The end of the BEIJING CONSENSUS - China - World

The Chinese model of authoritarian economic growth cannot survive.

Since China began undertaking economic reforms in 1978, its economy has grown at a rate of 10 per cent a year, and its per-capita GDP is 12 times greater than it was three decades ago. Analysts attribute the country's success to its unconventional approach to economic policy - a combination of mixed ownership, basic property rights, and heavy government intervention. TIME magazine's former foreign editor, Joshua Cooper Ramo, gave it a name: the Beijing Consensus.

The term Beijing Consensus is used in reference to as well as a foil to the Washington Consensus. As the finance ministry explained, the Washington Consensus originated from a 10-point market-oriented policy prescription that the US pushed crisis-plagued South American countries to adopt in return for aid in the late 1980s. It is often described as an expansion strategy for US-style capitalism. The Beijing Consensus is summarised by several key concepts used by the Chinese government to describe its growth model, such as step-by-step economic reform, balanced development strategies and the "peaceful rise of China."

But, in fact, over the last 30 years, the Chinese economy has moved unmistakably toward the market doctrines of neoclassical economics, with an emphasis on prudent fiscal policy, economic openness, privatisation, market liberalisation, and the protection of private property. Beijing has been cautious in maintaining a balanced budget and keeping inflation down. The country is the world's second-largest recipient of foreign direct investment, and domestically, 80 per cent of its state-owned enterprises have been released to private hands or transformed into publicly listed companies.

DISPARITY BREEDS RESENTMENT

Since the Chinese Communist Party (CCP) lacks legitimacy in the classic democratic sense, it has been forced to seek performance-based legitimacy instead, by continuously improving the living standards of Chinese citizens. So far, this strategy has succeeded, but there are signs it will not last because of the growing income inequality and the imbalances it has created.

The CCP's free-market policies have predictably led to major income disparities. City dwellers are earning threeand-a-half times as much as their fellow citizens in the countryside, the highest urban-rural income gap in the world. How, then, has the Chinese government been able to adopt principles of neoclassical economics while still claiming Marxism as its ideological anchor?

The answer is that China has for three decades been ruled by a disinterested government - a detached, unbiased regime that takes a neutral stance when conflicts of interest arise among different social and political groups. This does not mean that Beijing has been devoid of selfinterest. On the contrary, the state is often predatory toward citizens, but its predation is "identity-blind" in the sense that Beijing does not care about the social and political status of its chosen prey. As a consequence, the government has been more likely than other authoritarian regimes to adopt growth-enhancing policies.

SEETHING CITIZENS

For 30 years, the CCP has adopted policies favouring specific groups or regions. Yet that early adoption of an "open-door" policy gave rise to domestic resistance: special economic zones, such as Shenzhen, enjoyed treatment that other parts of the country envied. Despite its absolute power and recent track record of delivering economic growth, the CCP has still periodically faced resistance from citizens.

The Tiananmen incident of April 5, 1976, the first spontaneous democratic movement in PRC history, the June 4 movement of 1989, and numerous subsequent protests proved that the Chinese people are quite willing to stage organised resistance when their needs are not met by the state. International monitoring of China's domestic affairs has also played a role; now that it has emerged as a major power, China is suddenly concerned about its legitimacy on the international stage.

The Chinese government generally tries to manage such popular discontent by providing various "pain relievers," including programs that quickly address early signs of unrest in the population, such as reemployment centres for unemployed workers, migration programmes aimed at lowering regional disparities, and the recent "new countryside movement" to improve infrastructure, health care, and education in rural areas.

POWER PLAY

Those measures, however, may be too weak to discourage the emergence of powerful interest groups seeking to influence the government. Although private businesses have long recognised the importance of cultivating the government for larger profits, they are not alone. The government itself, its cronies, and statecontrolled enterprises are quickly forming strong and exclusive interest groups. In a sense, local governments in China behave like corporations: unlike in advanced democracies, where one of the key mandates of the government is to redistribute income to improve the average citizen's welfare, local governments in China simply pursue economic gain.

More important, Beijing's efforts to promote GDP growth will inevitably result in infringements on people's economic and political rights. For example, arbitrary land acquisitions are prevalent in some cities, the government closely monitors the web, labour unions are suppressed, and workers have to endure long hours and unsafe conditions. Chinese citizens will not remain silent in the face of these infringements , and their discontent will inevitably lead to periodic resistance. Before long, some form of explicit political transition that allows ordinary citizens to take part in the political process will be necessary.

CRISIS IN THE MAKING

The reforms carried out over the last 30 years have mostly been responses to imminent crises. Popular resistance and economic imbalances are now moving China toward another major crisis. Strong interest groups and commercialised local governments are blocking equal distribution of the benefits of economic growth throughout society, thereby rendering futile the CCP's strategy of trading economic growth for people's consent to its absolute rule.

An open political process has generally checked the power of interest groups in advanced democracies. Indeed , this is precisely the mandate of a disinterested government - to balance the demands of different social groups. A more open government could still remain disinterested if the right democratic institutions were put in place to keep the powerful groups at bay. But ultimately, there is no alternative to democratisation if the CCP wishes to encourage economic growth and maintain stability.

DITCHING THE AMERICAN WAY

For decades, the dominant development model was represented by the Washington Consensus, a US-led plan for reforming the economics of third-world countries. Coined in the late '80s by US economist John Williamson, the term referred to the economic principles of market fundamentalism, sometimes called neoliberalism, and became associated with western institutions such as the World Bank and IMF Coined in 2004, the Beijing Consensus represents an alternative economic development model to the Washington Consensus. It is one of the latest ways that China is asserting itself as a major player in international politics. This shift comes as developing countries around the world look for ways to spur growth in a challenging economic climate The Beijing Consensus is nothing like Washington Consensus. Instead of delineating strict economic policies, it is founded on three ideas: importance of innovation, rejection of per capita GDP, and fundamental belief in self-determination. There is no precise definition for the term, which has evolved to describe alternative plans for development, so-named as China is seen as a potential model for such actions

COUNCIL ON FOREIGN RELATIONS

The author is deputy dean of the National School of Development and Director of the Centre for Economic Research at Peking University