World Views: Summers adds wrinkle to China’s Hong Kong crisis

Hopes that Hong Kong would one day transform China in its own image now seem foolish and futile. Beijing appears intent on making the former British colony look more like the mainland – with a closed political system dominated by the Communist Party. For Chinese President Xi Jinping, however, the future may look a lot more like Hong Kong’s present than he’d like to admit.
Mainland leaders have downplayed hopes of any concessions in talks between student leaders and government officials in Hong Kong, which begun on Tuesday. Any sign of weakness, they fear, will have a spillover effect in China itself, encouraging citizens to take to the streets with their own political demands.
Yet the drama currently playing out between Hong Kong’s billionaire tycoons, its urban underclass and a government ill-equipped to maintain social harmony has to look awfully familiar to Xi. He, too, faces a situation where anger over growing inequality has little outlet except in street protests.
So far Chinese authorities have been able to defuse the tens of thousands of such demonstrations that take place every year. That task is only going to get harder, though, as technology evolves faster than the commissars can keep up. For every WhatsApp and WeChat the censors know about and can monitor, scores of new messaging programs are constantly emerging. During the term of Xi’s predecessor Hu Jintao, smartphones were in their infancy. Now they’re ubiquitous, challenging the Communist Party with every text, tweet and status update.
At the same time, China’s leaders are actively trying to make parts of their economy look more like Hong Kong’s. A free trade zone established in Shanghai is meant to compete directly with Hong Kong for financial services. This week’s party plenum in Beijing is focused on reinforcing the “rule of law,” seen as key to the city’s commercial success. And Xi’s big-bang reforms are designed to shut down China’s smokestacks and recreate Hong Kong’s prowess in services.
Xi cannot expect to make this transition without opening up China’s economy and society. How is the mainland to emulate Silicon Valley’s success if entrepreneurs such as Alibaba’s Jack Ma aren’t part of the big conversations – and controversies –
of the day? What value is research from a bank analyst who must hide suspicions about China’s data or the balance sheet of a state-connected company?
Only by becoming more like Hong Kong can the mainland thrive as information- and knowledge-based industries trump sweatshops. Only by loosening restrictions on the media can China make its political system and business sectors accountable. Only by getting out of the way can the government spur the job creation needed to narrow inequality.
The challenge will be to maintain political control during the transition. As a new paper by former U.S. Treasury Secretary Lawrence Summers and Harvard University’s Lant Pritchett shows, that may simply be impossible.
Even as China dismantles the model that produced an astonishing 36-year growth streak, Summers and Pritchett point out, the “transition itself may create an adjustment period of slow growth.” While necessary in the long run, the shift will vastly lower gross domestic product growth rates –
to around 3.9 percent annually for the next two decades, Summers and Pritchett reckon. (A new Conference Board report provides a similar estimate for growth after 2020.) That presents a direct threat to the Communist Party’s legitimacy, which is contingent on growth in the neighborhood of the 7.3 percent.
These are profoundly difficult balancing acts for Beijing to manage. If he wants to see what’s in store, though, Xi should pay close attention to what’s happening in Hong Kong. William Pesek