November 26th, 2012
01:07 PM ET

Getting ready for China 3.0

By Mark Leonard, Special to CNN

Editor’s note: Mark Leonard is Director of the European Council on Foreign Relations and Editor of China 3.0. The views expressed are his own.

The Chinese like to think of history progressing in 30-year cycles, and have even taken to using the jargon of the internet to describe it. China 1.0 was the three decades of Mao Zedong , the heady cocktail of a planned economy, a Leninist political system, and a foreign policy of spreading global revolution. China 2.0 was Deng Xiaoping’s market revolution which brought export-led growth, political repression and economic diplomacy. But with the 18th Party Congress concluding its business, many predict that China will not only say goodbye to some of the leading players of the last decade – it will also inaugurate the beginning of a new era: China 3.0.

The year began with a series of powerful signals of change: in January, a village in Guangdong called Wukan was allowed to hold an election to oust corrupt officials suspected of selling off communal land at artificially low prices; in February, the World Bank and the National Development and Reform Commission released a report on China in 2030 calling for a new wave of market reforms; and in March the “princeling” Bo Xilai was ousted from his Chongqing power base with a warning against returning to the Cultural Revolution. These intimations of reformism are responses to a broader malaise. Since the global financial meltdown of 2008, China has been facing a triple crisis of success. China has managed to achieve each of the three goals of Deng’s era – affluence, stability, and power – but the policies that allowed China to reach them are now in danger of becoming self-defeating. China 3.0 will be defined by the quest to escape each of these three traps.

For most of the last 30 years, China’s leaders have been kept awake at night worrying about their country’s poverty and the problems of a socialist economy. But today it is China’s affluence and the problems of the market that are causing sleepless nights. China’s leadership has spent a generation obsessively focusing on economic growth at the expense of all else, and the new vested interests that have been created are resisting the economic rebalancing required for long-term development. A surge of conspicuous private consumption and vanity projects has come at the expense of investment in public goods such as pensions or affordable healthcare or public education.

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On one side of the debate about how to escape from the affluence trap are economists such as Zhang Weiying, who form the core of the pro-market New Right. They pioneered the gradualist economic reforms of the 1980s and 1990s and now want the state to finish the job and privatize the rest of the economy: restart the interrupted privatization of the state sector; give the private sector equal rights to finance; and end collective ownership of land. On the other side of the debate are New Left thinkers who favor boosting wages, ending the artificial subsidies for exports, providing access to social services, reforming the hukou system, and ending the “financial repression” of artificially low interest rates. The problem for the approaches of both the left and the right is that they run into the massive vested interests that have grown during the dizzying two decades in which crony capitalism has taken off.

How to break that is increasingly a question that impinges on politics. After the Tiananmen Square massacre and the collapse of the Soviet Union, China eschewed Western-style political reforms for fear that they could lead to the dissolution of the country. But the sociologist Sun Liping – who supervised the PhD of Xi Jinping, the next president of China – argued that the country’s obsession with stability is becoming self-defeating: “The ultimate outcome of the massive stability preservation project is in fact the intensification of social tensions.”  It is true that social unrest has grown even faster than China’s market – from 9,000 riots a year in the mid nineties to 180,000 last year. That is one riot every two minutes. Privately, some scholars go even further, warning of another “Tiananmen.”  A growing number of thinkers, inspired by the elections in Wukan, are calling on the party to embrace wide-ranging political reform. But others feel that only the charismatic power of a leader – combined with the political organisation of the party – can cut through the vested interests and rebuild links with an increasingly restive citizenry.

China’s third big challenge is how to deal with a surge in its global power on the back of its breakneck economic growth. For a generation Beijing’s foreign policy was guided by Deng Xiaoping’s injunction to “tao guang yang hui,” which literally means “hide its brightness and nourish obscurity.” But  it is hard to sustain a low profile when your country has the second-biggest economy in the world, your military spending is growing in double-digits, and you have a physical presence in every continent. Foreign policy professionals still want to accommodate Western power, and show “modesty” and “prudence” are even more important. But they are struggling against those who argue that China now finds itself in a bi-polar world and that the only way to stop America from containing it is to revisit old doctrines such as non-alignment, non-intervention and the primacy of economics.

Incredible as it might seem to Western ears, a majority of intellectuals have started to talk of the Hu-Wen era, which delivered an average of 10 percent annual growth, as a “lost decade” because much-needed reforms were not made. They say that to prevent the country stumbling, China 3.0 will need to include changes to the status-quo as radical as the onset of communism in 1949 or the embrace of the market in 1979. But unlike during those earlier periods, today’s reformers do not have international models to guide them.

It is not just the Beijing consensus that is broken; the models of the West are also discredited. The leaders of China 3.0 find themselves in uncharted territory.

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Topics: China

soundoff (31 Responses)
  1. allthingsgeography1

    Reblogged this on All Things Geography.

    November 26, 2012 at 2:06 pm | Reply
  2. j. von hettlingen

    China 3.0 would be defined by the leadership's goal of remaining an economic superpower, maintaining order and stability and thereby retaining power. It's a vast country with a fifth of the world's population, diverse – and extremely difficult to govern.

    November 27, 2012 at 8:04 am | Reply
  3. Alger Dave

    Great piece. China has beaten the west economically largely due to it's complete lack of leaving it's poor behind. The almost complete lack of social services (as we know them even in the capitalistic west) is the next 'big' thing in China. While some of this will produce economic growth, most social service programs will not. But without them China is almost certain to have a new revolution. And, interestingly, both new right and new left thinkers in China seem to be calling for an end to most of the practices (crony capitalism as the author put it) that have lead to China's growth boom. So, thanks for being one of the first people to let us know – it's over. China's growth will slow, they will stop being the economic freight train they were, and settle into something more normal and probably healthier for all in the long run.

    November 27, 2012 at 4:38 pm | Reply
    • Alger Dave

      Ooops. I meant it's beaten the west 'due to it's complete lack of care for it's poor' – not what I said above! :)

      November 27, 2012 at 4:40 pm | Reply
      • Mike

        China beat the west due to it's philosophy and its value passed through family from generation to generation. Who works harder and gets less than Chinese people? This nation has its unique organized labor and work so diligently. If any nation that can take less and give more than Chinese, I bet that nation will become the second economic power house. Chinese people are intelligent and they had a good education system to give its people cheap and good eduction. Chinese books are cheaper than those in the western world and therefore more accessible by its citizens, which in return promotes more knowledgable people. Average Chinese are more knowledgable than average Americans. If everything holds the same in China and America, Chinese can do much better than Americans. That is why China has beaten the West.

        November 28, 2012 at 10:26 pm |
    • cmmrc

      That problen could easily go away, if China called their poor "blacks", or "nigros, or "slaves".

      November 29, 2012 at 6:15 am | Reply
    • luchik33

      China hasn't beaten the West economically. GDP Per capita: U.S. $48,442, European Union $35,116. GDP Per Capita of China is $8,466. GDP of the European Union: $17.5 trillion and of the U.S. $15 trillion while GDP of China is $11.3. If you look at an average Chinese, he's poorer than an average Ecuadorian, Albanian, Iranian, etc. China is still poor..the fact that they have high economic growth rate simply means that they were very poor and had nowhere to go but up after market reforms ;)

      December 2, 2012 at 12:15 am | Reply
  4. UncSamWntsU

    China beat the west economically? Why is the GDP of China less than half that of the US? Even with currency manipulation less than half. Now a slowing economy, I wouldnt hold your breath.

    November 27, 2012 at 11:29 pm | Reply
    • Maersk

      America's GDP is still higher because American made kwok zucking kwok zuckers such as you cost twice as much.

      November 28, 2012 at 6:44 pm | Reply
  5. Dechen Wangmo

    What about Tibetan in Tibet self immolating for basic human rights and return of His Holliness The Dalai Lama. CNN are you blind in TIBET?????

    November 28, 2012 at 1:18 pm | Reply
    • Maersk

      As a lama lover, you should be glad that those Tibetans (brainwashed idiots) burn themselves to death, how else can you have barbecued Tibetan kwoks to eat? You can also make a TV show of you VS. barbecued Tibetan kwoks.

      November 28, 2012 at 6:39 pm | Reply
    • cmmrc

      U.S. send troops to Tibet!

      Restore Dalai Lama who also resurrect from dead like Jesus!

      U.S. send troops to Tibet!

      Restore Dalai Lama who also resurrect from dead like Jesus!

      U.S. send troops to Tibet!

      Restore Dalai Lama who also resurrect from dead like Jesus!

      November 29, 2012 at 6:20 am | Reply
  6. Dechen Wangmo

    86 Tibetans so far self immolated, very desperate plea....

    November 28, 2012 at 1:20 pm | Reply
    • Maersk

      They are no more desperate than your wanting to zuck uncle sam's limply kwok.

      November 28, 2012 at 6:40 pm | Reply
    • cmmrc

      U.S. send troops to Tibet!
      U.S. send troops to Tibet!
      U.S. send troops to Tibet!
      U.S. send troops to Tibet!
      U.S. send troops to Tibet!
      U.S. send troops to Tibet!
      U.S. send troops to Tibet!
      U.S. send troops to Tibet!
      U.S. send troops to Tibet!
      U.S. send troops to Tibet!
      U.S. send troops to Tibet!
      U.S. send troops to Tibet!
      U.S. send troops to Tibet!

      November 29, 2012 at 6:18 am | Reply
  7. svx94

    I think the author again over simplified the situation in China. I doubt the 2.0 is anywhere near finished. The economy progression is progressing well and has no sign of stopping any time soon, although, slowing down is expected. I think China will focus on its own market development (vs. export), and that itself will drive decade worth of growth. Real political change is still premature and won't happen any time soon. One thing westerners failed (intentionally or not) to recognize is that normal Chinese people benefit tremendously from the reform and economy development, their living standard is raising at an unprecedented speed, and majority of Chinese people seeing the country moving to the right direction. The risk I can see once a while is the leftist ideas like income equality, and raising the income of the poors at a speed higher then productivity growth, etc. And I do hope on the foreign policy front, China can stay low profile and keep quite.

    November 28, 2012 at 3:11 pm | Reply
  8. Brian

    180,000 riots in a year. I think they need to define what they are calling a riot. Of course according to CNN, a large crowd going to the shopping mall during a holiday sale is seen as a protest. Or that is how the presented the "jasmine revolution". If that is the standard, then every shopping mall in America had a protest just last friday.

    November 28, 2012 at 3:52 pm | Reply
  9. UncSamWntsU

    Poor Maersk, he was born a 50 cent troll in China. But looking at is advanced language skills, perhaps 5 cent troll. He's probably the 2005 model. Didn't they recycle your model Maersk?

    November 28, 2012 at 11:38 pm | Reply
    • cmmrc

      Right!

      Talk is cheap, go to China and fight the commies.

      November 29, 2012 at 6:24 am | Reply
  10. setonw

    三十年中子孫結

    November 29, 2012 at 2:52 am | Reply
  11. TheGreatMuhubba

    There is a lot of excessive verbiage here. How can one write so much and say so little?

    November 29, 2012 at 6:18 am | Reply
    • cmmrc

      Because one knows a lot of words, not much anything else.

      November 29, 2012 at 6:22 am | Reply
  12. cmmrc

    Don't care!

    4 years or 8 cycles is the best!

    American democracy is the greatest!!!!!!!!!!!!!!

    November 29, 2012 at 6:26 am | Reply
  13. Rick McDaniel

    The U.S. government sold out to China, in the late 1990's and we will never recover from those actions.

    December 1, 2012 at 11:17 am | Reply
  14. Adolf

    Dalai Lama learned English from Heinrich Harrer who found origins of Nazi Party swastika in Tibet and Harrer was a follower of the Nazi Party. It fits the big policy of Goebbels and again the need for blind allegiance to the Leader. The Dalai is as holy was the furnace man in Auschwitz.

    December 2, 2012 at 12:01 am | Reply
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