China Tells

China’s addiction to GDP growth can be traced back to 1992, more than a decade after the first stirrings of a market economy were launched with the establishment of the special economic zones. The student protests and subsequent clampdown in Tiananmen Square in Beijing in 1989 led many in China’s leadership to question the idea of opening up to the outside world. They worried that the introduction of capitalist-style reforms would inevitably weaken the political structure and so the atmosphere was tight and cautious as China entered the 1990s.

Now technically retired from his role in the leadership, Deng took it upon himself to revitalize the reforms he had first put in motion. On a tour of Shanghai, Shenzhen and other cities that had already seen some of the benefits he foresaw for the country from the reform program, Deng told audiences that for China, “growth is the first principle.” He reassured Communist Party members that the leadership would support local efforts to open up the economy and encouraged everyone to continue with the reforms he had started. The official media gave blanket coverage to the tour and speeches, ensuring that Deng’s words would be taken as party doctrine.

The former leader’s efforts worked and the animal spirits were unleashed. Between 1992 and 2009, China’s GDP grew more than ten times, an annual compound rate of 15.6% a year. Those 17 years can be compared with the 40 years (1870 – 1910) that it took the United States to increase its GDP five times, or the 70 years (1830 – 1900) that it took the industrializing United Kingdom to increase its GDP five times. In 2010 China passed Japan to be the second biggest national economy in the world after the U.S., as measured by the purchasing power of its citizens.

Growth in China has not been problem free. In order for the country to prosper, Deng realized China’s millions could not gain equally. As he put it, for the country to become rich, it would need to “let some people get rich first.” Deng justified the possible unequal growth by saying: “Poverty is not socialism. To be rich is glorious.” The father of China’s economic rebirth died in 1997, so no one knows how he would have reacted to the inequality in China today. According to the United Nations, the Gini coefficient for China, a commonly used indicator of the income gap within a country, has increased from 0.35 in 1990 to 0.45 by 2008, which is among the highest in the world. Poverty researchers recognize that a Gini coefficient above 0.4 could be potentially destabilizing to a society.

The second major problem concerns the incentive structure that developed to ensure that GDP growth remains the top priority of government policy. “GDPism” is the term that has come to represent the placing of growth as a value above all others. To many critics, GDPism has led to the erosion of traditional social and ethical values, environmental destruction on a massive scale and the loss of basic rights for many workers. Government officials, most of which are still judged on the growth of their local economies, have been accused of sacrificing the environment and the basic human rights of their citizens in the pursuit of ever-greater GDP expansion. So eager are they to report ever-higher growth figures that the country’s central statistics bureau no longer relies on local growth measurements in calculating the country’s overall GDP.

China’s leaders can’t help but recognize the negative effects of GDPism. Indeed, their comments and speeches often refer to the downside of such a blind pursuit of growth by local officials. On the 30th anniversary of Shenzhen’s designation as a special economic zone, leaders proclaimed that they would now put aside the idea of measuring growth by quantity and instead would turn toward projects that emphasized the quality of growth. But the momentum of the pro-growth policies is hard to shift and escaping the negative side effects of 30 years of growth at any cost will remain a goal for years to come.