While the deregulated Western economies have had a fairly torrid time over the last half decade, the heavily regulated Chinese economy has recorded extraordinary growth. The West has responded to this movement by implying, time and time again, that it marks the advent of global Han domination over the coming decades. Perhaps as a kind of self-flagellation over the recent failures of Western economies, Western media coverage of China has obsessively focused on, and praised, China's economic success.

Some phrases and idioms appear in many different languages: one of these is the English expression, 'there is no such thing as a free lunch', which replicates itself almost word for word in Chinese (天下，没有免费的午餐). It can sometimes seem that the astonishing success of the Chinese economy is a free lunch of sorts – a series of progressions and benefits that come without cost. Yet the proverbial warning echoes loudly whenever such conclusions are drawn. There is no free lunch, and prices will have to be paid for growth. These prices are numerous, and do not merely relate to economic woes. Social, educational and cultural problems are tied into a complex web of potential disaster. Perhaps even more relevant here is the vaguely more ominous Russian version of the proverb: 'the cheese is always free in the trap'. There are too many traps to mention. Here are just a few difficulties China is faced with and their economic consequences.

1) Rising labour costs

China has built itself into the global centre of manufacturing. This has been made possible through strong investment in labour-infrastructure and, more importantly, hideously low labour costs. This is beginning to change. Rising labour costs will pose an enormous threat to the Chinese economy over the next few years. A surge in strikes and protests has already forced authorities to raise minimum wages, and wages in general. Living conditions and working hours are also now more closely doctored, due to a new wave of labour rights laws introduced in 2008, although some suggest such laws are not stringently applied. A recent BBC documentary detailed the plight of a British manufacturer who was unable to deal with rising labour costs in his Zhejiang factory. A Chinese government report estimates that minimum wages will rise 13% a year on average over the next five years. This year, they rose by 22% on average.

The Chinese government faces a genuine dilemma here. This is no simple question of a moral impulse to raise living conditions and wages. If wages are raised too quickly, foreign capital will go elsewhere – to other, cheaper Asian countries like Vietnam and Cambodia. A strong manufacturing infrastructure in China may provide some insurance against this, but will ultimately not protect China against a flight of foreign investment. If this were to occur, problems for Chinese labourers would be much greater than their current issues. The government needs to pacify a disgruntled labour population who are increasingly aware of the possibility of greater living standards, yet at the same time they must avoid raising labour costs to the point that investment fades away, unemployment rises and the economy slows down. Criticism of the Chinese government on the basis of its attitude to labour rights is, for this reason, often short-sighted. Depriving labourers of higher wages may ironically be saving their jobs.

2) Education

Education is another double-edged sword. It is in Chinese interests to raise the education levels of their citizens, but in relation to labour, a highly educated workforce is more self-aware and powerful, and, in short, costs more, both politically and financially. Consider the increasing political domination of British trade unions in the 1970s after great surges in education in the preceding two decades. The western world in the latter half of the 20th century educated its entire population and, non-coincidentally, displaced its manufacturing to developing countries. If China achieves similar levels of decent education, they will have fewer and fewer candidates for manufacturing labour. Further, unlike the US or Europe, it is less obvious where precisely they can displace their labour to, both in terms of relocating that labour to other developing countries, and in offering alternative employment to educated Chinese. In this sense, and while we should always laud educational advances, it would be foolish to ignore the problems education poses to an export-oriented economy.

This is an educational problem that will unravel over many decades. In the more immediate future, concerns are continually raised by almost everyone in China over the education system, which evidently neglects creative and critical thought in favour of mass-memorization. This is an endemic problem which stems in part from suspicion of academics and intellectuals during the Cultural Revolution, and the need to instigate official lines on complex historical questions.

The absence of traditional characters in schools has resulted in limited discussion of one of the world's richest literary traditions, which is entirely in traditional characters. While many of these texts have been translated into simplified characters, these translations are often modified to reflect certain political ideologies, and teaching methods similarly curtail interpretative skills in favour of pressing an official line. A culture that focuses entirely on exams is unlikely to breed the number of creative thinkers required to take Chinese technology to the next level (despite this being the avowed ambition of the newest five-year plan).

University education is a similar minefield; the adage that it is hard to get into Chinese university, but almost impossible to fail once there, leads to widespread problems in actually identifying ability among graduates and distributing jobs and responsibility accordingly. The structure of Chinese education through all age-groups is likely to weaken the country as it finds itself less and less export-driven, and more and more reliant on high-expertise jobs. Add to this the venerated status of Western universities in China. In 2010, more than 284,000 Chinese students studied abroad. That the most talented (and, in some cases, over-privileged) of Chinese youth often aspire to move to foreign shores does not bode well for China, especially when their talent is so often snapped up by foreign business.

3) Global image

Image issues faced by China threaten a flight of both capital and talent from the country. Students studying abroad in increasing numbers, in response to the dire image of Chinese education, are just one facet of this problem. Many wealthy Chinese aspire to live and invest abroad; in Shanghai, entire companies are now devoted to finding the most effective real estate and business investments for wealthy Chinese in Europe and America. Such companies succeed precisely because wealthy Chinese often do not trust the reliability of domestic investment. Again, this is a question of image. Wealth is always dissuaded by regulation and China is, after all, still incredibly tightly regulated in all economic sectors.

 

Long lists can be made of ethical and moral questions surrounding China's foreign image. A series of what could be termed PR disasters over recent decades certainly relate to Chinese leaving their own country. Yet simple economic motivations probably play a much larger role. Students are economically motivated to study abroad given the advantage this would give them on returning, or through higher wages working abroad. Wealthy investors since time immemorial have favoured environments in which the government has little or no hand in the flow of assets and funds. In both cases, economic advantages often translate into changed ideals and attitudes towards the political structure in China. China, again, is caught between a rock and a hard place in terms of investment, because a decrease in government regulation could spell disaster (look what happened in the build-up to 2008's credit crunch). In a global economy dominated by offshore financial secrecy, drain of wealth is a genuine threat, and could detract from much-needed domestic investment in the face of reduced foreign investment (see labour costs).

What else?

These represent a fraction of the overall economic problems China faces. Although it is always relevant, some things extend beyond the nuts and bolts of economic policy. An aging population; a disastrous gender imbalance; the emotional baggage of the one-child policy; health issues surrounding pollution; lack of basic social security and healthcare in many parts of China; increasing middle-class frustration with limited political representation; increasing internet access as a venue for potential dissent; each of these problems represents a human issue tied up with deep social and cultural issues. Each of these things, too, is intimately connected to China's meteoric rise. Lunches are not free. By means of conclusion, it's worth mentioning another proverb that hits home. 七上八下. When seven go up, eight fall down. Only time will tell if disaster is to exceed success in China, but given the scope of the success, we should hope not.
 

Related links
5 (Harsh) Things China Can't Live Without
Where Did China's "Harmonious Society" Go?
Scapegoat Politics: China's Problem with Universal Values

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Keywords: problems in China Chinese economy education in China challenges facing China Chinese labour costs