Professor David Shambaugh of George Washington University and the Brookings Institute came to speak at Dartmouth on April 23. He addressed the different challenges China faces now that its growth has come to a crossroads. With its stagnation of growth in many aspects of its power, China now must find new ways to develop. Professor Shambaugh provided several issues that China has to focus on in order to fully transform into a developed nation.
Shambaugh first discussed the economic reforms that China must enact in order to move forward. Currently, the country is facing economic stagnation. Though its economic growth used to be 8%-10%, Chinese leaders now admit that even 7% growth will be difficult to achieve this year. To overcome this problem, the Chinese government needs to address many of the issues that that have contributed to this economic stagnation. One such issue is transitioning China’s source of income from exports and foreign investment to innovation and consumption. Other necessary changes include financial sector liberalization, regulatory streamlining, further international opening, budget transparency, and revision of the tax structure. Much of these reforms can be aided by Shambaugh’s second point: China’s need to better foster innovation. In order to become a fully developed country, Professor Shambaugh stated that China must come out of the Middle Income Trap. In order words, China must learn how to produce high quality and innovative products that set the global standard. To do this, it must get rid of policies that don’t promote innovation, such as censorship and “no go zones”.
Shambaugh continued to detail China’s need to tackle “inequality, instability, and demographics.” The country has an increasingly large wealth gap that isn’t suitable for its growth. To make matters worse, China’s wealthy are spending the majority of their money aboard. Additionally, there has recently been increased instability within China, such as the Umbrella Revolution in Hong Kong. With its One Child Policy, the country is also becoming the “aging China” with a shrinking younger population being left to care for a growing older generation. This phenomenon is not ideal for supplying the workforce needed to grow the economy.
China also must combat corruption, Shambaugh explained. The Chinese government has long been known for its corruption, which not only causes losses in Chinese wealth, but also jeopardizes the legitimacy of the Chinese Communist Party. The government realizes this, and has started an anti-corruption campaign. Unfortunately, Professor Shambaugh noted, corruption in China is systematic and present throughout all levels of its government. As a result, it will be extremely difficult to resolve the problem. Furthermore, China’s environmental
situation is one of the worst in the world, especially in larger cities such as Beijing. To further develop, Shambaugh asserted that China must find a way to improve its environment, therefore raising the standard of living for its people.
The Chinese have tried to design propaganda for foreigners, and through this propaganda they have attempted to convince the world that China is a peaceful rising power. Unfortunately, the country’s international image is still fairly negative. Shambaugh explained that China clearly still has a long way to go in terms of strengthening its soft power. He also emphasized how China has been trying to project its military power, and is now doing so as far as the Indian Ocean. Shambaugh was confident that while China will continue to try to project its power, the U.S. will keep China in check.
Professor Shambaugh concluded that China now has three options in handling its many challenges. China can accelerate and enact comprehensive reform, stagnate and continue to have problems, or simply decline in power. Though China has been showing signs of the third possibility, there is still time for it to consider its options wisely and determine the country’s future place in the international system.
By Grace Li