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THE INVESTOR
leading
nations
As the US gets set to elect a new president, we
examine the pros and cons of China’s long-term
leadership versus the relative short-termism of the US
ANALYSIS
C
hina’s premier ascends
through the ranks of the
Communist Party, his
policies emerge through
a series of five-year plans,
which emphasise continuity rather
than change, and he has the absolute
power to implement them untroubled
by the need to fight for re-election. In
the US, by contrast, presidents take
office with a list of policies and proposals
but their ability to implement them
is limited by the need to fight for re-
election every four years.
The Communist Party of China
sees delivering economic improvements
as key to maintaining the quiescence
of the Chinese people, and therefore
holding onto power.
The result has been explosive growth
fuelled by two main drivers – exports
abroad and fixed-asset investment at home.
However, when the global downturn in
2008 threatened growth by disrupting
the export trade, the administration in
Beijing – headed by General Secretary Hu
Jintao and PremierWen Jiabao – unveiled
a $586 billion stimulus programme of
infrastructure spending backed by a huge
expansion of credit
1
.
This duly restored growth.Tower
blocks shot up; high-speed train links
were laid across the country; motorways
sprouted, airports were built and local
governments drew on state credit to
launch projects.This includes the New
Silk Road, which will link central Asia,
Russia and Europe. Politically, the job was
done, but debt levels also spiralled.
When expansion slowed at the end of
last year, the leaders fell back on the old
medicine – credit easing and infrastructure
projects.Measures were taken to bolster
the property market. Local officials were
reproved for spending too little and
punished for‘laziness’.The new five-year
plan adopted inMarch set an average
annual growth rate of 6.5% to 2020
2
,
with the aim of improving living standards
between 2010 and the end of the decade.
The leadership now faces a crucial
choice between continuing to rely on
the drug of credit-fuelled expansion or
undertaking a serious switch towards a
consumer-based economy, while cutting
back on the country’s huge excess
industrial capacity and mastering the ever-
rising debt mountain.
The prospect for radical change of
the kind needed does not look bright.
This is not because the leaders do not
recognise the challenges, but because of
the difficulty of reversing the momentum
of previous policies.
In future, China is likely to continue
to rely on tried-and-tested recipes
while introducing reforms to get away
from the old model when the politicians
consider they can accept the risk.
1
http://siteresources.worldbank.org, June 2010
2
www.pwc.de, November 2015
By Jonathan Fenby on China and David Smith on the US