Pacific Perspective
Pacific Perspective
Corruption is China’s
greatest challengeThe Year of the Horse is nearly upon us, and for the first time China is celebrating the New Year from a position inside the World Trade Organization. This landmark event has shifted perceptions dramatically; China is now clearly engaged economically with Asia, evoking responses both of concern and of opportunity.
Japan is worried about a hollowing out of its economy, and Southeast Asia is troubled by having to compete against ultra-cheap Chinese labor. At the same time, the lure of a more open, more rules-based Chinese market has excited boardrooms from Singapore to San Francisco to Stuttgart.
It's important for both the enthusiasts and the paranoid to realize that the changes dictated by China's entry into the WTO will occur only slowly, and in a phased fashion. After all, it took six countries in Europe more than a decade to lower their tariff barriers after the Common Market was launched in 1958.
Moreover, as suggested by December conversations in Shanghai with scholars, businessmen, and government officials from China and abroad, China will face four major political and economic challenges as it tries to connect to the global economy.
>> The state-owned enterprises remain significant bastions of inefficiency. Employing hundreds of thousands in some firms, many SOEs have not been reformed in the three years promised by China's leadership, and some may not be reformable in 30 years. Failure to reform and downsize them risks blunting the economy's momentum, but in the absence of a social safety net, moving too quickly to reform threatens social stability.China's leadership hopes that continuous growth of real GDP at a rate of 7 percent per year over the next decade or so will make all these concerns moot. Should growth slow, however, whether as a result of a global recession or China's own inefficiencies, the current culture of corruption in China will make it difficult to regain momentum, and could extinguish the considerable promise for China itself -- and for the region -- represented by the Middle Kingdom's long-awaited entry into the WTO.>> The regional prosperity disparity between the coastal provinces and those of Western China seems to widen every year. The result has been a massive migration to the cities, where a floating labor force now numbers nearly 100 million. This represents a threat to social order in the more prosperous cities, but so does economic stagnation in the impoverished Western provinces.
>> The WTO itself will of course disrupt commercial life in China as cheaper foreign imports, perhaps from Vietnam, Myanmar or even North Korea, and high technology goods from the United States, Japan, and Europe, penetrate formerly protected markets.
>> My contacts tell me that with luck, China can handle these three difficult transitions. More challenging, however, is corruption. Multinational firms with experience all over the world express their dismay at the lack of a rule of law, and the lack of transparency in the regulatory process. Improving matters really will require a reorientation of the cultural context of business and politics, no easy task.
David McClain is dean and First Hawaiian Bank Professor of Leadership and Management at the University of Hawaii at Manoa College of Business Administration.