Riding the tiger: Stability vs. reform in China

April 30, 2014

Riding the tiger

When China relaxed its one-child policy, it made a lot of people —prospective parents, human-rights activists — happy. Robert Iger, CEO and chairman of The Walt Disney Company, was also elated.

It meant potentially 4 million more mouse-ear-wearing, princess-loving, theme-park going kids in China born every year.

Reading the tea leaves on other facets of change in China is much more challenging, as three panelists admitted during the China in Transition: Still a Land of Opportunity?discussion at the Milken Institute Global Conference.

Riding the tiger 2

The first was former U.S. Treasury Secretary Hank Paulson, who has his own think tank dedicated to bettering Sino-American understanding. The reforms that drove economic growth for decades have run out of steam, he said. China needs to find growth in domestic markets, not just exports, and in private business, not just state-owned enterprises.

Communist Party General Secretary Xi Jinping’s massive program of reform, institution-building and modernization is incredibly impressive, Paulson said. “The bad news is that it is really difficult to transform and change the growth model for a $9 trillion economy. How do you scope, scale and sequence these reforms?” Meantime, other stresses are stacking up: bad municipal debt, rampant pollution, product safety, political corruption. How does a country get pollution under control when it has, for instance, no nationwide environmental agency?

Addressing those street-level problems gives Xi popular support and legitimacy, saidSheryl WuDunn, who co-authored the 1994 book “China Wakes” and has since co-founded FullSky Capital. “He has this thing called ‘The Chinese Dream’ — it’s not like the American dream, in which we individuals have a house and a family and picket fence. It’s more a dream of China being prosperous and strong. It’s a nationalist dream that we’re supposed to believe in — the big China. But nationalism is a double-edged sword. It’s hard to control. The Chinese have a saying: ‘It’s easy to get on the tiger and ride it, but it’s very hard to get off.’ ”

For now, though, the government is using its popularity to build support for its other changes. Will real economic reforms come soon enough? “Consolidating power bodes well for getting things done. But you can’t overstate the importance of making progress. If they don’t make progress, I don’t see a bright future for China,” Paulson said.

For now, maintaining stability seems to be the guiding principal in Beijing.

“It seems clear to me from conversations I’ve had with pretty senior government officials that they know that there is an inevitability to change,” said Iger, whose company is investing $5.5 billion to build a theme park and tourism complex outside Shanghai. “And digital technology, particularly as it affects media and communication, is inevitably going to bring vast change. My sense is that they are trying to control that change and create some order. I do not mean to sound like an apologist, but one must ask, are we better off in the world with a more stable China and change that comes under more orderly circumstances than change that comes much more quickly and perhaps much more violently?”

In other words, wouldn’t you rather stay on the back of the tiger?