cyberdude611
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Looking at China and one can't help but be awed at the growth of their economy and the ability for the country to complete projects in record time. But under that shiny car's hood is an engine that may be going so fast it is about to blow out.
I was reading an interesting article in Business Week that talked about China and how it may or may not become the world's next superpower. Economically the Chinese look very well off, especially from the outside. But on the inside, there are many problems.
The article is rather long... I'll post some of the highlights and you can read the whole article here if you like...
http://articles.moneycentral.msn.com/Investing/Extra/BrokenChinaADysfunctionalNation.aspx
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Beijing can't clean up the environment, rein in stock speculation or police its companies. Here's why the country's problems could keep it from becoming the next superpower.
Will Beijing complete all of the stadiums, expressways and hotels in time for the 2008 Summer Olympics? Count on it. It's also a decent bet China will achieve its goal of winning the most gold medals. Why, then, is it so hard for this same government to crack down on exporters of dangerously tainted seafood, toothpaste and medicine despite years of warnings by local and foreign experts?
The relentless headlines about unsafe products from China reveal a scary truth: Probe even a little into the Chinese economic miracle, and glaring administrative failures abound. Product safety is just one aspect of Beijing's inability to enforce needed regulation in everything from manufacturing and the environment to copyrights and the capital markets.
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Beijing proclaims all sorts of green initiatives, yet heavily polluting new factories and coal power plants keep going up. The party has talked for decades about building a social safety net, yet as the working population ages, the government isn't investing nearly enough to head off looming crises in health care, education and pensions. China spends more than Japan on research and development, according to the Organization for Economic Cooperation and Development, but its record of innovation is underwhelming.
China observers dismiss these flaws as the growing pains of a nation making a breathtakingly fast transition from a command economy to a free market. But it's becoming clearer that these and other structural problems aren't being addressed.
The same policies that have been so successful at boosting the gross domestic product by developing export industries and public-works projects, it turns out, undermine initiatives that might move China's economy to a higher level. In its pursuit of growth at all costs, China has skimped on investments needed to provide basic, affordable health care and the regulatory machinery that can enforce environmental, safety and corporate governance regulations nationwide.
Solving these shortcomings will require a massive shift of the resources that are now being plowed into capital projects. Though Beijing would like to cool the economy; however, it is wary of doing anything that would slow the high growth needed to generate jobs for the millions of youths pouring into the work force each year, especially with a pivotal leadership conference scheduled in the fall.
"China's economic-development model was based on the simple concept of expansion of production," says economist Chen Xiushan of People's University in Beijing. "This model has reached a critical point."
A more intractable problem is China's power structure itself. Although Beijing holds a monopoly on politics, local Communist Party officials enjoy wide latitude over social and economic affairs. They also have huge professional and financial incentives to spur GDP growth, which they often do by ignoring regulations or lavishing companies with perks.
As a result, China has built a bureaucratic machine that at times seems almost impervious to reform. Even if Beijing has the best intentions of fixing problems such as undrinkable water and unbreathable air, it is often thwarted by hundreds of thousands of party officials with vested interests in the current system.
Beijing knows it must change course. China's $1.2 trillion in foreign reserves -- the most ever amassed by any country -- and soaring trade surplus may seem like signs of strength, but they're actually evidence of an overreliance on exports, weak domestic consumption and a primitive financial system.
And a dearth of social services makes a widening income gap between urban and rural areas politically explosive. Conjuring ancient Confucianism, President Hu Jintao harps repeatedly on the need to attain a "harmonious society," implying that China today is anything but.
In March, Premier Wen Jiabao labeled the economy "unstable, unbalanced, uncoordinated and unsustainable."
To their credit, Chinese officials have unveiled a blitz of corrective measures. Regulators this year shut more than 180 illegal food producers. A directive ordering government agencies to use legitimate software has helped cut the share of pirated programs to 82% from 92% in 2001. Beijing is launching health-care initiatives, trying to tame the runaway stock market and passing stringent environmental rules. And in 2006 alone, nearly 30,000 officials were prosecuted for corruption.
If this reformist agenda fails, watch out. The working assumption from Washington to Tokyo is that China is on a trajectory to become a modern market economy and a responsible global citizen. But if its problems persist, the world will have to keep living with a giant trade partner that can't guarantee safe products, control piracy or curb pollution. China could keep growing rapidly for years, but a scenario of dysfunctional administration calls into question whether it will really become an economic superpower with world-beating corporations that challenge the West in innovation -- a Japan Inc. on steroids.
Beijing is doing what it can to rein in rogue players. On July 10, Zheng Xiaoyu, the former commissioner of the State Food & Drug Administration, was executed for accepting bribes of about $850,000 from eight drug companies seeking quick product approval. Worse, on his watch the agency gave the green light to many flawed drugs, including an antibiotic that killed more than 10 people. The Shanghai party secretary, Chen Liangyu, was fired last year after being accused of plowing $400 million in pension funds into real-estate projects and toll roads. And in September, authorities discovered that two senior executives at a state-owned insurer had deposited $4 million-worth of premiums in the bank accounts of friends and family.
"I'm angry with the government because it can't solve the pollution problem," says Lydia Li, an executive assistant at a foreign-owned manufacturer in Wuxi. In May, she says, she had to buy nearly 50 gallons of bottled water after yellowish water smelling of sulfur started running from her tap.
Oversight of food production in China is similarly troubled. The State Food & Drug Administration employs 1,700 people, but 80% of China's food producers -- about 350,000 enterprises -- have fewer than 10 employees and often lack any real understanding of safety standards. Again, there's little local incentive to crack down on scofflaws.
"If local governments close all the companies that violate food safety regulations, a lot of workers will lose their jobs," says Luo Yunbo, the dean of the food and nutrition college at China Agricultural University in Beijing.
Compared with spurring growth, social services got short shrift. It would cost Beijing around $40 billion, a sum it could easily afford, to set up a national health-care system similar to Britain's, figures Huang Yanzhong, the director of the global-health-studies program at Seton Hall University in New Jersey.
"But I'm not optimistic," Huang says. Responsibility is fragmented among too many competing ministries in Beijing, and at the local level, cadres still are judged on GDP growth. "If you try to tackle this with policies rather than deep changes in political institutions, the government won't be able to bring accessible, affordable health care," he says.
So many people go without. Huang cites government surveys showing that nearly half of Chinese say they can't afford to visit a doctor when ill, 70% lack health insurance and 30% refuse hospitalization due to cost. And the system is corrupt. Hospitals earn most of their revenue selling drugs and get kickbacks from pharmaceutical suppliers, creating an incentive to over-prescribe. The Chinese news media are filled with stories such as that of a 75-year-old cancer patient in Harbin who was billed more than $500,000 for imported medicines, many of which were found to be unnecessary.
But the West ultimately implemented social reforms after upheavals that led voters to elect new governments. And South Korea and Taiwan tamed crony capitalism after traumatic democratic transitions. The Chinese Communist Party, in contrast, appears to be nowhere near tolerating political change. In fact, it's clamping down on dissent.
It is just as fair, then, to ask a different question: After decades of efforts by reformers, why assume China will build the financial, legal and administrative systems required to become a modern industrial society? The only way up is to tame the unregulated, raw self-interest that flows from Deng's historic compromise with the party and the people.
That would require a legal system that doesn't let local cadres circumvent regulations, grading officials on metrics that go well beyond simple GDP growth and capital markets that nurture and reward entrepreneurs. In short, it means getting the party out of business. At this stage, such revolutionary change seems politically impossible. So it's just as plausible that the flawed China we see today is basically what we will have a decade from now, after all.
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China may never be a superpower - 
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