Thursday, November 13, 2008
Blog 11/12
I found Mary Gallagher’s article to have great deal of fascinating information regarding the structure of the Chinese economy. In particular, I found her comparison of the Chinese economic path and the quite disparate road to economic success taken by Taiwan and Korea to be very interesting. As Gallagher demonstrates, Foreign Investment has brought China to prominence, but the path taken by Taiwan and Korea focused on domestic business and growth stimulated from within the country. In those countries the shift from socialism involved close cooperation between the state and entrepreneurs to ensure that the country’s people benefitted. As Gallagher describes, this led to widespread independent business interests whose mere existence began to cause authoritarian regimes to be “untenable”. China’s system was far different. Because the capital to create economic growth was coming from private interests outside the country, entrepreneurship in China didn’t develop as it did in its East Asian neighbors. As far as the Chinese Government is concerned this works perfectly. There is a great deal of economic development and the society benefits because there are lots of jobs to be had. Citizens in China have access to jobs, but not ownership in businesses that are driving the economic progress in that country. As such there isn’t the same conflict between private business interest and state control. China has brought itself economic progress while managing to delay its political progression toward democracy. It could be argued that this has been done at the expense of its citizens, since foreign nations are benefitting from the investments they make in China, rather than the citizens benefitting from the private markets in their own country as is the case in Taiwan and Korea.
Wednesday, November 12, 2008
China's FDI liberalization and Taiwan's autonomy/sovereignty
Gallagher's article was not about Taiwan's international status, but this topic was touched upon several times this week during the lectures so I thought that discussing it in the context of China's economic liberalization would be of some interest for our section. Really the issue of Taiwan independence is an extremely sensitive issue and I was appalled to see during my International Finance class this morning that Taiwan was listed as a province of China (we were looking at graphs of U.S. current accounts with various countries in the world).
After China opened up its economy for FDI, it has surprisingly found a very willing provider of capital in its small island neighbor of Taiwan. Since Deng Xiaoping's reforms, the economic ties between Taiwan and Mainland China has been growing unaffected by the volatile political relations between the two. Taiwan's FDI in China completely dwarfs Taiwan's FDI in any other place in the world. In 2003, there were 3,875 instances of Taiwanese FDI in Mainland China (highest) as opposed 229 in the USA (second highest). This has worried some observers who believe that as Taiwanese capitalists accumulate vested interests in Mainland China, they will favor policies of the PRC such as reunification, and oppose destabilizing policies like independence. These businessmen will try to create friendly ties with the PRC, which is ultimately focused on reunifying Taiwan on its own terms.
In addition to Taiwanese FDI to China, Taiwanese dependence on the Mainland as a market for exports has greatly increased over the years since the PRC's economic reforms. In 1998 the Taiwan's total exports to China was about 17.7% of its total exports, and in 2003, this number increased to 24.2%. This has also created security concerns for Taiwan because the exporting party is always more dependent on the importer, rather than vice versa. This has raised the possibility of China coercing Taiwan economically to negotiate reunification on China's terms, and Taiwan having to submit because of its growing economic dependence on the Mainland.
Some observers maintain that growing economic ties will not put Taiwan in an unfavorable position in cross-strait negotiations, because both parties are interdependent and stability in the Taiwan strait will remain the highest priority for economic concerns. It may be the case that the asymmetry of Taiwanese economic dependence on China is exaggerated, and that China has no interest trying to use it as leverage in cross-strait negotiations. Really what I hoped to achieve through this post to was provide a Taiwanese perspective on the implications of China's economic reforms, since our readings provide the Mainland's perspective.
Statistics taken from Presidential Politics in Taiwan: the Administration of Chen Shuibian edited by Steven M. Goldstein & Julian Chang.
After China opened up its economy for FDI, it has surprisingly found a very willing provider of capital in its small island neighbor of Taiwan. Since Deng Xiaoping's reforms, the economic ties between Taiwan and Mainland China has been growing unaffected by the volatile political relations between the two. Taiwan's FDI in China completely dwarfs Taiwan's FDI in any other place in the world. In 2003, there were 3,875 instances of Taiwanese FDI in Mainland China (highest) as opposed 229 in the USA (second highest). This has worried some observers who believe that as Taiwanese capitalists accumulate vested interests in Mainland China, they will favor policies of the PRC such as reunification, and oppose destabilizing policies like independence. These businessmen will try to create friendly ties with the PRC, which is ultimately focused on reunifying Taiwan on its own terms.
In addition to Taiwanese FDI to China, Taiwanese dependence on the Mainland as a market for exports has greatly increased over the years since the PRC's economic reforms. In 1998 the Taiwan's total exports to China was about 17.7% of its total exports, and in 2003, this number increased to 24.2%. This has also created security concerns for Taiwan because the exporting party is always more dependent on the importer, rather than vice versa. This has raised the possibility of China coercing Taiwan economically to negotiate reunification on China's terms, and Taiwan having to submit because of its growing economic dependence on the Mainland.
Some observers maintain that growing economic ties will not put Taiwan in an unfavorable position in cross-strait negotiations, because both parties are interdependent and stability in the Taiwan strait will remain the highest priority for economic concerns. It may be the case that the asymmetry of Taiwanese economic dependence on China is exaggerated, and that China has no interest trying to use it as leverage in cross-strait negotiations. Really what I hoped to achieve through this post to was provide a Taiwanese perspective on the implications of China's economic reforms, since our readings provide the Mainland's perspective.
Statistics taken from Presidential Politics in Taiwan: the Administration of Chen Shuibian edited by Steven M. Goldstein & Julian Chang.
Response 2
I found Meredith's arguments about the differences between China's economic growth and India's economic growth very interesting. We've talked about the relationship between economic reform and the political system of a state, and I think the Chinese and Indian examples might help us define what this relationship is. It seems that Meredith is arguing in the chapter "The Spinning Wheel to the Fiber-Optic Wire" that India's democracy has in fact hindered its economic growth, whereas the Chinese pseudo-communist system (or "state-capitalism" as it is described by one analyst Meredith mentions) has been one of the major factors that has contributed to China's rapid growth. I found one point particularly interesting, that is that Indian politicians are accountable to the their citizens, and in order to be reelected they cannot enact the pro-business policies that would lead to the buildup of India's infrastructure, which would lead to the growth of its economies. In China, the Communist Party has made a point to make economic reforms before political reforms, which means that the party controls all aspects of the economy, virtually destroying any opposition to its policies.
Whereas Meredith does not seem to take a stance on whether she believes the Indian model is preferable to the Chinese model, Buruma argues strongly in his article "What Beijing Can Learn from Moscow" that the Chinese model is the wrong way to go about gradual democratization. Whereas Gorbachev enacted an abrupt overhaul of the political system in Russia, enabling its citizens to openly speak out against the state in order to undermine the Communist regime, China has decided to have a firm hand over its citizens, not allowing any kind of political dissent, evidenced by the surpession of protests and demonstrations. The Chinese believe that the old Communist system of the 20th century is outdated and that change is needed, but it must be a gradual, controlled change. Buruma's fear is that the Chinese people, without an outlet to express their frustrations with the state, will eventually "explode one day."
So what is the preferred system? Is it that of India, China, or Russia? It seems that there are advantages and pitfalls to each system. India, though a democracy with rights for its citizens, has had hampered economic growth, for primarily those reasons. In the Chinese model, there is massive economic growth, but its citizens do not enjoy the same rights that the Indians do. And it appears that the Russian system, because of its abrupt dissolution and transformation into a democracy, is rather unstable. Perhaps it is my Western bias, but I like the Indian model because it's liberal democratic policies allow for the flourishing of ideas and the chance of great innovation. A country with over a billion people with the potential for that kind of innovation is staggering. In each case, however, it seems these countries have to shake off the vestiges of their historical precedents, whether it be China and Russia's communism or India's socialism, in order to become true capitalist economies and liberal democratic political systems
-Patrick Foust
Response #2: "Reform and Openness"（改革开放）
At the beginning of the semester, Professor King identified performance as a method by which a state can claim legitimacy, in addition to the more traditionally recognized methods. I remember thinking of China as soon as we were discussing this method of legitimation. Although China's CCP lacked the rational/legal method of claiming legitimacy, and it can be argued that the CCP largely lost its charismatic leadership after the death of Mao Zedong, the process of democratization did not occur because the CCP's performance in saving/reforming China's economy has really solidified its claim to legitimacy.
Gallagher points out that the economic reforms and their success has "[bought] the existing regime time to implement politically difficult reforms and to reformulate the ideological foundation of their legitimacy to rule" (372). Since the end of Mao's rule, the CCP has been suffering from a legitimacy deficit. The death of the charismatic leader forced the party to seek ways in which it can consolidate its rule over China, and I believe it has relied on its performance to achieve this. Examples can be the CCP's successful economic policies, successful deterrence of Taiwan from declaring independence, and its successful hosting of the 2008 Beijing Olympics (not to mention that China's "performance" was stellar in the games).
While the argument Gallagher makes is convincing, I challenge her qualification of the general argument that the role of FDI in China's economic reforms "has led to a delay in political change" rather than stopping it altogether (371). I would like to propose at least the possibility of the CCP managing to permanently hold its power and legitimacy in mainland China. Whether this view will hold true is for the future to tell, but we should remain open to this possibility and avoid the democracy-biased view of the transition paradigm theorists, as Carothers would argue. Perhaps the somewhat unconventional coexistance of a capitalist economy (though it is not complete) and authoritarian rule in Mainland China will prove to be viable and stable in the long run.
Gallagher points out that the economic reforms and their success has "[bought] the existing regime time to implement politically difficult reforms and to reformulate the ideological foundation of their legitimacy to rule" (372). Since the end of Mao's rule, the CCP has been suffering from a legitimacy deficit. The death of the charismatic leader forced the party to seek ways in which it can consolidate its rule over China, and I believe it has relied on its performance to achieve this. Examples can be the CCP's successful economic policies, successful deterrence of Taiwan from declaring independence, and its successful hosting of the 2008 Beijing Olympics (not to mention that China's "performance" was stellar in the games).
While the argument Gallagher makes is convincing, I challenge her qualification of the general argument that the role of FDI in China's economic reforms "has led to a delay in political change" rather than stopping it altogether (371). I would like to propose at least the possibility of the CCP managing to permanently hold its power and legitimacy in mainland China. Whether this view will hold true is for the future to tell, but we should remain open to this possibility and avoid the democracy-biased view of the transition paradigm theorists, as Carothers would argue. Perhaps the somewhat unconventional coexistance of a capitalist economy (though it is not complete) and authoritarian rule in Mainland China will prove to be viable and stable in the long run.
Why Competition Can Poisonous to the Authoritarian Model
I would like to begin by briefly fleshing out what I take to be the central components of the ‘fragmentation argument’, and then proceed to argue that a far-sided application of Gallagher’s argument is compatible with the Lipset thesis.
This article is primarily intended to preserve the Lipset thesis, which holds that there is a causal flow from economic reform and liberalization to democratization, by explaining how the Chinese model falls outside the parameters of this thesis. Gallagher’s explanation begins by pointing out that the thrust of the reforms under Deng in the mid 70s were designed to bring in more FDI. The success of these reforms throughout the 80s and early 90s caused competition on three levels: 1) SOEs competed between each other for foreign investment and against foreign-financed firms 2) regions competed with each other in an effort to attract more FDI and 3) workers competed against each other for jobs. According to Gallagher, all of this competition dissolves the chance of there being a unified opposition movement since each group is too preoccupied with getting a bigger piece of the investment pie, so to speak.
Not surprisingly, the political reforms that have been achieved have largely been motivated by a desire to put in place those conditions necessary to attract more investment such as clear property rights and a strong legal and judicial system. A major challenge to the Chinese project of political reform is that democratization, per se, does not necessarily attract more investment. In fact, businesses are more concerned with institutional stability and consistency, a characteristic that provides them with the ability to appropriately adjust their expectations of future conditions. Democratization, on the other hand, is a messy process that typically requires a good deal of time before accomplishing any semblance of stability. Seen in this light, it appears as though the Chinese incentive structure for political reform is too weak and is dominated by the short-term gains from maintaining the status quo. However, I believe that the Lipset thesis is ultimately more robust and that the Chinese focus on FDI need not mark the end of opportunities to reform.
What serves as the most promising sign of Chinese political reform is the most discouraging result of its recent economic growth. Although foreign investment has done wonders to China’s per capita GDP, its effect on median income has been nearly negligible. Competing against fellow country men is all well and good when it’s a matter of who is going to win more than the other; however, when one group begins to consistently win at the expense of the others, the character of interest group politics changes to one of hostility and perceived oppression. In conclusion, the gains from FDI certainly ushered in a new era of competition in China that did away with the socialist model; but the skewed distribution of the gains might well serve as the impetus for political change.
This article is primarily intended to preserve the Lipset thesis, which holds that there is a causal flow from economic reform and liberalization to democratization, by explaining how the Chinese model falls outside the parameters of this thesis. Gallagher’s explanation begins by pointing out that the thrust of the reforms under Deng in the mid 70s were designed to bring in more FDI. The success of these reforms throughout the 80s and early 90s caused competition on three levels: 1) SOEs competed between each other for foreign investment and against foreign-financed firms 2) regions competed with each other in an effort to attract more FDI and 3) workers competed against each other for jobs. According to Gallagher, all of this competition dissolves the chance of there being a unified opposition movement since each group is too preoccupied with getting a bigger piece of the investment pie, so to speak.
Not surprisingly, the political reforms that have been achieved have largely been motivated by a desire to put in place those conditions necessary to attract more investment such as clear property rights and a strong legal and judicial system. A major challenge to the Chinese project of political reform is that democratization, per se, does not necessarily attract more investment. In fact, businesses are more concerned with institutional stability and consistency, a characteristic that provides them with the ability to appropriately adjust their expectations of future conditions. Democratization, on the other hand, is a messy process that typically requires a good deal of time before accomplishing any semblance of stability. Seen in this light, it appears as though the Chinese incentive structure for political reform is too weak and is dominated by the short-term gains from maintaining the status quo. However, I believe that the Lipset thesis is ultimately more robust and that the Chinese focus on FDI need not mark the end of opportunities to reform.
What serves as the most promising sign of Chinese political reform is the most discouraging result of its recent economic growth. Although foreign investment has done wonders to China’s per capita GDP, its effect on median income has been nearly negligible. Competing against fellow country men is all well and good when it’s a matter of who is going to win more than the other; however, when one group begins to consistently win at the expense of the others, the character of interest group politics changes to one of hostility and perceived oppression. In conclusion, the gains from FDI certainly ushered in a new era of competition in China that did away with the socialist model; but the skewed distribution of the gains might well serve as the impetus for political change.
Response 2
In reading Mary Gallagher’s article on the lagging process of democratization in China despite the growth of capitalism and market principles, I was struck by the extent to which the Communist Party in China has actually abandoned many of the traditionally socialist values in order to make way for market principles. As Gallagher traces the history of Foreign Direct Investment in China, we see that the various regions and private enterprises of China have embraced competition as a necessary element of the modern economy in order to make China, its labor, and its skilled workers competitive. Furthermore, as China continues to develop, the general failure of state-owned organizations (Gallagher notes that almost half were losing money in the 1990s, and that while they are only responsible for about 30% of the country’s industrial growth they consume 70% of its loans) only points to the likelihood of an increase in the use of market principles in China’s future (Gallagher 352).
Yet the Communist Party has brilliantly reformulated itself as a party of national interest rather than economic or class interest. Gallagher notes that even though the ruling Communist regime has increasingly embraced capitalist principles, the change is “framed as being in the national interest and as essential for national economic survival in an increasing globalized economy” (345). In light of this, I think that the modern Chinese Communist Party is best labeled as an authoritarian party that relies on nationalism and a thriving economy to support its platform rather than any fixed ideological principles. As long as people are willing to tolerate this regime for the benefit of the performance of the nation as a whole, China will remain the exception to the theories first started by Lipset about ties between economic and political change.
However, even though Gallagher’s article emphasizes China’s exception to these paradigms, she herself can’t overlook the fact that legal institutions are growing, albeit only to mediate economic conflicts. She also notes that as incomes grow, citizens are gaining access to lawyers and a greater consciousness about civil and political rights (Gallagher 371). It will be interesting to see how much further the “Communist” party is willing to adapt and change as these institutions become more entrenched through China’s increased contact with the global market. Though it is certainly a strong and unified party, the extent to which it is able to dictate its future versus the extent to which it must adapt should itself be a marker of the progress China is making, even if the party itself has not been ousted from power in the traditional democratizing pattern we have seen elsewhere in the world.
Yet the Communist Party has brilliantly reformulated itself as a party of national interest rather than economic or class interest. Gallagher notes that even though the ruling Communist regime has increasingly embraced capitalist principles, the change is “framed as being in the national interest and as essential for national economic survival in an increasing globalized economy” (345). In light of this, I think that the modern Chinese Communist Party is best labeled as an authoritarian party that relies on nationalism and a thriving economy to support its platform rather than any fixed ideological principles. As long as people are willing to tolerate this regime for the benefit of the performance of the nation as a whole, China will remain the exception to the theories first started by Lipset about ties between economic and political change.
However, even though Gallagher’s article emphasizes China’s exception to these paradigms, she herself can’t overlook the fact that legal institutions are growing, albeit only to mediate economic conflicts. She also notes that as incomes grow, citizens are gaining access to lawyers and a greater consciousness about civil and political rights (Gallagher 371). It will be interesting to see how much further the “Communist” party is willing to adapt and change as these institutions become more entrenched through China’s increased contact with the global market. Though it is certainly a strong and unified party, the extent to which it is able to dictate its future versus the extent to which it must adapt should itself be a marker of the progress China is making, even if the party itself has not been ousted from power in the traditional democratizing pattern we have seen elsewhere in the world.
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