Having studied China for years, a question important to me is, “Will China rise to be a great nation?”

To many this is a forgone conclusion: The Chinese economy has been growing at a fast rate and has become the second largest in the world. But a closer look may reveal that it is far from certain that China will rise to be a great nation in the world.

Here is why.

While there is no dispute that the Chinese economy has been achieving phenomenal growth since the late 1970s when the economic reform was introduced, the economic development has been controlled by the Chinese Communist Party. The party controls all strategic industries, approves the entry and exit of firms in these industries, and determines who gets what and how much subsidies.

The government-controlled economic growth is most evident in the party’s effort to control the exchange rate of the Chinese yuan. The Chinese government does not allow free exchange of the yuan in any financial markets, either domestic or international. The Chinese law limits the amount of yuan people may carry in and out of China. The current limit is 20,000 yuan, or about $1,600. In this sense, the international community, especially the U.S., should pressure the Chinese regime to liberalize the yuan to be freely exchangeable in markets, not merely to pressure the regime to appreciate the yuan’s value.

In the political arena, the Communist Party’s monopoly is most evident. The party’s monopoly is cast into law in the Chinese constitution. The party arrests and jails people who express dissenting views. Recently a journalist, Shi Tao, who was sentenced to 10 years for views based on private e-mail records provided by Yahoo!, is a case in point. Any views or organizations that may show a slight possibility of challenging the Communist Party’s absolute rule will be decisively crushed.

How can we reconcile this seemingly contradiction: On the one hand, the Communist Party has embarked on a fundamental economic reform that is leading China to a market economy and capitalism, which has substantially improved the citizen’s lives; and yet on the other hand, the very same party is grossly violating the basic rights of its citizens in order to maintain its monopoly on power?

Historical evidence and theories of political economy show us that under certain circumstances, countries under dictatorship may achieve faster economic growth than countries under democracy. A dictator can push through economic reforms effectively and efficiently without worrying about losing votes or worrying about opposition. A necessary condition for this is that the dictator must be pro-business and follow the principles of the market economy. If the dictator is not corrupt, it will be a bonus. The economic development of Chile, South Korea and Taiwan may serve as cases in point.

A fast-growing economy under dictatorship may lead to a higher level of living standard and greater prosperity, but the country will not become a world leader.

An important distinction that we often miss when talking about the rise of China is the difference between China the country versus China the regime. The fact that the Chinese economy is strong and that the Chinese government controls vast resources makes the Chinese regime very powerful in the world arena. The regime can use its control over China’s resources to influence other countries. But a powerful regime does not equate to being a great nation in the world, especially when the regime does not have the mandate of the popular vote of its own people.  In the 21st century, we cannot imagine a great nation in the world whose citizens do not have free access to the Internet, where people are persecuted simply because they practice a certain style of meditation, where the political process is secretive and controlled by the politburo of a monopolistic communist party.

China will change – there is no question about it. The rise of England as the founder of modern capitalism – the combination of the free market and liberal democracy – may provide some hint. In the past 400 years or so, some 500 city-states in Europe competed to become world powers. Economic historians found that two main conditions were important in the rise and fall of these city-states: cross-Atlantic trade and a not-so-absolute monarch who shared the benefit of the trade with its subjects. Only England – and to some extent the Netherlands – had both and rose, which subsequently created the institutions of the modern capitalism we have today.

China meets the first condition: Having access to a hugely profitable international trade. For China to rise, the regime must relinquish its dictatorship and embrace democracy. This should be the important message for the international community to continually send.

About the Author
Shaomin Li teaches international business at Old Dominion University and served as an adjunct professor of economics in the Robertson School of Government at Regent University during the Summer Semester of 2006.  He can be reached at sli@odu.edu.