GLOBAL PARTNERS MBA
Trying To Catch The Deluge in a Paper Cup
By: Marijana Guduric, Alexandra Koller and Ijeoma Ohiaeri
We went to China and saw firsthand the economic growth and the rapid development that the International Monetary Fund refers to with their recent forecast of China becoming the world’s largest economy in the next 5 years. As we leave our excursion to China in the past, we are tasked with considering its future. Will China be able to sustain its growth and become the superpower it has been touted to be or will it stumble and falter? We believe that China has the potential to be the next world leader. However, that potential is also laden with pitfalls that could change the country’s upward trajectory. The main pitfalls seem to be: political structure, economy, education, aging population and the environment.
Political structure 
One thing that always strikes us when we think of China is that the economy is changing and the society is changing, but the politics are not. It still remains a one -party government and the Communist leaders still believe that they have a right to rule alone. The fact is that China is in a different situation now than in most of the other transitional periods in history, but the question remains whether or not the current system can continue forever? With economic growth the middle class rises, new generations become more international, less dogmatic, more flexible and it seems that political reform is inevitable. On the other hand the disenfranchisement surfacing in rural China is becoming widespread and too dangerous to ignore or simply suppress. Uneven economic development is a serious problem in China.
With fifty-six different ethnic minority groups that are officially recognized and some four hundred that are not, it is becoming increasingly harder, for the government to unify such a culturally diverse nation. More and more, tensions like the current tensions in the Tibetan monastery of Kirti in the Sichuan province are becoming harder to curtail. The government has a huge task of maintaining harmony despite the glaring ethnic differences.
There are so many contradictions in Chinese society. The Communist party wants to create a modern society, but doesn’t want to allow for the creation of social organizations to build a modern nation. It controls the access to sensitive information on the internet, but needs technology to become modern. It sees knowledge as dangerous but needs to promote knowledge in order to be competitive. The school system teaches technical skills rather than promoting creativity and innovation. China cannot become a great power if does not allow its people to think. Independent thinking would lead to questions about China’s political system, and questions like that cannot be tolerated by the Communist party, which has 78 million members in China alone. Only 20% of its members are women, 77% are over 35 years old and 31% have a college degree. Joining the party brings significant privileges, which explains why membership continues to rise. Members get access to better information, their children get better schooling, and many jobs are only open to members. Most significantly in China, where personal relationships are often more important than ability, members get to network with decision-makers influencing their careers, lives or businesses.
The first rule of life in China “Don’t get involved” might still live for years, but the fact is that this rule will not be able to bring China to number one modern society as well as number one economy. The steady growth of its military remains a worry in the region and globally. It is crucial to understand and be aware of possibility of political instability in the future and effect that it would have on global economy.
Economy and education
The government’s number one goal is maintaining harmony, 
if for nothing else but self-preservation. But how does a historically closed off country open up its culture and economy to the growth opportunities of the west without inciting chaos between the haves and the have-nots? Can China allow the openness required to exact change, which will provide a window for their people to see what is possible and convince them to wait? Is it even ethical to ask a society to wait their turn while opportunity abounds? From our point of view they have waited long enough but we sympathize with the Chinese government’s efforts not to let their country descend into chaos.
China has been opening itself slowly overtime since the late 1970’s but due to the digital age, information is instantaneous and so too may be their citizens’ desire for more. More education, more opportunities and more choices, the speed at which they may demand these changes are the challenge. If China is a sports car with a manual engine then they are currently in 4th gear about to shift into 5th, but if they don’t ease up on the clutch slowly enough they are in danger of stalling.
China’s challenges are similar to most countries, having to maintain economic growth and provide opportunities for their citizens to improve their standard of living. The main differences lie in two things, the sheer volume of people, which exacerbate the problem, and a government that is designed for an old economy. They have long had a Command economy that they have been shifting into a Market economy over the past few years. However, they are missing a few key elements; talent and mindset. Not to mention having to overcome the manufacturing legacy. 
A major characteristic of a successful market economy is people who can create and do. The education system in China, while rigorous, has traditionally minimized the need for free thought. If this new economy is to shift from being the manufacturers of the world to bringing their own genius to the table, it will require innovation, and innovation requires the ability to think “outside the box.” The Chinese will need embrace this cultural change if they want to achieve success.
On the other hand, the “knock-off” industry is alive and well in China. We were able to observe, and admittedly, enjoy it at the Silk Market in Beijing. However, to create something original it needs to be protected and this industry that employs sales people, tailors, seamstresses, and a whole host of labor that is skilled in replication would have to be retrained to make the transition to new careers. This is no small feat; there are over 1,700 retail vendors, 3,000 sales people who service approximately 20,000 visitors a day. These are just ballpark figures but consider this; it is just one market in one city. Do the math and it becomes easy to understand how many people it supports. There is another piece to this; increasing skill sets and education will force the cost of labor to go up. With that, they will lose the manufacturing business to countries with cheaper labor cost. The key is to have it transition slowly so the bottom doesn’t fall out.
Aging population
Over the past two decades, China’s population has been aging rapidly. More than 30% of the population is expected to be age 60 or older in 2050. As a result 
of China’s “one-child” policy and low mortality rate, the proportion of elderly citizens will continue to grow quickly, increasing the stress on a health care system that is not in a good shape as we heard in one of our visit and represents a big potential for foreign investors.
Environment
China’s economic strategy has typically been a resource-intensive one. This has had detrimental effects on the environment. If nothing is done, China will definitely not be able to maintain and sustain its growth. With a lot of manufacturing industries and a heavy reliance on coal as an energy source, China is the world’s largest greenhouse gas emitter. China also releases a lot of sulfur oxides and nitrous oxides into the atmosphere, which leads to severe acid rain. The acid rain is not only affecting the productivity of the land, but it is speedily deteriorating some outdoor cultural relics (ie. the Leshan Buddha, a UNESCO World Heritage site in China). With all of this, plus the high amounts of particulate matter in the air, the air quality in China is poor.
In Beijing, the air quality was noticeably bad. It was interesting to notice on our bus rides, how everybody was coughing and sniffling. Apparently, only 1% of China breathes air that meets EU standards! Along with that, the pollution has made cancer the leading cause of deaths in certain cities and counties.
That was just a quick look at the air quality and pollution. There’s no time to delve into China’s other environmental problems, the land degradation, the water scarcity, and the deforestation, among other things.
Plainly put, the environment cannot support such large-scale resource-intensive approaches to growth into perpetuity; significant changes need to be made. To China’s credit, they have noticed that this is an area that they need to pay attention to and are taking steps to focus more on alternative energy and on reducing the burden on the environment. It is not well known, but China is now the number 1 investor in alternative/”green” technologies. They are also rolling out a pilot cap-and-trade emissions system in certain provinces. If the pilot program is successful and the program is rolled out in the entire country, it will be instrumental in helping China reach its Copenhagen commitment for carbon emissions reduction by 2020. There are other programs like this that show that China is concentrating on this problem.
Bold and ambitious steps need to be taken to counter the many environmental problems, and China’s one-party governance could lend itself well to making those steps. The agility of such governance is necessary to make the quick, hard, and decisive decisions that need to be made. Also, being very capital-heavy allows China to make large investments in sustainable practices and alternative energy technology. China is more than capable of turning the environmental degradation tide, the question is “will they?” Looking at the ability of the government and the steps that they are taking so far, there’s a large possibility that they will.
Without a controlled but expedient process to satiate the citizens of China, the government will be left with trying “to catch the deluge in a paper cup.” Newly instilled desires for a higher standard of living will quickly outpace the opportunities available to provide it. More affluent consumers will place more demand on their natural resources and the environment. Being a citizen of the world stage will require a number of risky undertakings for their government to mitigate the negative side effects of lifting their people to higher ground. However, what may lend some optimism as to their potential for success is that the government
officials themselves seem to understand the problems at hand. Prime Minister Wen Jiabao cited some of the problems that we mentioned in a speech on March 4th. The full source can be found at: www.alsosprachanalyst.com. Here is a relevant snippet from the speech:
“We are keenly aware that we still have a serious problem in that our development is not yet well balanced, coordinated or sustainable. This manifests itself mainly in the following: growing resource and environmental constraints hindering economic growth, imbalance between investment and consumption, large income gap, insufficient scientific and technological innovation capabilities, an irrational industrial structure, continued weakness in the agricultural foundation, uneven development between urban and rural areas and between regions…We must therefore have a strong sense of responsibility toward the country and the people and work tirelessly and painstakingly to solve these problems more quickly to the satisfaction of the people.”
It is our sincere wish for China that they are able to effect the necessary changes as quickly as they are required.
