China Update

China is attempting to rebalance its economy by encouraging more domestic consumption

To continue growing rapidly, China needs to make the next transition, from sweatshop economy to innovation economy. This transition is the one that has often proved difficult elsewhere. Once a country has turned itself into an export factory, it cannot keep growing by repeating the exercise. It can’t move a worker from an inefficient farm to a modern factory more than once. It cannot even retain its industrial might forever. As a country industrializes, workers will demand their share of the bounty, as has started happening in China, and some factories will start moving to poorer countries. Eventually, a rising economy needs to take two crucial steps: manufacture goods that aren’t just cheaper than the competition, but better; and create a thriving domestic market, so that its own consumers can pick up the slack when exports inevitably slow. These steps go hand in hand. Big consumer markets become laboratories where companies know that innovations will be tested and the successful ones richly rewarded. Those products can then expand into countries with less mature consumer markets. Look at the telephone, the personal computer and the iPhone and iPad, all of which were designed in the United States and are now sold around the world.

Today’s China cannot claim any such achievement, a fact that weighs on Chinese policymakers. They worry about the country’s ability to innovate and, in particular, about the quality of its education system. When I met with Guo Shuqing, a party official and the chairman of China Construction Bank, in his office high above Beijing’s financial district, he mentioned that a recent ranking of the world’s top 100 universities included 53 from the United States but just three from mainland China. Even those numbers, Guo said, probably overstated the strengths of China’s universities: “In terms of innovation — really original, creative ideas — they’re very weak,” he told me. By contrast, the American education system helped make possible Google and other companies.

Life expectancy is rising slowly in China

A quick quiz: Which of the following countries has had the smallest increase in life expectancy since 1990 — Bangladesh, China, Pakistan, South Korea or Sudan?

The answer is not war-torn Sudan or tumultuous Pakistan. It isn’t South Korea, which started from a higher level than any of the others. And it isn’t abjectly poor Bangladesh.

It’s China, the great economic success story of the last two decades and the country that inspires fear and envy around the world. Yet when measured on one of most important yardsticks of all, China does not look so impressive.

From 1990 to 2008, life expectancy in China rose 5.1 years, to 73.1, according to a World Bank compilation of United Nations data. Nearly every other big developing country, be it Brazil, Egypt, Ethiopia, India, Indonesia or Iran, had a bigger increase over that span, despite much slower economic growth. Since 2000, most of Western Europe, Australia and Israel, all of which started with higher life expectancy, have also outpaced China.

Pollution is extremely bad China and costs hundreds of thousands of lives per year

No country in history has emerged as a major industrial power without creating a legacy of environmental damage that can take decades and big dollops of public wealth to undo.

But just as the speed and scale of China’s rise as an economic power have no clear parallel in history, so its pollution problem has shattered all precedents. Environmental degradation is now so severe, with such stark domestic and international repercussions, that pollution poses not only a major long-term burden on the Chinese public but also an acute political challenge to the ruling Communist Party. And it is not clear that China can rein in its own economic juggernaut.

Public health is reeling. Pollution has made cancer China’s leading cause of death, the Ministry of Health says. Ambient air pollution alone is blamed for hundreds of thousands of deaths each year. Nearly 500 million people lack access to safe drinking water.

Ezra Klein comments on the first article and provides a chart: