Global Conference 2007

Global Conference 2007

China's Unanswered Question: Can It Succeed Without Political Reform?

Monday, April 23, 2007 / 2:00 pm - 3:15 pm

China has seen tremendous economic growth in the past three decades. With this history of successes, the question arises: Is China in need of political reform? Moderator, Graham Earnshaw of Xinhua Finance News kicked off the panel by asking, "Why would a country experiencing 10 percent annual growth over the past 30 years need to rethink political reform?"

Most panelists agreed while this was a very good economic track record, China would have to institute political changes to facilitate future success. But Andy Rothman of CLSA Asia-Pacific Markets suggested that the question wasn't whether political reform would occur. "The question," he said, "is what type of political reform."

The panelists agreed that even with China's economic success, the central government is not fully addressing key issues, primarily social issues that include lack of education, lack of health care and environmental concerns. Rothman noted that 85 percent of people in China don't have medical insurance and 50 percent of farmers can't afford a doctor. And Sean Wallace of Darby Overseas Investments pointed out that while education and health-care spending are growing at 18 percent a year, China lags behind international standards.

These were all examples of how the social safety net is not yet in place to sustain the growing society. Wallace noted this is causing a lack in consumer confidence and that people won't spend money until they feel secure. And the current social safety net certainly won't be adequate to help the country cope in the event of an economic downturn -- which at least one of the panelists, Rothman, believed was an eventual certainty.

J. Stapleton Roy of Kissinger Associates and a former ambassador to China, said he believed political change will come through the people and newer government leaders who are listening to them. Many of the future leaders will have been educated in the West, he noted. They will face the same problems that today's leaders face, but their responses will be different. He cited the recent passage of the Property Law, would not have happened just 10 years ago.

Frank Sixt of Hutchison Whampoa noted that the process of absorbing Hong Kong will drive mainland China to at least consider a more representative form of government. Other panelists agreed, though no one could predict how much representation the central government would concede. Roy pointed out that the challenge for China will be moving toward a more representative form of government without losing control, as had happened with Mikhail Gorbachev. Most panelists seemed to agree that change will not end in a Western-style democracy.

Sixt pointed out that some changes are already taking place. For example, Property Law, he said, protects individuals' interests, even against the state. And Mr. Rothman noted that home ownership has gone from 13 percent 10 years ago to around 70 percent today.

Sixt said he has had experience dealing with mainland China courts and gave them a "mixed report." The further away one is from the center of core policy, he said, the greater the risk of running into some level of corruption. And while the level of corruption is high, charges are being brought against even high-level officials. "China goes after big fish on corruption issues," he added, "and punishes severely."

Most of the panel agreed that while changes in the rule of law are necessary, the social issues are much more pressing. Wallace predicted that those changes will deal with privacy and individual rights, and that we will see very gradual changes not touted by the U.S. media. And the bigger change will be in China moving from a manufacturing to a consumer economy. As the safety net grows, people will feel more confident and invest more in real estate and putting money in savings accounts.

Everyone seemed to agree with the changing role of media, and the Internet in particular. Rothman and Sixt both pointed to the Internet as a way for news to reach the people. "The Internet is like water and will find a path (to the public)," said Sixt. However, both men emphasized that the path is not yet fully developed, and Rothman noted that while sports news and financial information are openly available, political news is still an issue and won't be available for quite a while.


Graham Earnshaw

Editor-in-Chief, Xinhua Finance News


Andy Rothman

China Macro Strategist, CLSA Asia-Pacific Markets, Shanghai

J. Stapleton Roy

Vice Chairman, Kissinger Associates Inc.; former U.S. Ambassador to China

Frank Sixt

Executive Director, Group Finance Director, Hutchison Whampoa Ltd.

Sean Wallace

Senior Managing Director, Asia Pacific, Darby Overseas Investments Ltd.

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