of a handful of countries (the others are Iran, North Korea, and Syria) that permanently block this site, as well as YouTube and Twitter (most Google sites are accessible but often subject to cyber-harassment, such as slow loading speeds). The upshot, Fallows says, is that entrepreneurs will come to China to make money in such industries, but “this is not the place you’ll want to work if you want to be competing with the best.” And indeed most of China’s Internet platforms—Baidu, Weibo, Youku—are copycats of Western sites that are banned or hobbled in China. They are big and mostly profitable but not innovative.

  1. 1

    The exact numbers are impossible to ascertain but one estimate, by the Chinese scholar Sun Liping, puts the total number of “mass incidents” at 180,000 in 2010. This does not mean that China has five hundred riots a day, but it does mean that disturbances are widespread and, compared to previous estimates, that the number has increased significantly.

    The country’s stability and security apparatus costs in excess of $100 billion, according to government figures, slightly more than the defense budget. 

  2. 2

    Two notable exceptions are Gordon G. Chang’s The Coming Collapse of China (Random House, 2001) and Minxin Pei’s China’s Trapped Transition: The Limits of Developmental Autocracy (Harvard University Press, 2006). 

  3. 3

    China 2030: Building a Modern, Harmonious, and Creative High-Income Society (World Bank, 2012), p. 65. 

  4. 4

    Free Flight: From Airline Hell to a New Age of Travel (PublicAffairs, 2001). 

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