China's economic growth over the past few decades has been referred to a miracle for a reason, and it could eclipse the US as the world’s largest economy within the next few years. But is their model sustainable? Dexter Roberts, journalist and author, tackles this question in his recently released book, The Myth of Chinese Capitalism.
The idea behind his book came to him in 2000 while working on two cover stories for Bloomberg Business week in China. One was on the CCP’s “Develop the West” campaign to close the wealth gap, while the other focused on the mass migration of workers. In a rural village in Guizhou, he spoke with villagers about the then-current negotiations regarding China’s entry into the WHO. Even in this rural village accessible only by foot in the rainy season, workers were thinking about how it might improve their lives, allowing them to open a profitable processing plant. This hidden story, the backbone of rural workers driving China’s current economic model, became the impetus for his book. He began writing stories on legacy policies from the Maoist era and their effect on the rural population of China. Rural migrant workers and their relatives make up over half of China’s population, yet they are legally treated as second-class citizens. The household registration (hukou) system and the dual land policy mean that rural workers cannot profit nearly as much from China’s overall economic gains as government officials and city-dwellers. Rural hukous limit movement and benefits; dual land policies mean that farmers cannot develop their land for profit. While they may be a human rights issue, much of the Chinese economic model is predicated on these policies.. Hukous ensure a large and compliant worker population at low wages, allowing China to price exports competitively. The dual land system has become a key part of the financial system in China, where the local government can develop their tenant’s agricultural land into commercial land for huge profits.
The CCP has created a very, very large second class population that is discriminated against in terms of education, healthcare, and most of all, economic opportunity. While this model of a “captive population” has served the country well as a whole, not everyone has seen equal returns. As rising wages, pollution, energy costs, and a massive debt overhang begin to slow manufacturing growth, China must pivot to a domestic consumption driven economy. But the past exploitation of rural workers makes that very difficult going forward. This huge second-class population has a high savings rate, and simply cannot be depended upon to drive that consumption economy.
Roberts argues, then, that this is the turning point in the Chinese miracle. Will the Chinese government ever lift these legacy policies?