Congratulations to FPRI for organizing this timely conference on Greater China.  The quality of the papers has been excellent.  It is especially nice to see so many scholars from Taiwan, but it is disappointing that we have no active scholars currently working in China, no scholars from the various Academics of Social Science or universities that do empirical work on China.  Prof. Shi's research on political attitudes in China whets our appetites for more.  Nor is there a scholar or paper dealing with Hong Kong, where the idea of One Country, Two Systems, one of the ideas proposed to unify Greater China, is being fleshed out.
 

I am charged with commenting on Prof. Dreyer's paper.  It is excellent, and I very much agree with its general conclusions.  She argues that China's is in transition from Maoist socialism to something else.  I'm not sure what word or phrase captures what China is becoming. It is somewhere in the intellectual space bounded by  "Meiji Reforms," "Leibermanism," "mixed economy," and "crony capitalism."  Whatever we call it, Prof. Dreyer is correct that it is a very stressful transition and she has provided a very insightful catalog of problem areas, including population growth, energy, social inequality, loss of safety net, unemployment, incipient banking crisis, corruption, globalization, environment, and international issues.  I agree with her view that these challenges create dissatisfaction and danger for the regime, and that the regime has adequate resources to control these stresses for the foreseeable future.  

One of the most striking things about China is the fact that both academics and the rulers in the Communist Party and government are very much aware of these problems.  Journals and press report problems, and the government has been conducting a wide range of policy experiments over many years in different cities to try to refine institutional practices to reduce various problems.  Moreover, despite all the problems, very few Chinese would like to go backward in time and get back on the Maoist road to North Korea's fate.
 
While I agree with Prof. Dreyer's analysis, my own view would be to take some of the rough edges off the images she gives us. Let me lay out the analytical problem.  China is very big and diverse, and all kinds of things truly do happen.  I believe every terrible story I hear about China. The problem is to put things in perspective.  To what extent do the disturbing stories represent all of China? It is hard to know.  What I do know is this: All the stories of murder, fire, and depravity on our 11:00 PM television news are true, but they hardly represent all of day-to-day life.  To use them as data to characterize American society is extremely difficult. 

Likewise, all the reports of problems in China may be true, but are not fully representative.  Here is a simple example of the problem.   Prof. Dreyer points out that because of corruption, new roads have cracks and bridges are collapsing.  Of course this perspective would not surprise a resident of New York City, who has seen the Cross Bronx Expressway being rebuilt several times because the contractor shorted the cement in the roadbed.  Of course corruption is a problem in China, but is it unusually severe in China?  The most objective international comparisons of corruption are offered by Transparency International, available at http://www.transparency.org/cpi/2002/cpi2002.en.html.  Their current rankings show China number 59 out of 102, basically tied with Mexico, Dominican Republic, and Ethiopia.  By way of comparison, Taiwan is less corrupt, at 29, tied with Estonia and slightly above Italy.  Some of the many countries ranked more corrupt than China include India, Pakistan, Russia, and Philippines.

Regardless of corruption, the roads are being built in China, and while there may be problems, I have been whisked at 85 MPH down the Chejiang coast and across the lower Yangze Valley from Shanghai to WuXi (to see a Great Buddha, rivaling our Statue of Liberty).  The new highway system is fundamentally changing China's transportation infrastructure, opening it up to free, spontaneous movement of goods and people.  

Similarly, Prof. Dreyer cites a report that health insurance pays only a small part of medical costs, and has limited utility.  This may be true at some times and places, but China has experimented with many different formulas for health coverage for decades.   In some cities the registered residents (not including migrants from the countryside) have health insurance that includes major medical insurance that kicks in after some level of deductible and co-pay.   The cost of insurance is covered by contributions from the workers, employers, and municipalities, so health insurance is better in a rich city like Shanghai than in poorer cities where factories and cities are bankrupt.  The rural residents and migrant workers, who constitute the vast majority of China's people, are not covered.  They are, to put it gracefully, "self insured," relying on social networks to help them if and when they have medical expenses.    Chinese are "practical," and to some extent don't want to put money into an insurance program that will help others and hopefully not themselves. They won't go to a doctor or hospital just to help protect others from catching their illness.   One of the important results of the SARS epidemic is that the Chinese government realized it had to put more money into public health programs.

Ironically, to some extent the problems in health and welfare programs in China are linked to the fact that China is emulating US health policies, which link insurance to employment (if the employer can afford it).  We should not be surprised but instead should anticipate that these programs will not cover unemployed workers, children, retired people, self-employed, and workers with economically fragile companies.  After all, despite our wealth, something like 40 million U.S. residents do not have health insurance.

As for the energy problems, I am sure that China's leaders have no better idea about how to find a long-term solution than our leaders do.  Chinese leaders are probably hoping that the West can find a solution to energy shortages, which they will be able to emulate.

Prof. Dreyer draws attention to the social stresses caused by an imbalance in the male-female ratio.  This problem has deep social roots and persists, despite Chinese efforts to correct it.  That this problem may be worse in India in no way justifies China's situation but does put it in some useful comparative perspective.  Similarly, the increasing dependency ratio that creates a major problem in funding retirement pensions is a problem by no means limited to China.  It is a major issue in Japan as well as Europe and the United States.

As for unemployment problems, again I don't want to belittle them, but I would emphasize that the issue takes on different coloration in different regions.  In the South and Eastern coast, a buoyant economy creates new jobs and many of the "unemployed" find employment.  I would not assume that the government statisticians know all the people who moonlight at one or another job, or who are self employed.  The problem is more severe in the Northeast, China's rust-belt.

Likewise, the squeeze on farmers from higher costs for inputs and lower prices for crops mirrors a very normal pattern in rural areas around the world.  And farmers everywhere complain about it.  The result in China, as elsewhere, is that members of farm families supplement farm income with non-farm income, either in rural local industry and trade or various patterns of migration into the urban economies.  Total family income can grow, even while farm income declines.  This is a stressful transition, but is manageable at both personal and social levels.  The last time I looked at the admittedly questionable data on household expenditures, rural family expenditures were growing at roughly the same rate as urban household expenditures.

Prof. Dreyer is correct that the WTO will place new stresses on China.  At the same time, globalization is helping China immensely.  Capital continues to flow into China from the whole world system (including Japan and Taiwan), creating more manufacturing jobs and more exports.  Pressure is growing on China to increase the value of its currency, so its exports will be less competitive.   Some years ago, Japan acceded to similar pressures, but instead of buying more US exports, Japan bought U. S. assets, including financial assets, real estate, and whole corporations so it would secure long-term income flows.  I am sure China would do the same.  

The notion that rapid economic growth is linked to rapid social and culture change, and that all these changes are very destabilizing is not new to political science.  Samuel Huntington pointed this out very clearly 35 years ago.  Huntington recommended that strong institutions, perhaps including a one party state with strong repressive resources, would be needed to prevent a rapidly transforming society from decaying into chaos.  China's leaders have understood and accepted this insight from Huntington.

We may be interested in democracy, with all adults voting in meaningful, competitive elections for their leaders, but this is very far off in the future.  In the short run, China is consolidating its political system in another way, namely by strengthening patrimonial networks horizontally and vertically.  It is creating and strengthening a new elite at all levels, while attaching it to and intertwining it with the core of an autocratic one party state.   It is a system that Max Weber predicted would occur on the transition from a traditional to a modern state, and it is a fairly common transitional form of state structure.   Patrimonialism meshes with Confucian patterns of family relations and personal relations.   From our perspective, it looks like nepotism and corruption, but it can also provide a new glue to replace the bonds of communist ideology and party leadership that have been melting away in the last decades.  At the moment, the stability achieved by the new patrimonial linkages, coupled with repressive machinery of the state, seem adequate to maintain basic political stability.

In short, I agree that China has myriad problems.  On balance, however, my feeling is that some of the problems may be less acute than suggested by truthful but not fully complete or representative anecdotal reports she cites.  There is substantial regional variation.  In addition, while much of the bad is still hidden, much of the good news is also hidden.   Just as the very best students in my class are often the quietest and do not want to draw attention to themselves, many of the people doing well in China similarly do not want others to know of their success.  I am thinking about one retired Chinese friend who complained and complained that her pension was very low, but then told me not to call her for a week because she was flying to Hainan for a vacation.  Finding the right balance is very hard.  I also agree with Prof. Dreyer that China has the political, economic, and coercive resources to manage these stresses, at least for several more decades.

For the long term, Prof. Dreyer concludes, "Due to the resource constraints, countervailing pressures, and irreconcilable trade-offs discussed above, the PRC is not, and never will be the hegemon of the twenty-first century, let along a superpower."  I think she is correct, but I have never thought that China had hegemonic aspirations.  If China can continue economic growth, continue improving people's livelihood, avoid political disintegration and chaos, that will be a major accomplishment, with global economic consequences.

Chen Chi-jou's paper on privatization in southern Jiangsu nicely complements Prof. Dreyer's paper.  Chen  provides a detailed, micro analysis of structural change in southern Jiangsu province, the area that includes the cities of Suzhou, Wuxi, and Changzhou.  Historically in this agricultural conditions are excellent and water transportation through its lakes and canals (including the Grand Canal) has contributed to a vigorous commercial spirit.  At least since the mid 1980s, these cities have been test areas for government support of industrialization.  There has been much investment in chemical, machine, and electronic industries and experimentation with various systems of organization and incentives.  

His paper shows that since the mid and late 1990s, the key experiments have involved privatization of ownership of these new industrial enterprises.  An underlying problem in privatization is that very few individuals have enough money to buy a factory.  As a result, the transition has involved complex mixtures of resources.  Stock in corporations can be owned by individual (often former managers), the local government, trade unions, other Chinese enterprises, foreign joint ventures, and banks.  (This type of mixed ownership of enterprises is not rare in Europe.  A prime example is the Volkswagen company.)   In the most recent years, the managerial elite, who were originally the top political leaders, has expanded and consolidated their ownership of key economic enterprises.

Chen emphasizes how the former political leaders have become the new, wealthy business elite, with large assets and incomes.  Income gaps and social differentiation have been increasing.  "Elites retain the lion's share of the benefits."  Implicit in this analysis is the presumption that this differentiation may lead to social stress and political problems.

Before reaching this conclusion, however, I would like to highlight two aspects of the data that Chen provides.  His Table 6 does shows that the elite's earnings have grown faster than workers' earnings, so at the ratio between them has increase.  Nevertheless, the Table also shows that annual earnings of workers in village enterprises have increased from around 2,000 yuan in the late 1980s to around 7,000 yuan in 1999, more than tripling.  Chen doesn't report wages for the most recent years during privatization but at least until then, it is hard to argue that workers experienced no improvement from the developmental process.

Secondly, Tables 1 and 7 suggest that during the privatization process of the late 1990s and early 2000s, the profitable enterprises paid very substantial fees to local governments, towards pensions, agricultural development, education, sanitation, public safety, flood control, etc.   Chen doesn't go into this aspect in detail, but it appears that the income flows that originally came from public ownership rights into public coffers have been transformed from profits into taxes, and it appears that the tax revenues from these sources has been increasing. 

To the extent that incomes have been rising and public goods are being maintained and expanded, it is not clear that the increased differentiation and economic transformation would lead to social stress and political crisis.  Let me hasten to add that this pattern should not be generalized to other regions.  This part of China has always been one of the richest, and it stands to benefit from globalization.  It is close to Shanghai's international transportation and communications hub, can draw on Shanghai's financial and technical resources, but has the lower wage rates and costs of living associated with the countryside. 

   
The two papers together give us a glimpse into China's very complex transformation.  The extent of change in China over the past 25 years in economic productivity, industrialization, consumption, and institutional arrangements is phenomenal -- far more than visitors to China around 1980 could have imagined.  Of courses all these changes are uneven, more rapid and successful in some regions than others.  So far, the public manifestations of political stresses from this vast change have been limited.  Strikes and demonstrations have occurred, but have been limited in time and space.  China's swift repression of any autonomous organizations, regardless of whether they are political, religious, or economic, has blocked any regime threatening movement. 
 

Can China eventually transform into a stable democracy?  There are two keys.  The first is the developing of the legal system.  Surprisingly, Chinese are very positive on this.  The legal system has developed a great deal since 1980, but this in itself is a vast transformation that will take generations.  Right now, Chinese are enthralled by suing each other and the government.

Historically, the other key component of democracy has been social organization, especially of trade unions.  It was organized workers, repeatedly striking and demonstrating, which convinced elites in 19th century Northern Europe to accept democracy.  Similarly, it was demonstrating workers and students who demanded and finally convinced South Korea's military leaders to revise the constitutions, step down, and have elections in the 1980s.   These types of movements probably will eventually come to China, but they may be decades before they have real power.

Elections ultimately give leaders legitimacy.  Nothing else does this effectively.  So eventually China's leaders will want to be elected.  But this will take a long time.  The anecdote that illustrates this dynamic comes from 1986, when Jiang Zemin, at that time the Mayor of Shanghai, visited Jiaotung university in Shanghai and pleaded with thousands of angry students not to have public demonstrations.  One student taunted the mayor with the question, "Mr. Mayor, are you the mayor of Shanghai because the people of Shanghai elected you to be mayor?"  Of course everyone in the hall knew that he was mayor because he had been assigned the job by the Central Committee.  Unable to point to elections legitimizing his position of mayor, Jiang simply threatened the questioner, and that triggered boos and catcalls from the audience.  The next day tens of thousands of students demonstrated in front of city hall, obstructing a key juncture of Shanghai's surface transportation.  Sometime in the future, when people are better organized and mobilized, China's officials will realize the value of being able to point to meaningful elections that legitimate their authority.   But this process will take place within a Chinese concept of time -- generations if not centuries, no on a western concept of time.