Cultural Crossroads

Robust economic growth forces China to address critical issues at home.

“Dad, come down here! My bicycle is missing again!”

I can still remember the frustration I felt 15 years ago as I stared at an empty parking spot outside our apartment complex one morning and realized my brand new bicycle had been stolen. China has long been known as the kingdom of bicycles. There are no official statistics on the number of bikes in China, but in 2007 the state-owned China Central Television (CCTV) reported that there were approximately 4 million reported bicycle thefts in China each year, and this number reflected only a fraction of the bikes owned by the Chinese. Some online sources estimate that there are between 400 million and 800 million bikes in the country.

But things are changing quickly in China.

When Western media mention China now, it is most often in reference to its 8.7 percent GDP growth in 2009, despite the worst global recession in several decades. And there is a heated debate concerning whether there is a “China model” of development – lessons learned from Chinese political and economic systems – that can be transferable to other countries.

One of the most obvious physical signs of change in China is the rapid construction of the world’s most advanced and longest high-speed rail (HSR) network, a total of 31,000 miles to be completed by 2015.

China has already completed initial negotiations and surveys for its plan to connect the HSR all the way through 17 other countries in Asia and Eastern Europe in order to eventually connect to the existing infrastructure in the European Union and the United Kingdom. It is reported that additional rail lines also will be built into Southeast Asia as well as Russia.

The Chinese government’s ambition to complete this project, which will likely become the largest infrastructure project in history, has reshaped the lives of the Chinese. Ten years ago, I traveled frequently between my hometown of Wuhan and Canton Province’s capitol, Guangzhou, two cities 601 miles apart by rail. (That’s about the distance from Minneapolis to Detroit.) The trip took approximately nine hours, and I often had to spend the night on the train. With the HSR, I now can enjoy morning tea and dim sum in Guangzhou and arrive in Wuhan in time for lunch, as the trip takes only three hours to complete.

Operating a high-speed train is in many ways similar to managing China’s rapid economic development. For both to run safely and efficiently, all components need to move in sync. Continuous improvement and keeping the running speed in check are essential to ensure that the train will continue to advance well into the future.

Only 30 years ago, China was as poor as Mozambique. While the latter remains among the world’s least developed countries, China’s economy has expanded nine-fold, with economic output growing by 11.9 percent in the first quarter and 10.3 percent in the second quarter of 2010. By most measures, China’s economy is operating at full capacity.

Only 30 years ago, China was as poor as Mozambique. While the latter remains among the world’s least developed countries, China’s economy has expanded nine-fold, with economic output growing by 11.9 percent in the first quarter and 10.3 percent in the second quarter of 2010.

But the economy represents only one vital aspect of this growth. There are many factors that have contributed to China’s success, both directly and indirectly. After all, the Chinese believe everything in the universe is a balance of contradictory elements; like yin and yang. The factors that have proved beneficial in the past may hinder future development if left unchecked. What follows is a brief look at three emerging factors in Chinese society – political, cultural and demographic – that will need to be addressed as China continues to speed forward as an economic leader in the world.

Political FactorsChina’s political economic system is a combination of a capitalist market economy and autocratic governance by the Communist Party of China (CPC). Compared to other Asian and African authoritarian governments, such as the North Korean government, the CPC allows for much more intra-party democracy and public participation through government official elections at the local level. The CPC also emphasizes meritocracy and competent governance. Although improved and modernized, the CPC has maintained its absolute political authority and constantly enforces its ideology through various techniques, such as regular political group studies at corporate and school levels and keeping tight controls on media monitoring and censorship.

One advantage of the Chinese political system is the ability to swiftly pull resources from all parts of society during emergency situations and to implement massive national projects rapidly without prolonged debates. A few salient examples are the highly praised rescue efforts and efficient reconstruction performed by the CPC after the 2008 catastrophic Szechuan earthquake, the aforementioned $300 billion HSR project and the $146 billion rapid transit system to be completed in 2015 (which includes subway, light rail, tram and even maglev in 25 cities).

In addition, China’s economic advancement has benefited from a series of wise decisions made by the CPC, most notably the gradual reform and the selective learning policies. Gradual reform refers to working with the existing “imperfect” institutions while gradually improving and reorienting them to serve economic and social development.

Selective learning, on the other hand, is part of China’s old tradition of “selective cultural borrowing” and refers to CPC’s control of adopting foreign ideas based on China’s reality.

There are two fundamental differences between China and a modern Western country such as the United States. First, China’s middle-class population is relatively small – although still larger than the entire U.S. population – with a widening income gap between the rich and the poor as well as between rural and urban areas. Secondly, China’s natural and social resources per capita are much lower than those of the United States.

These two characteristics define China’s current development stage, which means that Chinese society is less stable than the United States in many ways, and adopting too many Western standards at too brisk a pace may result in chaos and actually hinder China’s modernization progress. Presently, the CPC puts its emphasis on learning the role of the market, entrepreneurship, globalization and international trade.

Although China’s economic development has benefited from the CPC regime and its political decisions, there also are a lot of setbacks of the authoritarian government. The CPC has long been trying to control bribery and corruption without much noticeable success. “Guanxi,” which means personal relations in Chinese, is in a lot of cases the most important factor determining the outcome of a person’s endeavors. And although the CPC has exposed and punished many corrupt government officials over the years, this behavior remains deeply rooted in many aspects of Chinese society – including government, business and even education. Embezzlement practices in particular not only undermine the stability of Chinese society but also have reduced the efficiency of its economic engine due to the lack of a level playing field.

Despite its efforts, the CPC still has a long way to go before reaching its goal of a clean government. Two of the best examples of what they hope to attain can be found very close to home in Hong Kong and Singapore. Both are Asian societies – neither practicing Western democracy – and have clean and corruption-free governments.

Cultural FactorsConfucianism, a complex system of moral, social, political, philosophical and quasi-religious thoughts, has tremendous influence on the Chinese culture. Confucius advised Chinese people to honor the teacher and revere his teachings, bear hardships and hard work, and be industrious and thrifty in running one’s home. These values continue to shape Chinese people’s views toward education, work and money.

The Chinese put great emphasis on education; however, the Chinese education system is flawed because it is an entirely exam-based system. This system of learning emphasizes book knowledge and test scores instead of creativity. Universities and colleges select students based on the national college entrance exam scores and physical exam results. Extracurricular activities and social work generally do not play a part in the evaluation process.

Compared to U.S. teaching methods which encourage individuality and initiative, Chinese schooling is largely lecture-based and encourages learning from books rather than through practice. The Chinese system has produced a larger percentage of hard-working “good students” than the United States, but fewer “elite students” who are creative and fuel the driving force behind scientific breakthrough and technological innovation.

This large group of hard-working and educated “good students” has benefited the China economic development by providing a steady source to China’s ever-growing middle-class, which is the foundation of a stable and developed society. China, however, lacks innovative, high-tech companies such as Microsoft.

Even Huawei, a Shenzhen-based telecom solutions provider (and one of BusinessWeek magazine’s “World’s Most Influential Companies”) does not have strong research teams. In February 2010, I met a senior manager who is in charge of mergers and acquisition activities at Huawei. He told me that they were in constant search of acquisition targets from abroad, usually hi-tech firms in Silicon Valley and Europe, in order to boost Huawei’s research capability.

From 2008 to 2009, the number of college entrance exam participants declined from 10.5 million to 9.6 million. The effect of CPC’s one-child-per-family policy has contributed to the decreasing number of high school graduates; however, through investigation by the Chinese media, there was another cause to this phenomenon – more and more Chinese high school students have given up on Chinese universities and opted to study abroad.

Chinese educators and media hold mixed views on this trend. Some think that since the foreign universities are better at producing elite students, Chinese students can take advantage of these opportunities abroad and in the end China still will benefit. Others think that although knowledge has no national boundary, patterns and experts do. They worry that as studying abroad becomes easier and more popular, there will be a greater loss of highly educated Chinese human resources to foreign countries, which will hurt China’s competitiveness.

Statistics seem to support the latter view. It has been reported that only half of Chinese students return to China after graduating from U.S. universities, and for those who go to school in Canada, 70 percent choose to stay there.

Demographic FactorsBesides the challenges discussed above, there are other uncertainties brought about by China’s demographic structure. In the next 10 years, almost all of the workers born in the 1950s will retire, and the children born under the one-child-per-family policy in the 1980s will make up the majority of the work force. At that time, there will be an additional 300 million elderly Chinese and only 100 million in the labor force. This significant change of the demographic structure can be very problematic if not handled well.

In addition, China’s current urban and rural population ratio is about 5:6. In 10 years, this ratio can grow to 2:1 as a result of the continuous migration of farmers to existing cities and China’s urbanization projects that will transform rural areas into cities. The CPC’s wealth distribution and resource allocation policies will need to undergo fundamental changes in order to maintain social stability.

As the economy takes the country into uncharted territories, it’s up to China to properly adapt to these new conditions and changing expectations. Like the high speed train, there will need to continue to be an emphasis on balance – equal parts yin and yang – to maintain efficient speed and performance.

About the author: Megan Zhou is an investment consultant and former adjunct professor at the University of St. Thomas. She has lived and worked in the United States since 2005.

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