There are several things that could derail China’s headlong rush into the 21st century. China’s Achilles’ heel is that it is still a one‐party, authoritarian state. The Chinese understand the benefits of competition more than most, and businesses in China are in a highly competitive environment. This competition gives the Chinese consumer many choices, with an ever‐improving variety of goods and services. The Chinese also understand that monopolies result in poorer service, less innovation and higher costs. Yet they still tolerate a monopoly one‐party state that limits their freedom of speech, press, religion and assembly. This lack of political competition invariably leads to corruption, particularly without a free press to expose it. The leadership rationalizes this state of affairs by claiming that without the Communist Party monopoly on political power, there would be “instability.”
China, for all of its manufacturing and technological prowess, has a very underdeveloped financial sector, with state ownership of most of the banks. Despite its having the globe’s second‐largest economy, China’s currency is still not freely convertible. The financial sector is being held back by political immaturity and an unwillingness to acknowledge and come to terms with the crimes of its communist founders, particularly Mao Zedong. Mao was responsible for more deaths than Hitler and Stalin, yet his picture is still on every bank note. Would Germany be accepted as a member of the community of civilized nations if the face of Hitler appeared on its currency? Even Russia acknowledged many of Stalin’s crimes long before the fall of communism.
For the most part, the Chinese do not practice communism — even though they still call themselves communists — because they understand it does not work and they prefer to be rich rather than poor. Yet they still adhere to some communist claptrap, which is hurting them both economically and politically. Private land ownership is still prohibited even though long‐term land leases are allowed. In some cases, this has undermined the incentives to build high‐quality long‐standing buildings and other privately built and owned infrastructure and also has made it more difficult to create a sound property‐tax system.
As countries become wealthier, the demand for political freedoms increases, Thus, most countries that have enjoyed rapid economic development, such as South Korea, Taiwan and Chile, also have evolved into healthy democratic states. The Chinese have proved themselves to be highly pragmatic and flexible. Much of their rapid growth has been the result of being able to copy the advanced products and systems of the United States and other developed countries. But for China to continue to be a high‐growth state, it will have to play increasingly by the international economic, financial and political rules, which will add to the pressures for political reform within China. Those in power in China, like most who have power, are reluctant to give up some of it, but many of them also understand that if they do not relax the reins, they may lose everything. It is in all of our interests to encourage and reinforce the positive trends within China by increasing bilateral investment and other interactions. However, we also must not be naive about the many dark forces still within China, such as those that promote the ongoing cyberpenetration of both foreign governments and businesses, that do not wish us — or the even the Chinese people — well.