Dec. 26, 2005 - Jan 2, 2006 issue - By the time you read this column, China's economy will have jumped by 20 percent, or $300 billion. Based on a new nationwide economic census, the National Bureau of Statistics is making an upward revision of gross domestic product, which means that China is now the world's fourth largest economy, bigger than Italy, France and Britain. If you want a glimpse into the not-so-distant future, note that China is growing more than four times as fast as the next two countries on the list (Germany and Japan) and more than twice as fast as No. 1, the United States.

Story continues below ↓

This upward revision is not fuzzy math. Most economists believe that the new numbers provide a more accurate picture of China's economy, taking into account the service sector and small businesses, both of which have been hard to measure in the past. When it joined the World Trade Organization, China agreed to this new and more accurate measure of its GDP. Of course, had it counted this way before joining the WTO, it would not have been able to join as a poor country but as a middle-income one, which would have meant stiffer terms and fewer concessions. This distinction was surely not lost on Beijing's mandarins.

Most people don't really understand China's economic story. It looks like an oxymoron: central planning that works. As a result, many assume that, like Japan in the 1980s, China will stumble and collapse. But this misreads the two situations. Japan was a relatively small country that had become a huge economy by turning very modern. In that era its per capita GDP was almost the same as America's, about $30,000. But growing a supersophisticated economy required that every aspect of Japan's society be modern. As it turned out, there was much in Japan, from its banking system to its politics, that was not.

China is a different story. Its per capita GDP, even after this revision, is just $1,700. At some point, it will face all the kinds of problems Japan did. But well before that, it will surely be able to double its GDP to $3,400 per capita, which would bring it up to Brazil's level. When that happens, China, because it has 1.3 billion people, will be the second largest economy in the world. Size matters.

Of course, China cannot continue to move as fast as it has. Growth is already slowing—though it is worth marveling at an economy that is having a soft landing at 8.5 percent! But even if it grows at an easier clip, say 7 percent, most of the projections about China's future place in the world economy still hold true.

My guess is that China's problems will stem not from failure but success. China has grown for three decades at a pace no other country has ever sustained. Much of this has been possible because its government has been relentlessly focused on economic growth, doing anything necessary to achieve that end. But this strategy does have some downsides: 2006 might be the year that we begin to witness China's problems, admittedly ones any developing country would kill for.

Every time you see a gleaming new highway in China, remember that there were homes, shops and farms where it now runs. The government moved those people, gave them something equivalent (often an hour away) and kept building. Every time you see a new factory, remember that the community around it might have protested, but that rarely stopped construction. Every time you see a dam, remember that it displaced whole villages and towns. It is the very fact that local or political forces cannot stop development that explains China's supercharged growth.

For one thing, the result has been, inevitably, lopsided. A new United Nations Human Development Report on China highlights the huge gap between the country's cities and its outlying areas and concludes that "its urban-rural income inequality gap is perhaps the highest in the world." Polling in China suggests that people there are not tolerant of large income inequalities. People are beginning to speak up. Ten years ago, Chinese government figures showed about 10,000 local protests a year. Now they show 74,000—about 200 a day. These are localized protests about specifics, not general attacks against the Communist Party. And, believe it or not, these are still small numbers in the context of China. An estimated 3 million people are involved in these protests—out of 1.3 billion Chinese. But new forces are being unleashed in the country.

Chinese officials are well aware of this shift. That is why they are focused on "balanced growth," moving economic activity inland and spending large sums of money in rural areas. They are also listening to local communities more carefully. The Communist Party is trying to make its officials more attentive, responsive and media-savvy. Beijing knows that it needs to open up, not crack down.

But can a Leninist system do that? Two weeks ago, in Dongzhou, local authorities responded to protests against a new power plant by reportedly shooting 20 or more people and then tried to cover up the incident in a manner that would have made Stalin or Mao proud.

Beijing has somehow found a way to do centrally planned capitalism. But now it seems to be attempting something far more complex: centrally planned pluralism.

Write the author at comments@fareedzakaria.com.

Rate this story Low