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Politics will prevent real economic reform in China, says professor

Posted September 2, 2015

Recovering from the economic crisis that rippled through the global markets will be long and difficult for China, said Jonathan Hassid, an assistant professor of political science at Iowa State University who studies Chinese news media and symbolic political messaging.

“It’s going to take a lot of political will and painful, fundamental structural adjustments if China wants to grow out of stagnation,” Hassid said. “The around-the-margin tinkering that has worked in the past is no longer effective to confront the scale of the problems that the central government now faces.”

Hassid is referring to government tinkering to boost exports, prop up stocks and invest in infrastructure. While constructing new roads and buildings benefits the economy, there are limits to what the country needs, and how much the government can borrow to finance such projects, Hassid said. He expects the government will try to devalue China’s currency to spur exports, but questions whether it will work.

“In the past, China has solved its problems by exporting more, but the world is not in a place to absorb that many more Chinese exports. As a consequence, the export markets are not growing in the same way and the manufacturing sector in China is very, very weak,” Hassid said.

The Chinese government has tried to build its service sector by encouraging citizens to spend more, but the results are mixed. For comparison, consumer spending accounts for 70 percent of the U.S. economy. It’s just 30 percent in China. Hassid says most Chinese do not have the money to spend and tend to save what they have.

“A lot of people are saving for major life events or catastrophic events because the government does not provide that social safety net,” Hassid said. “The government has been moving in recent years to provide that, but it still seems like they have a long way to go, and as a consequence that drives a lot of the savings.”

Ending corruption

The banking sector is just one example of the reform needed in China. Hassid says private companies often complain about the lack of access to capital, because banks give preferential treatment to state-owned enterprises (SOEs). This not only stifles private investment, but many SOEs are poorly managed and cannot repay the loans, he said.

China’s President Xi Jinping has made fighting corruption one of his top priorities. However, the anti-corruption campaign is only focused on individuals and does not address the culture of corruption that exists, Hassid said. It is also not politically neutral. The president is targeting his political opponents and not his allies, he added. Corruption also extends far beyond the central government.

Despite its enormous amount of regulation, Hassid says China’s central government has little control over what is happening at the county, township and provincial level. Local government officials, many of whom are appointed by the Communist Party, are very powerful. And without open elections or a free press they can operate with little or no accountability, he said.

“People look at the Chinese government and think it’s a very powerful country. The government is incredibly powerful, but the central government’s biggest problem is that it’s actually quite weak,” Hassid said. “If the central Chinese government is serious about fighting corruption, it’s going to have to implement unpalatable political changes, which do not appear likely to happen.”

Source: Iowa State University

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