Minxin Pei on China's economic "monster"

The noted China scholar Minxin Pei was in Shanghai last week to speak at a conference of the Australian Institute of Company Directors. In his session, he gave the skeptic’s view (for which he is quite well known) of China’s economic growth while Geoff Raby, the Australian ambassador to China, presented the optimistic picture. Pei said China’s leadership had created a “monster”, an ever-growing economy which needed to be constantly fed.

“By creating political stability linked to economic growth, the Chinese government has created a monster. The government will have to feed this monster until another monster appears on the horizon,” he said.

I spoke to Pei after his session; here are some highlights:

On China’s economic monster:

“This leadership is not out of touch. The problem is, do they have the political courage, can they organize a new political coalition?

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The people who benefit from having the first monster around — the growth model is obviously helping a lot of people get rich in relatively small numbers — the current government officials benefit from less accountability.

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The issue the central government is worried about are systemic risk issues. [But] gains by provinces, cities, are being achieved at a huge cost of future sustainability. But for a local mayor, party secretary, it’s none of his concern. So that’s the biggest problem.

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The government had one strategy, that is economic growth will solve all the other problems. But nowadays we find out that’s not true. Growth solves some problems, but growth is creating problems. … It’s a constitutional issue: How to devise the system so that local governments maintain autonomy and behave responsibly. Today, both local and central governments are behaving opportunistically.”

On corruption:

“There is no such thing as lubricating corruption. There are two types of corruption, one which I call ‘the toll collector’ — when you go through his department you have to pay a toll. That’s India, you have so many toll collectors, like a highway.

The worst kind of corruption, I’m not going to say China has this, is car-jacking. You kill the driver and take his car, not collect a toll! That’s really the worst kind. It is worse because you take away productive assets, destroy public security. China has both, because the country is so complex. The good areas have toll collector corruption, the really bad areas have car-jacking and Mafia states.”

On the new property and Chongqing ‘nail house’:

“In China, the devil is not in the details; the devil is in execution, implementation, enforcement. The Chongqing case was the one and only [case of individual property rights victory]. You don’t see [more cases] after the Chongqing case; there was a news blackout. That raises skepticism about the replicability of the dingzi hu (nailhouse). [The government] doesn’t want to encourage people. Everybody’s a dingzi hu; how can you build a city… the cost of building a city will spiral.”