CHINA WON'T BE NO. 1

As shifts in the global economy focus attention on East Asia, one of the most widely repeated forecasts is that China's economy will overtake the United States' by 2020.

With the endorsement of the International Monetary Fund and the World Bank, this prediction meets with uncritical approval. The Clinton administration's thinking on relations with China is probably influenced by this projection. Yet the numbers provided by the Chinese authorities and used by various international organizations may be misleading. Upon closer reflection, it appears that China is unlikely to become an economic superpower, at least not soon.

International investors looking to the promise of China's markets would do well to consider several issues before betting on the promise of prosperity in the Middle Kingdom. Those hoping to tap a market of more than 1 billion consumers also might consider what must take place before China generates enough per capita income to become a major consumer economy.

In the first instance, Chinese economic data are notoriously unreliable. Honest mistakes should be factored into the mammoth task of accumulating the raw statistics needed to come up with meaningful data. This act would be daunting even for more advanced data collection systems.

However, those who provide much of China's data at the enterprise or provincial level are long accustomed to satisfying the numbers fetish of communist bureaucrats. Consequently, production figures continue to be routinely exaggerated. The leadership admits this in the increasingly frequent public admonitions that such actions are no longer desirable. Alas, old habits die hard.

In all cases, impressions can be misleading. Visitors and analysts who look to the rapid growth in China's coastal provinces tend to overlook the dramatic interregional differences in the level of development. Most of the progress from modernization of China's economy is enjoyed by the 10 percent to 20 percent who live in the maritime regions.

Inland, there is far less economic growth, as well as large pockets of poor people who were severely punished by bouts with high inflation in the early 1990s.

In order to develop a national economy, China must spend heavily on infrastructure. Building power stations, bridges, roads, railway systems and airports, as well as educational and training facilities, will require many hundreds of billions of dollars.

Unfortunately, China's underdeveloped capital markets will hinder financing of these projects. Even if there were a clear vision for these undertakings, the enormity of the capital commitments are beyond the capacity of domestic sources.

Despite a high rate of domestic saving, these internal resources are unlikely to be available for long-term investment projects. Meanwhile, without assured accountability under a rule of law and greater transparency, it is unlikely that external capital will be forthcoming.

Therefore, a choice must be made between short-run growth or more long-term investment in infrastructure. In the heady moments of China's current growth spurt, the leadership will be tempted to neglect these long-term investments. By examining the experience of most other countries in East Asia, it is likely Chinese politicians will opt for immediate gratification and put their scarce funds into promoting short-run growth.

The costs of neglecting the infrastructure investments required to sustain long-term economic growth are now evident in the ''miracle'' economies, especially Indonesia, Malaysia and Thailand. In particular, the lack of adequate funding for education has led to a serious shortage of skilled labor, pushing up costs and undermining their comparative advantage. Even if China learns from the mistakes of its neighbors in Southeast Asia, it will take decades to implement the necessary investments.

Because of these many pressures, China remains a solitary state in a condition of arrested disintegration. The political glue that keeps China intact geographically arises from a variety of conditions.

First, there is the willingness of the Chinese people to endure great hardships to preserve political order. Second, and of equal importance, the authorities in Beijing must command both fear and respect from the citizenry.

There is also a serious problem from the growing sense of resentment over corruption and nepotism among high-ranking Communist Party cadres, which has added to the weakening of the respect for power at the center. Despite offering sacrificial lambs by prosecuting offspring of officials in the upper echelons, China's corruption arises from its institutional structure, and so cannot be resolved without dramatic changes, even a revolution.

Facing so many diversions and difficulties, China is unlikely to become the next economic superpower anytime soon. Until its internal contradictions are resolved, high-level economic leadership will out of China's reach.

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