The Challenges of Governance Structure, Trade Disputes and Natural Environment to China's Growth

Abstract:     
Viewing the Chinese economy as a speeding car, there are three types of development that could crash the car: (1) a hardware failure, which is the breakdown of an economic mechanism (analogous to the collapse of the chassis of the car), e.g. a banking crisis; (2) a software failure, which is a flaw in governance that creates social disorders (analogous to a fight among the people inside the car), e.g. the state not being able to meet the rising social expectations about its performance because many of the key regulatory institutions are absent or ineffective; and (3) a power supply failure, which is the loss of economic viability (analogous to the car running out of gas or having its ignition key pulled out) e.g. an environmental collapse or an export collapse. The fact that China has recently declared that its most important task is to build a Harmonious Society (described as a democratic society under the rule of law and living in harmony with nature) suggests that improvements in governance and protection of the environment are among the most serious challenges to achieving sustainable development. The greatest inadequacy of the Harmonious Society vision is the absence of an objective to build a harmonious world because a harmonious society cannot endure in China unless there is also a harmonious world, and vice-versa. The large amount of structural adjustments in the developed countries generated by rapid globalization and technological innovations has made the international atmosphere ripe for trade protectionism; and environmental degradation has made conflict over the global environmental commons more likely. China's quest for a harmonious society requires it to help provide global public goods, particularly the strengthening of the multilateral free trade system, and the protection of the global environmental commons. Specifically, China should work actively for the success of the Doha Round and for an international research consortium to develop clean coal technology.

Number of Pages in PDF File: 39

Keywords: harmonious society, governance issues, mass incidents, environmental, protection, water crisis, trade imbalances, protectionism

JEL Classification: H2, K4, O53, P36, Q5

working papers series