China’s rapid change and missed chances

In the decade since Hu Jintao became secretary-general of the Communist party, China’s economy has gone from a size of $1.5tn, the world’s sixth-largest, to $7.3tn, second only to the US. Since 2002 per capita income has more than tripled from $1,135 to $5,445, transforming China from a low-income country on a par with Cape Verde to a middle-income one more like Montenegro.

Back then, 38 per cent of people lived in cities as opposed to 50 per cent today. China had no high-speed rail. Now it has the longest (though certainly not the safest) network in the world. When Mr Hu came to power, just 45m Chinese used the internet. As he approaches the end of his term, almost 600m are hooked up. For a president who is sometimes said to have presided over a lost decade – or at least a decade of lost opportunity – Mr Hu’s record doesn’t seem all that bad.

So breakneck has China’s progress been that it is worth reminding ourselves just how far China has come. When Mr Hu took the helm, China had only just joined the World Trade Organisation. There followed an extraordinary period of export growth that saw the current account surplus widen to an unprecedented – and entirely unsustainable – 10 per cent of gross domestic product. Fortunately, it is now down to about 4 per cent.

The renminbi was unshackled, at least partially, from the dollar. It has since appreciated by more than 30 per cent. China redirected investment from the coastal to the inland provinces, scrapped agricultural taxes (improving the lot of farmers) and built the rudiments of a social security system. It hosted the Olympics, displaying its power in an opening ceremony that awed the world. It put a man in space. It survived the global financial crisis with the biggest stimulus package in history. It even launched its first aircraft carrier, albeit one made from an unfinished Ukrainian hull.

It is also worth reflecting on the fact that Mr Hu is handing over power at all. The process is opaque and entirely undemocratic. That almost raises the question of why it is worth doing at all. Mao Zedong never dreamt of giving up power. Only in 2002, with the withdrawal of Jiang Zemin and the ascendance of Mr Hu, has China institutionalised a generational transfer of authority.

These are huge achievements. Yet, Mr Hu is just as likely to be remembered for his failures. “In terms of wealth creation, the last 10 years have been very successful,” says Mao Yushi, an influential liberal economist. In terms of economic reform, he scores Mr Hu a zero. He scolds Mr Hu for talking about rebalancing the economy while allowing it to get further out of whack. Fixed capital investment has risen to an extraordinary 50 per cent of GDP and property prices have soared. “Sooner or later there must be a crisis,” he predicts.

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Whether or not Mr Hu has stored up dangers for his successor, critics say he has merely ridden the economic dragon unleashed by his predecessors. Much of the growth of the past 10 years stems from the reforms of the state sector and of a near-bankrupt banking system that Zhu Rongji championed as premier from 1998-2003. Mr Hu has not been bold. Perhaps hydraulic engineers rarely are. Shi Jiangtao, writing in the South China Morning Post, calls him a “diffident apparatchik” who exemplifies the “Communist regime’s mediocrity”.

Mr Hu’s talk of “building a harmonious society” was all very well. But society became less harmonious under his watch. Protests against environmental degradation, local corruption and illegal land grabs have reached such a level that the internal security budget now outstrips that allocated to national defence. Opinion on the internet has become more or less uncontrollable. There have been protests and crackdowns in both Tibet and Xinjiang.

It is hard to guess how much might change under Xi Jinping. Mr Mao has greater hopes for Mr Xi, whom he says grew up in more open times. Many academics argue that real progress towards democracy will have to be made if social tensions are not to bubble over.

Economically, change is already afoot. The latest five-year plan talks about a slower growth rate of 7 per cent. Built into the calculation is a shift from investment to consumption. That has long been the mantra, but many economists think this must now happen, partly as changing demographics force an adaptation of the export-oriented model. Fewer young people in the workforce should mean a higher proportion of GDP goes to wages.

Under reasonable assumptions, China’s economy should double in size during Mr Xi’s tenure. That would make it bigger than the US in purchasing power parity terms. If it avoids a crisis, the economy should also be on a more sustainable footing. McKinsey reckons that, by 2020, private consumption, at 45 per cent of GDP, will have surpassed investment, which should have fallen to 36 per cent. Mr Hu has more than quadrupled the size of the economy and is judged by some to have been a failure. Mr Xi must hope to double it and be judged a success.

david.pilling@ft.com