Countries like the Asian “tigers” that experienced rapid economic growth inevitably encounter slowdowns that signal a fundamental shift in their economies. At this juncture, transitioning their institutions and policies often proves to be a most daunting task. Cautionary comparisons like these set the tone for the conference titled “China’s Possible Futures” on May 12, 2017, when the China Program celebrated its 10th anniversary.

As China nears the end of four decades of reforms, “China’s Possible Futures” was a fitting theme to mark the China Program’s first decade at Stanford’s Shorenstein Asia-Pacific Research Center. The launch of the Program in 2007 began with an international conference titled “Growing Pains: Tensions and Opportunities in China’s Transformation,” which resulted in a book of the same title. This year’s 10th anniversary conference appropriately heralded both change and continuity of the themes that were explored in 2007. A decade ago, the conference showcased the tremendous reach and rise of China as an economic and international powerhouse, and in 2017, the conference expanded to highlight the critical juncture that China is again facing on its developmental path.

The full-day conference, held under Chatham House Rule, was divided into four sub-themes with speakers addressing China’s economic future; its political future; the future of its international relations and global economic engagements; and a comparative panel that examined China’s prospects from experiences drawn from Japan, South Korea and former Soviet and Eastern European countries.

Panel I: China’s Economic Future

Speakers agreed that China’s tremendous growth over the last 40 years has no easy parallels in history. Some argued, however, that the policies realized over the next few years will prove critical to China’s long-term growth. Favorable factors, such as demographic, migratory and structural changes supported by a stable international order, enabled China’s spectacular, double-digit growth over the last 40 years. When “miracle growth” countries of Northeast Asia – like Japan, Korea and Taiwan – entered their periods of moderate growth, however, painful readjustments were necessary. Restructuring was required because the very policies and institutions set up to enable rapid growth were counterproductive to creating a foundation for moderate, sustained growth. Speakers variously emphasized China’s need to invest in human capital and undertake financial reforms, urban-rural reforms and state-owned sector reforms.

In addition, several speakers noted that China is facing mounting demographic challenges as its population ages and as its elderly population lives longer. According to one speaker, people who are aged 60 and over in China will equal the population of people aged 0 to 14 within the next couple years; and by year 2045, the population of people who are 65 and older in China will be as large as the entire population of the United States today. This situation implicates rising costs in healthcare and calls for major institutional reforms in China’s health sector.

One speaker spoke of the rapid rise in China’s returns to education, i.e., the rise in income for each additional year of education, over the past four decades, which now looks more closely aligned with that of the international average of approximately 10 percent. Another speaker asked whether China was now pursuing a different developmental model with increasing focus on inland industrial development and explored what this might mean for social inclusion and labor conditions of workers.

Panel II: China’s Political Future

One speaker argued that Chinese President Xi Jinping’s reform agenda does not mark a break with the past, as many have argued, but rather continuity with his predecessors’ policies. Other speakers discussed the scope and scale of Xi’s corruption crackdown; fiscal imbalances in central-local state relations that underpin China’s corruption problems; and the implications of social media on Chinese governance. All speakers spoke about mounting difficulties in the political sphere, including powerful interest groups; local paralysis arising from corruption crackdowns; mounting local government debt and misalignment of central-local interests; and governance challenges stemming from the social media revolution. Overall, speakers seemed to suggest mounting difficulties for Xi’s reform agenda, which the Chinese government must push through to avoid a sharper downturn and slower growth prospects for China’s future.

Panel III: China’s International Relations and Global Economic Engagements

Speakers spoke at length regarding the history of U.S.-China relations since Deng Xiaoping’s “reform and opening”; territorial disputes in the South and East China Seas; China’s “Belt and Road” policy; and China’s outbound capital flows into various regions of the world. The speakers held varying views regarding Beijing’s motivations and intentions in the world, both militarily and economically. Speakers held different opinions about whether Beijing has a well-defined vision for its global role. One speaker questioned whether China’s maritime assertiveness in the South and East China Seas characterizes the expansionary policies of a rising power; or whether it represents something more singular as China protects what it considers its “core interests” in the region. One speaker expressed the view that the United States and the U.S.-led international order is still too important for China’s development for it to threaten its functioning in any meaningful way. Another speaker discerned a “broad brush strokes” of a developmental concept in China’s “One Belt, One Road” policy that the United States might do well to heed as it considers whether to join any parts thereof.

Panel IV: China’s Future: A Comparative Perspective

The conference also included speakers who provided comparative examples from Japan, South Korea, the former Soviet Union and Eastern Europe to inform their views on China’s “possible futures.” One speaker warned against directly applying Japan’s development model to China, warning that Japan experienced a massive credit boom and debt accumulation in the 1980s like China is experiencing today. Zombie firms were a key factor in Japan’s economic stagnation. As the speaker warned, zombie firms also proliferate in China’s economy. Another panel member highlighted Korea’s struggles to attract and retain global talent and drew lessons for China as it strives to escape the middle-income trap and build an innovation-driven economy.

Another panel member spoke of the key difference between China’s political environment in 1978 when Deng Xiaoping announced his “reform and opening” policy and today when Xi is implementing his Third Plenum decision of 2012. Vested interest groups are stymieing the implementation of urgently-needed reforms, especially in the state-owned sector and in China’s financial sector. In 1978, by contrast, the catastrophic results of the Cultural Revolution ironically enabled Deng to successfully champion and implement his agenda because bureaucratic interests had been gutted by Mao. The speaker spoke of the urgent need for Xi to change course in the next 3-4 years and use his personal power to push through tough, market-oriented reforms. Beijing’s leaders must not only craft correct policies and identify the most effective structural correctives, they must also break through the political logjam of entrenched interests that have benefited from the current system.

Panelists pointed to the increasingly difficult challenges that the government faces as China tries to avoid the middle-income trap after four decades of impressive gains and usher in sustained economic growth driven by innovation and domestic consumption. Speakers also agreed that the leadership is encountering a more complex and diverse society, a fractured elite, and the Gordian knot of economic and demographic predicaments, which require not only painful structural adjustments but also tremendous political will to realize policies that will ensure an optimal future for China.

Related links:

Brochure: Celebrating the First 10 Years of the China Program

Former ambassador reflects on US-China relations, Thucydides Trap

Colonel Patrick Winstead, the 2016-17 FSI senior military fellow at Shorenstein APARC, writes about the second annual orientation at U.S. Pacific Command headquarters

The mission of the Department of Defense (DoD) in the Indo-Asia-Pacific region recently became a bit clearer for 22 faculty and military fellows from Stanford, the Massachusetts Institute of Technology, the Naval Postgraduate School and the Daniel K. Inouye Asia-Pacific Center for Security Studies (APCSS). The U.S.-Asia Security Initiative at the Shorenstein Asia-Pacific Research Center (APARC) in the Freeman Spogli Institute (FSI) organized a group of faculty and fellows for a two-day orientation of United States Pacific Command (USPACOM) and its component military organizations in and around Honolulu, Hawaii, April 13-14, 2017. The purpose of the orientation was to provide researchers with a comprehensive understanding of how America’s armed forces both develop and implement U.S. national security strategy, doctrine and policy throughout Asia.

The trip began with a visit to the headquarters of USPACOM at Camp H.M. Smith. After receiving briefings about USPACOM's mission and operations, the group engaged in roundtable discussions with General Terrence O’Shaughnessy (Commander, U.S. Pacific Air Forces); Major General Kevin B. Schneider (Chief of Staff, USPACOM); Rear Admiral Mark Montgomery (Director for Operations, USPACOM); Major General Steven Rudd (Director for Strategic Planning and Policy, USPACOM); as well as other key joint directors and members of the command staff. The faculty and fellows provided short presentations on the situation in the South China Sea, U.S.-Philippine relations and cyber warfare to an audience of mid-grade military officers and civilian personnel assigned to USPACOM.

In addition to meeting with the leadership of USPACOM, the group was also afforded the opportunity to interact with personnel from the four separate component commands. Deputy Commanding General of U.S. Army Pacific, Major General Charlie Flynn, provided a command briefing at the U.S. Army Pacific headquarters at Fort Shafter. The briefing stimulated a wide-ranging discussion about Army initiatives and activities in support of USPACOM’s mission in the Indo-Asia-Pacific region. At Marine Corps Base Hawaii at Kaneohe Bay, under the guidance of trainers, the visitors took part in a hands-on experience operating Humvee simulators in a virtual-reality convoy setting and firing simulated weapons that Marines typically employ in combat operations. The first day of the trip ended with a working dinner at the historic Nimitz House with the Commander of the U.S. Pacific Fleet, Admiral Scott Swift, where the conversation ranged from Chinese military modernization to evolving U.S. naval doctrine.

Those themes carried into the second day, when the group met for several hours with faculty at APCSS for plenary presentations and multiple breakout sessions to facilitate in-depth dialogue on select topics including the threats posed by nuclear weapons on the Korean Peninsula and in South Asia. The day continued with a tour of the U.S.S Hopper, an Arleigh-Burke class guided missile destroyer, based at Pearl Harbor, Hawaii. Once onboard, the ship’s captain, Lieutenant Commander J.D. Gainey, provided briefings on Hopper’s mission and operational capabilities. In addition, the group spoke with members of the ship’s crew. The experience allowed the faculty and fellows to interact informally with sailors who serve in the Asia-Pacific theatre and to candidly discuss issues of concern. The second day of the orientation ended with a visit to the headquarters of U.S. Pacific Air Forces and a dialogue with O’Shaughnessy and his staff about the unique security challenges of the Indo-Asia-Pacific region, such as tyranny of distance, limited support bases and multiple emerging threats, and how those challenges impact the Air Force and the entire U.S. military’s preparations for contingencies in the region.

Overall, the orientation provided a unique opportunity to engage directly with high-level leaders of USPACOM and to learn first-hand about the challenges faced by those who serve in the armed forces. The orientation also provided a forum to discuss the United States’ national security interests in the region and its efforts to maintain peace and stability in the Indo-Asia-Pacific and to help maintain a rules-based, liberal democratic order.

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The Center on Democracy, Development, and the Rule of Law (CDDRL) at Stanford University announced today that it has launched the Global Digital Policy Incubator (GDPi). GDPi’s mission is to help develop governance norms for the global digital ecosystem that reinforce democratic values, universal human rights and the rule of law. It will serve as a multi-stakeholder collaboration hub at Stanford for technologists, governments, civil society and the private sector actors. GDPi will identify and incubate global policy and governance innovations that enhance freedom, security and trust in the digital realm. 

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As expected, Moon Jae-in has been elected as South Korea’s 19th president. In a five-way contest, Moon garnered 41.1 percent of the vote, with strong support from those in their 20s to 50s, winning most of the regions in the country. 

South Koreans’ longing for change had been expressed through the now-famous candlelight demonstrations that lasted for almost twenty consecutive weekends culminating in the impeachment of now former president Park Geun-hye. It was also reflected in the highest voter turnout in two decades, at 77.2 percent.

Just hours after his decisive victory, Moon began his five-year term without the usual practice of a transition team. Moreover, he took office during turbulent times — domestically and internationally — perhaps even more so than when former president Kim Dae-jung took office in 1998 when the nation was struggling with the Asian financial crisis.

First and foremost, Moon must deal with the mounting social and economic challenges that the country is facing. Having entered a period of low-growth coupled with an aging population, the economy confronts a host of difficult issues, including high levels of youth unemployment, income inequality, household debt, elderly poverty and rising social welfare expenditures.

The Moon administration immediately established a ‘job creation committee’ and pledged to create 810,000 jobs in the public sector. But it will not be easy to amass the financial resources needed by a government already struggling with serious budget deficits. Most agree that ‘economic democratisation’ is needed, but the details of how to achieve that — including reforming the chaebol — remain unclear.

Economic uncertainties have been a key factor contributing to social unrest. Words in vogue among South Koreans in their 20s and 30s reflect the social discontent with youth unemployment and inequality that ultimately erupted in the demonstrations.

‘Hell Joseon’ captures a sentiment of what it means to live in South Korea’s hellish reality. ‘Golden Spoons Dirt Spoons’ levels the charge that one’s life course is decided for good by one’s family background. ‘Gapjil’ refers to acts of impunity by the powerful against the weak, while the ‘Sampo generation’ is a generation forced to give up three things: courtship, marriage and children. If Moon fails to live up to the expectations of the country’s youth, a bloc that widely supported him, social discontent and symptoms of unrest will likely return.

Moon also faces daunting tasks in national security matters. North Korea has continued to develop weapons of mass destruction and relations have been all but completely severed. As controversy over the deployment of THAAD (Terminal High Altitude Area Defense) has shown, South Korea remains caught in the middle of a hegemonic struggle between the United States and China.

If that wasn’t enough, South Korea made a deal with Japan on the comfort women issue in late 2015 but the public now demands its renegotiation. South Korean–Russian relations are also at their grimmest. To top it all off, Moon must deal with a formidable set of nationalist and populist leaders — Donald Trump, Xi Jinping, Shinzo Abe, Kim Jong-un and Vladimir Putin — all known for their very strong characters, in stark contrast to Moon’s nice-guy, everyman personality.

The most urgent but also most challenging task is managing inter-Korean relations. As Pyongyang steps up its nuclear and missile programs, Seoul must reaffirm to the international community that it will continue its efforts to denuclearise the North. At the same time, relations between the two Koreas must be improved to strengthen South Korea’s strategic position in the region as well as reduce tensions on the peninsula.

Trump has been sending out confusing messages probably because he has no suitable plan to deal with Pyongyang. As such, if Seoul were to bring to the table a persuasive policy of engagement, Washington would be receptive unless it weakens US efforts towards denuclearisation. Both Beijing (pressured by Washington to solve the North Korean nuclear issue) and Pyongyang (concerned about becoming overly dependent on China) would welcome Seoul taking the initiative to improve inter-Korean relations.

Some pundits at home and abroad worry that the Moon administration might follow in the footsteps of the Roh administration (2003–2008), whose outcomes lagged too far behind its good will to bring about reform. Moon served as Roh’s chief of staff and the two administrations overlap in manpower. But Moon and his team have also learned many lessons from the trial and error of the Roh administration, preparing themselves over the past ten years of conservative rule.

With the new administration in place, political turmoil over the last six months has finally ended. Moon’s first moves as president, including key appointments in the Blue House and opening up communication channels with the public, have been well received. A public poll conducted by Gallup Korea one week after the inauguration showed that 87 percent of the respondents expected him to do well. Despite mounting challenges, South Koreans remain hopeful that their new leader can take the nation to the next level.

This piece was originally carried by East Asia Forum on May 23, 2017, and reposted with permission.