Theresa Berlage

Challenges Facing the PRC

While China has experienced extreme financial growth, their political instability has

resulted in several economic challenges. China has gone through several economic reforms

under different leaders and continues to see change in their financial standing today. Despite

these reforms, the political struggles in China have made it a fragile superpower which has led to

various economic challenges for the PRC. However, I am confident the PRC can overcome the

challenges and salvage relations with the US, given the benefits to both countries to maintain

ties.

China is seen as a fragile superpower due to the years of political struggle that have

plagued the nation. (Shirk) This has created several political challenges for them. The primary

source of their weakness and fragility is the fear of collapse and humiliation that occurred in the

past. Shirk says leaders would even, “use force to avoid domestic humiliation if they believed

their political survival depended on it.” (Shirk, p 112) This fear led to a focus on domestic issues.

There was extensive domestic unrest for many years so the leaders tried to prevent collapse as a

result of this unrest. Another source of weakness Shirk describes is the two faces China wears.

(Shirk, p 273) They act cautiously and responsibly to prevent domestic unrest but then in the

foreign scope they acted aggressively and instill fear in potential opposition. Acting in both ways

make the country appear unstable and indecisive. Another weakening factor were the

demographic issues of aging populations and an urban and rural divide. This is explained further

as an economic challenge as well. The last political challenge that weakened China as Shirk

explains was the straining of the natural environment which damaged social goods. This

ultimately made economic development seem too costly for the country. (Shirk, p 817) All of
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these political challenges weakened the nation, especially on the foreign landscape, which led to

several different economic challenges as well.

Given the political problems in China and domestic unrest, several economic challenges

face the PRC despite several attempts at reformation. The first attempt at reformation was under

Mao. This reformation aimed to follow the USSR model which included nationalizing industries,

having a centrally planned economy, and promoting heavy industries. In 1958, there was a Great

Leap Forward which abandoned this model and ended up resulting in economic disaster due to

politics. Finally, from 1966 to 1976 the Cultural Revolution took place which worked to remove

the corrupt leaders that did not want reformation. These attempts at economic reform were not

successful which led to further reform and change.

The next economic reform took place under Deng. Thus far, reform had been

unsuccessful creating a bad economic situation in China as well as extreme political strife. A few

primary focuses were a weak production strategy as well as de-emphasizing a strict adherence to

ideology. Reform focused on talented workers, consumer products, agriculture, moving towards

market prices, and entering the international economy wherever possible. This created an

increase in GDP over time as well as per capita income increases. (Lecture 10/2/19) However,

this growth came with quite a bit of challenges.

Despite the extreme financial success and growth China experienced, several economic

challenges continued to arise and burden the nation. As income per capita rose greatly, the

distribution of this income became increasingly uneven. There is extreme regional imbalance as

well as income disparity and poverty throughout China. Many officials see this as the most

serious problem facing the country. According to an ADBI Research Policy Brief written by

Toshiki Kanamori, China’s economic growth has indeed allowed millions of people to rise out of
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poverty. However, almost 200 million people remain poor. This imbalance in income

distribution not only causes problems for the economy but can undoubtedly result in domestic

political unrest which is something China wants to avoid as much as possible. One factor that has

contributed to the widening income gap is the system transformation China’s economy has seen.

Over time and under various leaders, the PRC has transformed from a centrally planned

economy to a much more market oriented economy. As mentioned above, Deng wanted to focus

more on market prices resulting in an economic shift away from the USSR model under Mao.

This system transformation includes a diminishing role of state-owned enterprises and an

emergence of private enterprises. While this has been beneficial for the efficiency of PRC

enterprises, ownership diversity as worsened the income distribution in China. This is because

private enterprises do not have the same access to financing the SOE’s do. It is because of these

major system transformations that the income inequality in China continues to worsen and

challenge the PRC. With all of these challenges in mind, I think it is extremely important to

analyze how political and economic challenges impact one another.

The challenges China faces politically and economically are important given the

interconnectedness of the two landscapes. Change and power in one area greatly affects change

in the other. For example, China has used its economic power and influence to make political

change. Their financial muscle was able to mitigate some political problems, despite the lack of

real shifts in policy. In his article entitled, “Bad Debts: Assessing China’s Financial Influence in

Great Power Politics” Daniel Drezner explains that Hilary Clinton acknowledged that

“pressuring China on human rights would take a backseat to economic issues for the foreseeable

future” (Drezner, p 42) as Secretary of State. While there was no shift in policy, China was able

to avoid political pressure due to their financial strength and economic importance to the US.
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This is because the economic opportunity in China creates the ability to control political disputes

because of the business interests of foreign countries. Shirk quotes Chinese billboards that say,

“China needs the world and the world needs China.” (Shirk, p 827) I think this statement

essentially indicates that China sees themselves as untouchable because of the power and

influence they have financially. This economic strength gives China the power to influence

politics despite their own weakness in that area.

Another clear overlap of politics and economics in the PRC is seen in the shift to the

private sector described above. While this was an economic transformation, the shift and

ownership diversification impacts the political system of a one party rule. The government

cannot maintain control over the economy through SOE ownership, otherwise they risk

corruption from the enterprises. Therefore, they will have to adjust the political and social

system. While the shift is primarily economic, the implications are greatly political thus

indicating further interconnectedness between the two. Given how greatly the economy effects

their politics and vice versa, I think the PRC can overcome the challenges facing them given

their continued efforts towards economic reform.

I am confident in the PRC’s ability to overcome their political and economic challenges

given their clear efforts to make real change, especially economically. Kanamori describes the

PRC’s current 10th five-year plan which clearly outlines what they will do to address the issues

described above. First, in response to the income inequality and poverty throughout China, the

government seeks to promote marketization and decentralization. This would create jobs for poor

people through deregulation. I think this is a crucial step in bridging the income gap as income

starts to go towards the poorer population as opposed to being consolidated to top earners.

Second, to offset the effects of a shift to private enterprises, officials have suggested a
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“harmonious society” (Kanamori, p 18). They have already shifted policy focus to this but

further social policies and government interventions in the market are required as well. Given the

shift in focus that has already occurred, I am confident the PRC will take the necessary action to

make this change sustainable.

The last reason I am confident they can overcome the challenges described is their focus

on development as described in the 10th plan. They are increasing expenditure in health care,

education, automobiles, etc. The plan highlights the extreme importance of addressing the

regional imbalances. This focus the primary problem for their economy is a large contributor to

my confidence in their ability to overcome the challenges. They also prioritized policy to

increase rural income as a first step in overcoming the income distribution problem. As an

overall economic development goal, the government stresses the need to upgrade industrial

structures to use resources more efficiently. Moving forward, I think sustainability and efficiency

are very promising factors in overcoming economic challenges. The publication of the 10th plan

is a tangible indication of intent to make changes and that is promising in my eyes. Overall, the

PRC is trying to overcome the several challenges it faces by supporting reform, implementing

open policies, and developing sustainable growth in the long term. These changes are important

given the impact they can have on foreign relations, primarily with the US.

Economic and political and changes greatly impact the PRC’s relations with the US given

the extreme interdependence between them. This has been increasingly apparent in the recent

tensions surrounding the trade war between the nations. China has very clearly tried to use its

economic power to move market and policymakers in the US for many years. This has failed due

to “the interdependent economic relationship with the United States. The threat to diversify was

not viewed as a feasible option by most analysts” (Drezner p 40). China made numerous threats
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to essentially take their business elsewhere, all of which were unfounded and baseless. As the

quote above stated, China needs the world as well. China has also tried to exploit the financial

debt the US finds itself in, for political gain. However, Drezner states that, “the power of credit

has been inflated beyond its true worth…against great powers, financial statecraft is of limited

use.” (Drezner p 43). The US is far too powerful for the China to force their hand politically

simply on the grounds of economic strength, especially given their reliance on the US. For now,

China cannot decouple from the US as they rely on OECD markets.

Therefore, the recent trade war is harmful not only to the US, but to China as well. In the

trade war, the US accused China of unfair trade and China retaliated by raising tariffs.

Ultimately, Trump has to decide whether to accept their offer made in 2017 and end the war, or

risk decoupling. Due to the dependence both countries have on one another economically, I think

it would be in both of their best interests to come to an agreement. In all of these cases and

arguments it is clear China and the US are very interdependent economically. Therefore, despite

the current trade conflict, relations between the two will inevitably continue into the foreseeable

future.

It is no secret that China has faced many political and economic challenges. The

tremendous economic growth has resulted in foreign power that makes them a beneficial ally for

the US. However, this economic growth has caused domestic political unrest that must be

addressed to prevent another collapse. China continues to use their economic power to impact

foreign policy but should focus their efforts on domestic policy to rectify internal challenges

first. If they can do that and carry out their 10th plan, I have confidence they can overcome the

challenges they face and maintain relations with the US. Doing so is greatly beneficial for both

nations and should be pursued on both sides.

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Works Cited

Daniel W. Drezner, “Bad Debts: Assessing China’s Financial Influence in Great Power Politics.”
International Security, Vol. 34, No. 2 (Fall 2009): 7-45.

Kanamori, Toshiki. Current and Future Issues for the PRC Economy . ADBI,
www.adb.org/sites/default/files/publication/157261/adbi-rpb22.pdf.

Susan L. Shirk, China, Fragile Superpower: How China’s Internal Politics Could Derail its
Peaceful Rise (New York: Oxford University Press). 0195373197