China usually gets a bad rap when it comes to the quality of its governance.  But when a country achieves annual economic growth rates of 10 per cent for over 30 years, can it really be so bad?

There are many ways of analyzing this question.  So let’s take a quick look

China does a little bit better on Transparency International’s Corruption Perceptions Index – 72nd out of the 180 countries measured.  For Transparency International, corruption is often responsible for the funnelling of scarce public resources to uneconomic high-profile projects, such as dams, power plants, pipelines and refineries, at the expense of less spectacular but fundamental infrastructure projects such as schools, hospitals and roads, or the supply of power and water to rural areas. Furthermore, it hinders the development of fair market structures and distorts competition, thereby deterring investment.  Nothing could be further from the truth when it comes to China!

China is among the worst third of the world’s countries (57th out of 177) in the “failed states index” calculated by Foreign Policy Magazine and the Fund for Peace, based on the following 12 indicators: Demographic Pressures, Refugees/IDPs, Group Grievance, Human Flight, Uneven Development, Economic Decline, Delegitimization of the State, Public Services, Human Rights, Security Apparatus, Factionalized Elites, and External Intervention

The World Bank Institute attempts to measure the quality of governance, which it defines as the traditions and institutions by which authority in a country is exercised. This includes the process by which governments are selected, monitored and replaced; the capacity of the government to effectively formulate and implement sound policies; and the respect of citizens and the state for the institutions that govern economic and social interactions among them.

According to the World Bank, China does quite poorly except for one critical indicator, namely, government effectiveness for which it scores in the top half of the world.  For indicators like political stability, regulatory quality, rule of law and control of corruption, China is in the bottom half of the world, and it is among the very worst in the world for voice and accountability.

It may be the World Economic Forum, in its "Global Competitiveness Report 2009-2010", which gets China's assessment right.  Competitiveness is defined as the set of institutions, policies and factors that determine the level of productivity of a country.  And the level of productivity in turn sets the sustainable level of prosperity that an economy can generate.  In this ranking, China comes in at 29th out of the 133 countries measured, based on 12 pillars of competitiveness, namely:  institutions; infrastructure; macroeconomic stability; health and primary education; higher education and training; good market efficiency; labour market efficiency; financial market sophistication; technological readiness; market size; business sophistication; innovation.  And in fact, China did very well for each of the three subindexes, scoring 36^th for basic requirements, 32^nd for efficiency enhancers and 29^th for innovation factors.

While Switzerland came in tops on the Global Competitiveness Index, and the US was number two, a number of other Asian countries did well – Singapore (3^rd), Japan (8^th), Hong Kong (11^th), Taiwan (12^th), Korea (19^th), and Malaysia (24^th).  Other East Asian countries did less well – Thailand (36^th), Indonesia (54^th), Vietnam (75^th), Philippines (87^th), Cambodia (110^th) and Mongolia (117^th).

China came in ahead of developed countries like Spain (33^rd), Portugal (43^rd), Italy (48^th), and Greece (71^st).  China was also top of the BRICs – India (49^th), Brazil (56^th) and Russia (63^rd).

One of Deng Xiaoping’s interpreters, Zhang Wei-Wei, in a recent New York Times article, provides some interesting insights into China’s success.  As the West is mired in financial crisis, it is important for us to be modest, and look into some of the factors why China might be doing so well.  For her, there are eight ideas behind China’s success: seeking truth from facts; primacy of people’s livelihood; the importance of holistic thinking; government as a necessary virtue; good governance matters more than democratization; performance legitimacy; selective learning and adaptation; and harmony in diversity.

She recognizes that China is still faced with serious challenges such as fighting corruption and reducing regional gaps. But China is likely to continue to evolve on the basis of these ideas, rather than by embracing Western liberal democracy, because these ideas have apparently worked and have blended reasonably well with common sense and China’s unique political culture.  She argues that “While China will continue to learn from the West for its own benefit, it may be time now for the West, to use Deng’s famous phrase, to “emancipate the mind” and learn a bit more about or even from China’s big ideas, however extraneous they may appear, for its own benefit.”

Reference:

2009 Index of Economic Freedom, “The Link Between Economic Opportunity and Prosperity”.  A Product of the Heritage Foundation and the Wall Street Journal.

http://www.heritage.org/Index/

Transparency International

www.transparency.org/

The Failed States Index 2009, Foreign Policy

www.foreignpolicy.com/failedstates

Governance Matters VIII: Aggregate and Individual Governance Indicators, 1996-2008, by Daniel Kaufmann, The Brookings Institution; Aart Kraay

World Bank - Development Research Group (DECRG); Massimo Mastruzzi

World Bank Institute.  World Bank Policy Research Working Paper No. 4978

www.worldbank.org

The Global Competitiveness Report 2009-2010.  World Economic Forum.

www.weforum.org

Eight Ideas Behind China’s Success by Zhang Wei-Wei.  The New York Times, October 1, 2009

http://www.nytimes.com/2009/10/01/opinion/01iht-edzhang.html