The growing commercial role of local governments has, in turn, multiplied opportunities for graft. But this problem, too, is often misunderstood.
Corruption is said to impede growth by inhibiting investment. Not so in China, where the state controls major resources, such as land and energy, yet
on assets than the private sector does. Privatizing those resources was a nonstarter under communism, and so corruption has served as a makeshift alternative, by allowing more private actors to use state-owned resources after striking arrangements with officials. Because those actors’ practices are more profitable, the economy has benefited overall.
also are concerned that China’s speedy growth cannot be sustained unless consumption replaces investment as the economy’s main driver. (The Chinese government appears to
, or claims to at least.) They point out that while investment accounts for an unusually high share of gross domestic product,
.
But to say this is to misunderstand the nature of China’s unbalanced growth
.
The main cause of that imbalance is urbanization. Over the past four decades China’s urbanization ratio has increased from
. In the process, workers from labor-intensive rural activities have moved to more capital-intensive industrial jobs in cities. And so, yes, an ever-greater share of national income has gone into investment as a result. But corporate profits have also risen, leading to higher wages, which have spurred consumption. In fact, even as the consumption share of G.D.P. has fallen, personal consumption has grown multiples faster in China than in any other major economy.
Eventually, China’s economy will have to become more balanced, as the government well knows. But
for that is to have the state play the “leading” role in the economy while the market plays the “decisive” role in allocating resources. Squaring that circle can be tricky.
How will China’s leaders reform
, whose
(especially relative to that of private firms), when they still see those companies as national champions?
is expected to continue, still not out of people’s personal preferences but at the state’s behest, by way of residency restrictions, evictions and forced relocations. Yet China’s planners now seem intent on redirecting migrants from megacities to smaller cities, and this could curb economic growth:
, labor productivity is much higher in larger cities than in smaller ones.
Then, there is the corruption issue, which will require another delicate balancing act. Corruption has benefited the Chinese economy by, in effect, allowing the transfer of state assets to more efficient private actors. But over time such gains are being outweighed by the social costs of bribes, wasteful expenditures and growing inequities. Allowing corruption to run rampant could undermine the legitimacy of the Chinese Communist Party. Yet combating it with draconian measures could
by discouraging both officials and entrepreneurs from taking economic risks.
Hence the importance, and sensitivity, of Mr. Xi’s signature anticorruption campaign. It has been cast as an effort to discipline errant officials, but some see it as a means for Mr. Xi to purge political opponents or exert more control over society. It seems to have been popular so far: The general public perceives local officials as taking advantage of the system, and here is the central government appearing to rectify the situation. But some warn that the
, a new agency designed to institutionalize anti-graft efforts,
.
To discourage corruption effectively, the Chinese government will eventually have to leaven the rule of the party with more rule of law. In the meantime, some practical reforms would help, including creating a
to define acceptable commercial practices, basic property rights and the status of private companies. More sweeping — and more politically sensitive — reforms will also be needed to ensure that private actors have more access to major resources, like land and financing, without having to rely on personal connections to local officials.
The Chinese economy’s glory days may be over, but even a 6 percent growth rate over the next decade would be remarkable. At that pace, the economy would double by 2030 and likely become
. (It already is the world’s largest economy in terms of purchasing power parity.)
China’s remarkable success to date can be credited in part to its leaders’ willingness to set aside communism for pragmatism. Some observers worry that Mr. Xi is now reinjecting ideology into major policies, Mao-style. But he also is concentrating power and promoting action-oriented reformers like Mr. Wang and Mr. Liu — signaling his intention to address China’s social and economic needs even as he gathers the means to do so. China may not become a normal country for some time yet.
