China on the Move

What is new today is the focus on urbanization’s negative externalities – especially the thorny issues of land confiscation and environmental degradation. A well-developed eco-city framework was presented at this year’s Forum to counter both concerns, and features incentives promoting a new urbanization model that stresses compact land usage, mixed modes of local transportation, lighter building materials, and non-carbon energy sources.

The second insight from the 2013 China Development Forum is the new government’s focus on strengthening the social safety net as a pillar of a modern consumer society. In particular, owing to the hukou (China’s antiquated household registration system), access to public services and benefits is not portable. As a result, migrant workers – an underclass numbering roughly 160 million – remain shut out of government-supported health care, education, and social security.

Holes in the social safety net have led to high and rising levels of precautionary saving – driving a wedge between increases in labor income and any impetus to discretionary purchasing power. Significantly, there were strong hints from senior Chinese leaders at the Forum that hukou reform is now under active consideration.

While that would be welcome, such efforts need to be accompanied by an expansion of benefits. China’s retirement system has only about $430 billion of assets under management (national and local government social security and private-sector pensions). I pressed newly appointed Finance Minister Lou Jiwei on this point, suggesting that China deploy some of its excess foreign-exchange reserves to fund such an effort – the same tactic used to provide a $200 billion start-up injection for the China Investment Corporation, the sovereign wealth fund that he ran for the previous five and a half years. Unfortunately, he did not favor this suggestion.

The final – and possibly most important – insight that I took away from the Forum concerned the quality of China’s new leaders. From President Xi Jinping and Premier Li Keqiang on down, China’s new leadership team is quite sophisticated in terms of analytics, risk assessment, scenario modeling, and devising innovative solutions to tough problems. Moreover, under the organizational umbrella of the National Development and Reform Commission (NDRC) – the latter-day version of the old central planning apparatus – China has marshaled considerable resources into the formulation of a comprehensive and well-thought-out economic strategy.

But, in the end, it takes more than strong policy and analytical skills to deal with tough economic challenges. We have seen unfortunate examples of that repeatedly in the West in recent years, and there are no guarantees that China’s newly installed leaders will avoid comparable pitfalls.

Vision and strategy are vital for realizing the China Dream, as the country’s new leaders are now calling it. But it will take courage and sheer determination to tackle what is perhaps the biggest obstacle of all – resistance from deeply entrenched local and provincial power blocs. On this critical front, strong words must be accompanied by bold action.

Stephen S. Roach, a faculty member at Yale University and former Chairman of Morgan Stanley Asia, is the author of The Next Asia.

Copyright: Project Syndicate, 2013.

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