Houston Community News >> U.S. Gets Lesson in Chinese Pragmatism

3/2/2007-- Having caught up with the world's leading economies in such a short space of time, China is reluctant to make structural reforms that are likely to destabilize its progress - as US Treasury Secretary Henry Paulson is about to find out.

Mr Paulson is set to renew his campaign for China to revalue the yuan in a visit to Shanghai scheduled for later this month.

Good luck to him. China is unlikely to budge as the government in Beijing prizes stability above all else. Any significant appreciation in the yuan would mean a slowdown in exports and in China's capacity to create jobs for the 10 million Chinese entering the labor market annually.

This obsession with stability - which is understandable given China's turbulent recent history under Mao - came through loud and clear during a three-hour lecture (with time for interpretation thrown in) by the formidable Liu Meixun, director of the Research Institute of Economics at Beijing's Tsinghua University.

At a seminar for selected western guests from three British companies doing business in China - B&Q, AstraZeneca and the architecture firm Benoy - she pointedly drew the contrast between China's successful reform with Russia's disastrous experience.

In an overview of China's reform program dating back to 1978, Professor Liu, who brooked no interruptions as she rattled off a blizzard of statistics to show China's remarkable economic progress, said Russia had courted chaos by opting for shock therapy, whereas China under Deng Xiaoping had gone for "progressive reform".

Among the more telling figures Professor Liu, who has taught at Tsinghua for 50 years, came up with was this: it took the Russian economy until last year to get back to the $US1 trillion ($1.3 trillion) gross domestic product it had reached in 1990 (by contrast China's GDP is $US2.6 trillion, the world's fourth-largest economy).

Signs of China's boom are all too apparent: the six-lane motorway from the airport to Beijing which was once a semi-derelict road; the new 20-storey tower blocks on either side of the road; and the proliferation of cars since the appearance of the first private car in Beijing in the 1980s (belonging to one of Professor Liu's colleagues).

But while Professor Liu lavishes praise on Deng for his pragmatic approach - "feel the stones while crossing the river" — she acknowledges that China's breakneck development that has lifted 400 million people out of poverty has created "obvious contradictions".

There is the growing gap between urban and rural, between regions, corruption has flourished and there has been massive wastage of energy and resources. The analysis is very much along the lines of Will Hutton's new book, The Writing on the Wall.

But whereas Hutton argues China needs to become more pluralistic and develop what he calls "enlightenment values" such as accountability, the rule of law and freedom of the press, Professor Liu hews close to the party line.

Asked whether she means that the Communist Party should give up power when she talks about the need for China to become democratic, she avoids a direct answer.

"Whether the party can rule or adopt pluralism depends on the conditions of the country," she replies. "The party might not rule for ever, it depends on whether the Communist Party truly represents the people."

Again Professor Liu returns to Russia, recalling her reaction to the overnight disintegration of the Soviet Communist party. "It was a sad fact that the party disintegrated after 70 years and no one stood up to support it. I was very shocked."

When Mr Paulson comes to China he will be up against party officials who think very much along the same lines and who will resist any action that they think will endanger China's stability.

It will be a clash of cultures between America's quick-fix approach and China's deliberate and pragmatic way of doing things. As Professor Liu pointedly noted, China took 20 years over its price reforms. It will take its own sweet time over revaluation.

(Contributed by au.com)