HONOLULU (Aug. 24) -- China's immense and rapid transition to a free-market economy is giving unprecedented influence to domestic and international capital investors, a China specialist at the East-West Center said.
"This is changing the political equilibrium by making the Chinese party-state, which relies to a considerable extent on economic growth for its legitimacy, more dependent on the decisions of capital holders, both foreign and domestic," said Chris McNally, who just returned from six weeks in China.
China's leaders have become more dependent on international trade and investment flows, creating incentives to maintain a peaceful international environment conducive to China's socio-economic development. "This in turn is pushing China to become akin to a status-quo power in the Asia Pacific," McNally said.
McNally is a coordinator for the East-West Center project, "China's Capitalist Transition." A recent conference brought together 20 distinguished scholars from China, Hong Kong, Singapore and the United States to look at where this monumental transition is leading China.
China's rapid development has "set free new productive forces," giving the country a competitive advantage in the international capitalist system, McNally said. Sustaining this advantage will require changes in the country's internal political structure and external orientation.
The East-West Center project aims to foster "a realistic and unclouded analysis of China's economic rise," McNally said, by analyzing the facets of China's transition to capitalism, which is far from complete. "There are many stumbling blocks in the way, a possible conflict with Taiwan being foremost."
To show how strongly the country has burst onto the world economic stage over the past three years, growth in trade with China accounted for 62 percent of overall trade growth in the United States in 2002. The number is even more staggering for Japan, where increased trade with China that year accounted for 11 times the overall trade growth.
With thriving entrepreneurs, more property owners, and the massive inflow of global capital, pressure for political reform in China is increasing rapidly. "There is a strong undercurrent clamoring for institutional predictability that the present political system cannot deliver," McNally said. "People feel a degree of insecurity that stems from the very nature of the political system."
This desired predictability, McNally said, can "only be reached by a greater degree of transparency and accountability. Part of the central leadership is willing to make changes but so far we have seen quite little. Clearly, the rule of law is not well established, allowing local leaders to circumvent rules and undermine private property rights."
Chris McNally can be reached at (808) 944-7239 or mcnallyc@eastwestcenter.org
"China's Capitalist Transition": see http://www.eastwestcenter.org/res-pr-detail.asp?resproj_ID=186 for more information on this new East-West Center project.