China gloats at Washington

By most accounts, the past few weeks have exposed a drastic maturity gap between the U.S. and Chinese governments. The purported icon of democracy watched its system descend into chaos and petty political gamesmanship, coming within hours of a default that would have sparked global economic disorder.

Publicly, Chinese leaders remained statesmanlike and above the fray, withholding comments on the circus in Washington. At the same time, and unsurprisingly, surrogates in the Chinese news media and commentators in the intelligentsia were less restrained. They gleefully piled on with op-ed articles arguing for “de-Americanizing” the world and rapidly reducing China’s purchase of U.S. Treasuries. It is notable that some of these commentaries only appeared in the English-language press, both within China and globally: They were clearly aimed at a Western audience. So was the showy downgrade of U.S. sovereign debt by China’s Dagong Global Credit Rating Co. - a feature of the last debt-ceiling crisis, too.

The rest of the world got the point. From China, sober voices were calling on America to get its house in order. In the U.S., politicians were so consumed with self-interest that they appeared willing to risk economic catastrophe. Once again, China’s political system looked a lot stronger and more stable than the U.S.’s.

Yet these are superficial and fleeting contrasts. The two governments share a much more significant problem: how to align their political systems to enable the vital structural economic changes their countries desperately need.

A bargain over the debt ceiling was always likely to be the eventual outcome, despite the eleventh-hour scare. But that was never the real issue. The U.S. still faces a structural deficit and a growth problem, which will require significant changes to its economy in order to be resolved.

The showdown in Congress was merely one symptom of a much more complex and intense political debate over the shape of America’s economic future. As it continues to recover from the global economic crisis, the U.S. is confronting several pressing challenges: how to reduce inequality, slow the erosion of the middle class, create 21st-century jobs and sustain competitiveness. Undertaking the appropriate structural reforms will require a rearrangement of political interests, as all such reforms do. Already, structural changes are being contested on ideological grounds. Huge differences exist over whether the state ought to be shepherding reforms in the first place.

China’s schadenfreude over the political dysfunction in the U.S. won’t last long, as the politics of reform are set to command the attention of the Chinese government, too. Officials in Beijing are also in the middle of a heated debate over an ambitious economic reform agenda, elements of which will be unveiled at a major Communist Party meeting in early November.

The question about Chinese reforms isn’t so much “what” as “how” - it’s an execution problem, not a blueprint issue. But execution will require the Chinese leadership to sustain political conditions that allow these reforms to take place with relatively few obstructions. Without a generally unified long-term consensus, it will be quite difficult to repair the ship of state. Economic reforms may end up so riddled with compromises that they please none and disappoint all.

The Chinese patriarch Deng Xiaoping, for example, fully understood the importance of managing the politics of economic reform, especially in 1976, after the country awoke from a nightmarish decade of political upheaval. As capable as Deng was, even he almost lost the consensus on economic liberalization in the late 1980s. In 1992, he deftly maneuvered to re-establish it: Twenty years later, China’s economy is transformed.

Political interests and ideology matter greatly in China, as much as, if not more than, in the U.S. Even the prospect of reforms appears to have revived old-school ideological battles, and official commentary has repeatedly warned against “Westernization” and reverted to Maoist rhetoric on toeing the political line. The government is clearly insulating itself against internal critics who are ready to sabotage reform efforts, calling them “Americanization” by another name. Politics can be as detached from underlying economic realities and needs in Beijing as it is in Washington.

That these structural economic reforms are deeply political will be no surprise to the Chinese leadership (nor should it surprise America’s). Like most entrenched political interests, those that have benefited tremendously from the current economic arrangement, such as state companies, will fight tooth and nail to prevent their interests from being hijacked by economic restructuring. Well beyond November, Chinese leaders will have to shape, mold and preserve the political consensus so that these foes don’t weaken the resolve to tackle the thorniest reforms.

Schadenfreude is easy. Maneuvering and handling the internal politics of reform is hard. Democracy or not, China will need to display no less, and probably more, skill than the U.S. if its reforms are to succeed.

*The author is a fellow at the Paulson Institute and co-author with William Adams of “In Line Behind a Billion People: How Scarcity Will Define China’s Ascent in the Next Decade.”

by Damien Ma