Freedom House hosted a very interesting conference yesterday, “China’s Governance: Growing Challenges at Home and Abroad,” connected with the recent release of the Countries at the Crossroads publication. In all four areas of governance evaluated annually by Freedom House, China’s performance continues to be poor despite its impressive economic growth figures. The scores are based on a 0-7 scale, with 0 representing weakest and 7 strongest performance. China’s latest 2007 scores are as follows: 1.17 in Accountability and Public Voice, 2.14 in Civil Liberties, 2.23 in the Rule of Law, and 2.49 in Anticorruption and Transparency.
So how do we account for this apparent contradiction of good economic growth despite poor governance and the lack of political reform? That was one of the central questions the conference sought to address, and Minxin Pei, Director of China Program at the Carnegie Endowment for International Peace, had probably the most interesting answer. He suggested that just like governance is inherently hard to measure quantitatively and requires context to be fully comprehended, our traditional way of measuring economic growth in terms of numerical indicators does not give us a full picture. What we are not capturing is the quality of growth.
For instance, China’s banking system, burdened with nonperforming loans, costs the government about 30 percent of annual GDP in bailouts (for more see “The Dark Side of China’s Rise”). Its crony capitalism is fraught with corruption and shows little accountability for transgressions except for occasional “scapegoat” cases. Its economy – both in terms of asset ownership and appointment of senior corporate executives – remains largely under control of the communist party. Finally, a huge gap persists between formal rules and their implementation. If discounted for all those serious problems, China’s growth suddenly looks much less impressive.
Dr. Pei calls this a “buck-passing system,” where the incentive structure is such that everybody wants credit for showing the evidence of economic growth, but no one wants to take responsibility for in-depth reforms that could make this growth sustainable (but could rock the boat politically). For one, China is witnessing the proliferation of costly – but questionably useful – showcase infrastructure projects. Those shiny new office buildings or giant shopping malls may impress visitors to Beijing but can’t fool those who pay attention to the country’s extremely weak underlying institutional framework.
Published Date: September 26, 2007