China: Third Plenum or third try?

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Over the past few weeks, it has been impossible to miss the coverage of the meeting of China’s top leaders for the Third Plenary Session of the 18th Party Congress. International observers have speculated over the role of these very important meetings, seemingly made even more important by their plant-like sounding nomenclature. After numerous highly confidential meetings, the Chinese Central Committee released its ‘decision’ outlined in 21,500 words.

With findings longer than a university dissertation, one would believe that the decision would drastically change life in China forever. Well, if past party congresses under Hu Jintao are any clue…life in China will remain corrupt, polluted, and crowded for a long time to come.

However, when one looks deeply at the decision, there are a few things that are worth examining. The two most dramatic changes were the end of China’s ‘re-education through labour’ camps and a relaxation of its one-child policy. Over the past decade, it’s widely estimated that hundreds of thousands of petty criminals and political protesters have been placed in labour camps to be re-educated with ‘Chinese values’, whatever that means.

Under the existing system, political prisoners could be held in camps without a trial for up to four years. ‘Re-education through labour’ sounds like something out of Soviet Russia or some 20th century Latin American country under an oppressive authoritarian regime. I’m glad China is joining the majority of the world in letting (most) people have their own opinions and expressing them, albeit softly.

Secondly, China has decided to relax its one-child policy. Now, the majority of people can have two children. I know, also very odd to think that there are countries out there engaging in such severe and tyrannical population planning measures. In truth, most people do already have more than one child – so long as they can afford it. That’s why Chinese women have an average of 1.5 children. The nearly full-scale ending of the one-child policy means that China can get on the road of fixing its rising demographic issues.

Right now China’s population, along with much of East Asia, is aging quickly and there are not enough young people to pay for all of the cushy pension plans given to the numerous bureaucrats and state owned enterprise employees that are promised them every year.

Most immediately, the change in policy will likely increase consumption. This is the start of China’s long-term plan to shift to a service driven economy dominated by strong domestic consumption. Much farther down the road are the labour issues. The end of this policy will help to significantly increase China’s labour force beginning in about twenty years. That’s where the economics really come into play since China’s pension costs are set to be a major factor in a potential drop-off in China’s GDP.

The other major issue set to potentially topple China’s path to endless prosperity…pollution. Think industrial revolution London or sitting inside a coal fired smokestack in Northern England – this clearly shows we have no point of reference to understand the smog unless you’ve actually been to Beijing. It’s bad, very bad. So bad that the British and US embassies regularly publish environmental reports that almost always advise travellers to stay inside. It’s also rumoured to be the reason why US Ambassador Gary Locke left his supposed dream job to move back to America. And I can’t blame him, would you want your child walking through clouds, more like carcinogenic fumes, on their way to school everyday?

It’s so bad that residents regularly describe not being able to see across the street. Or travellers spend hundreds of pounds on very pricey hotel rooms only to look out at endless smog. Many leading economic experts have predicted China’s pollution as its greatest challenge to sustaining high growth rates. What if all the powerful businessmen that can afford to leave the cities or even China itself do leave? How will that affect growth in start-ups or the ability for large multinational corporations to maintain talent in China?

It may surprise you to know that China has numerous environmental and climate regulations. The only issue – no one follows them. The government’s priority is on economic growth while completely ignoring environmental issues. There’s a complete disconnect between rhetoric from the top and implementation at the bottom. Local leaders realise that they’ll be judged on their ability to attract and promote investment – not on how clear the air is each day.

Anyways, how do you really measure that? It seems that money speaks a lot louder than a clean environment. Furthermore, investment makes local officials rich, can environmental reforms do that?

Officials routinely complete projects simply to employ workers and raise the GDP, but they never actually use the constructed buildings. It doesn’t seem possible to raise the GDP through environmental regulation so it will likely be a very long time before China focuses on this. Until then, I suppose China will continue to be a ticking time bomb – I can only hope its leaders realise the problem before its way too late to enact substantive changes.

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