The world needs China to leap forward again

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    The world needs China to leap forward again

    October 14, 2005

    TWO very different meetings in Beijing this week tell a tale of two Chinas. One is a story of extraordinary economic growth, the other is of a totalitarian regime that aims to keep its monopoly on power while developing a more open economy. Only members of the Communist Party's central committee know exactly what was discussed at its annual plenary session this week. Reassuringly for the finance ministers and central bankers at this weekend's Group of 20 meeting Treasurer Peter Costello and Reserve Bank governor Ian Macfarlane among them the committee's 11th five-year plan forecasts that China's world-leading economic growth, averaging 9.5 per cent for 25 years, will continue. The world's second-biggest economy is already the biggest driver of global growth, trade and resource demand. China is thus at the heart of concerns about high oil prices, an anxiety reflected in Australia by falls in share prices and consumer confidence.

    Reserve Bank deputy governor Glenn Stevens noted this week just how closely Australia's fortunes are tied to China. China's demand for resources iron ore, coal, gas and uranium is generating new deals and high prices, which have transformed Australia's terms of trade. China's exports of increasingly cheap consumer goods and services offset the oil price's inflationary effect. In other good news this week, Trade Minister Mark Vaile raised hope of a breakthrough in the Doha Round of trade talks on cutting US and European tariffs and subsidies, which hinder Australian exports. Since 2000-01, the value of Australian exports to China and Hong Kong has grown by almost $5 billion, or 46 per cent, but by just $2 billion to other nations. Little wonder Mr Costello has said China will provide "the dominant narrative of the world economy in the years ahead".

    There is a less widely acknowledged narrative that ought to concern any economist with a sense of history. Political and civil rights reform in China lags far behind economic reform. The Communist Party's fourth-generation leadership is certainly not oblivious to the twin challenges posed by an increasingly affluent and educated middle class, who aspire to having a greater say, and the rural poor, who resent growing inequality of income and services. The communique refers to a period of "critical transition" in which China must "solve outstanding conflicts and problems on the road ahead". Official figures show that in 2004, 3.6 million people protested in 74,000 "mass incidents", a 20 per cent increase on 2003, in defiance of an 18-month crackdown involving more detentions, curbs on petitions and tighter controls on the internet and other communications. A brutal beating of civil rights activist Lu Banglie, reported in The Age, was a reminder of how the regime regards challenges to its authority. Economic growth alone will not settle discontent, which has simmered since the 1989 Tiananmen Square massacre crushed a flowering democracy movement, or right the wrongs of repression. World leaders need to convince their Chinese counterparts by quiet diplomacy, if need be that sustained stability and prosperity for China and the world depend on political reform.

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