021_G17_InSight_BigPicture

Global_17

Global Insight Big Picture Circumnavigating Chinese censors Western internet technology companies wanting to operate in China have had a frustrating time trying to work around the Chinese government’s censorship of sensitive websites. In 2006, Google agreed to some censorship of search results, in line with the government’s wishes, when it launched google.cn. Following criticism of its collusion with government forces, however, Google stated four years later that it was no longer willing to censor its search engine. In 2012, Google installed a censorship warning, which alerted Chinese users to the fact that they may be searching for banned keywords – partly because internet users were complaining about erratic results while surfing. The government countered this by blocking the feature with software of its own nicknamed the Great Firewall of China. Google’s executive chairman, Eric Schmidt, has predicted the end of internet censorship within a decade, citing encryption as the necessary and most obvious solution to government blocks. Speaking in a lecture at The John Hopkins University in November, Schmidt proposed the possibility that China and other countries that restrict freedom of speech could face technical difficulties in blocking key search terms if companies like Google are prepared to act. “The solution to government surveillance is to encrypt everyone,” Schmidt said, explaining how the process of encoding data via HTTPS would prevent authorities from manipulating user traffic and therefore make censorship very difficult. Microsoft has also had its battles with China. The company owns Skype, which has recently changed partners from the Hong Kongbased TOM Group to Guangming Founder in a bid to lift its censorship of user calls, chats and login information. Liam Woodcock system, and has been actively pursuing policies to internationalise the Yuan and expand its usage among central banks, in trade invoicing and settlement, and in the denomination of international bond issues. In other ways, however, China’s ability to shape the world is more questionable. Being the biggest economy in the world, for example, confers a certain gravitas, but China’s capacity to influence the world will only really increase if its growth model changes from one based on investment and property construction to one based on consumption and innovation. Most people reckon that China’s expanding middle class will be the nucleus of the world’s next billion consumers in emerging markets. Income per head is now about US$6,500, but in many urban areas it is the same as in Chile and Mexico, and in the 25 largest metropolitan centres it is more like in Portugal. China’s urban population is predicted to grow by 50 per cent, or 300 million, to about a billion by 2030, and national income per head could more than triple to around $20,000 if seven per cent annual growth were sustained. But this consumer transformation cannot happen in a vacuum. It will require the determined pursuit of economic policies and political strategies designed to shift wealth, resources and income formation away from the state to the private sector, and the development of more robust institutions, including establishment of the rule of law and an independent judiciary. Chinese companies are also leaving global footprints. There are now 89 companies headquartered in China in the Fortune 500 list, based on revenues, compared with just 34 in 2008 and 12 in 2000. Chinese banks are already among the biggest in the world, ranked by assets. Companies like Lenovo (personal computers and laptops), Alibaba (e-commerce), Huawei and ZTE (telecommunications), Haier (white goods) and Geely (automotive) are already well known (see pages 22-23). COMAC (Commercial Aircraft Corporation of China) plans to challenge Boeing and Airbus with its C919 model. But China’s largest companies are state owned for the most part, beholden to political patrons and ranking poorly, or not at all, in surveys measuring innovative capacity and best corporate practices, including strong management, business strategy, ethical standards, competitive edge and profitability. It is also important to understand other limitations. China’s decade of double-digit economic growth has already given way to a slightly more subdued 7-7.5 per cent, and should be expected to continue to slide to perhaps four to five per cent for three important reasons. First, the exceptionally benign global economic conditions in which China prospered during the last 25 years have ended, as a kind of secular stagnation settles in the Western world and growth prospects in other emerging markets disappoint. Second, China cannot exploit the many phenomena that contributed to its turbo-charged growth for a second time. These include accession to the World Trade Organization, labour transfer from agriculture to higher value manufacturing, better exploitation of land and improved industrial organisation, high secondary school educational attainment levels, improved public health and the provision of essential infrastructure. Third, now that it has become a more modern, complex middleincome country, China has to build a new economic and social model if it is to continue to enjoy sustained, high economic growth. This will require a large change in focus away from investment, state dominance of finance and enterprise, and the relentless pursuit of GDP growth. Instead, the country needs to look towards better provision of household goods and services, private sector entrepreneurship and innovation, and better governance. In November 2013, the Communist Party agreed a long list of economic reform proposals to address China’s growth hiatus and sustainability problems. Markets are to be given a ‘decisive’ role in the determination of prices; stronger governance and accountability; measures to reduce overcapacity and red tape; improved social welfare; and land and urban registration reforms all figure among initiatives designed to refresh China’s economic model in the next decade. It will not be clear for some time whether the proposals go far enough to transform China’s economic prospects, and we can only guess whether China’s leaders will be able to bridge the familiar chasm between mostly good policy intentions and weak implementation in the face of strong vested interests. What we do know is that all changes are designed to strengthen the authority of the Party, and that there will be no political reform and no shift to greater political participation, let alone political competition. In their absence, the potential for incremental economic reforms is likely to remain limited and the capacity for private sector entrepreneurship and innovation to pick up the baton will be severely constrained. China may yet shape the world in more substantial ways, but perhaps not until we know how the demands for more extensive political change will be met. George Magnus is an economic consultant and author of Uprising: Will Emerging Markets Shape or Shake the World Economy? global f i rst quar ter 2014 www.global -br ief ing.org l 21


Global_17
To see the actual publication please follow the link above