With Xi Jinping becoming president last spring and the rollout of ambitious reforms, China is moving forward to make itself more hospitable to its own private sector and to domestic consumption of the goods it produces.
The new environmental, economic, immigration and anti-corruption policies will benefit both China and its allies, according to former Treasury Secretary Henry Paulson, who spoke Thursday at Bloomberg’s “The Year Ahead: 2014” conference.
“They’ve got a lot of work to do. I hope they succeed because if they do – and I’m cautiously optimistic – it’ll be good for China, it’ll be good for all of us,” said Paulson.
China’s goal, Paulson said, is to reduce the monopoly power of state-run enterprises, of which there are many, and “take away special subsidies to free up more room for the private sector.”
“The good news is they are strong leaders and they are committed to reform,” Paulson said. Paulson described Xi as “charismatic and unscripted,” and said the Communist leader understands markets and the private sector, especially given his work in China’s coastal provinces, where private businesses dominate.
The bad news, Paulson said, is the ideological resistance to change in China. The country accordingly has given itself seven years to carry out the reforms.
According to the Heritage Foundation, China is ranked the 29th of 41 countries in the Asia-Pacific region in terms of economic freedom, and its overall score is lower than global averages. Corruption throughout the Communist country is pervasive and economic freedom is historically low, but Paulson said Xi’s reforms could be transformative for citizen freedom.
“As people’s economic conditions improve, they will demand more personal liberties and political freedom,” Paulson said.
The country’s political and legal systems are also evolving, Paulson said. The People’s Republic of China does not yet have adequate social institutions necessary to properly govern such a large and complex country. But Paulson said Xi is “all about driving change.”
The Chinese leader has “gone hard after doing away with official privileges, an anti-corruption campaign and a number of other things that have garnered a lot of attention,” Paulson said.
The changes, including steps encouraging citizens to migrate to smaller cities away from overcrowded metropolitan areas, come at a time when China faces significant citizen discontent.
For example, Paulson said, there’s now a focus on land rights. Historically, many Chinese farmers have had their land taken away and sold to developers.
Additionally, pollution and other long-term environmental problems drive up healthcare costs. “Dirty air and dirty water are killing people and it’s just not acceptable.”
China is slated to reach its projected 7.5% annual gross domestic product growth rate this year—representing its slowest growth in 14 years, according to data from the World Bank. Paulson noted that China is experimenting with new taxes, including a consumption tax, to raise revenues.
When it comes to American companies doing business abroad, personal relationships are still one of the most important aspects of continued strong relations in China, according to University of Chicago President Robert Zimmer, a long-time advocate of scholarly collaboration with China.
“You’ve got to show up and keep showing up,” he said. “The nature of the personal relationships that get established are important anywhere but especially important when dealing with China.”