Can China Escape the Low-Wage Trap? - New York Times

Reuters

A solar power plant under construction in Aksu, in the Xinjiang Uighur region.

THE news out of China this year has been relentlessly bad. The political system was embarrassed in front of its own people by the Bo Xilai scandal and in front of the world by the Chen Guangcheng incident. The Chinese economy has slowed and its stock indexes have been rocked, while its neighbors have been strengthening their ties with the United States.

All this has occurred at the worst possible time for the Communist leadership, as it prepares for what was supposed to be a seamlessly orchestrated transfer of power to a new president, premier and ruling cadre later this year. Instead, the events of 2012 have made accounts of an all-capable and problem-free China, which were so common just before and after the triumphant 2008 Beijing Olympic Games, seem quaintly credulous.

While each of these problems is likely to prove surmountable, together they are clues to a question that will take much longer to answer: Can China make it as a fully modern economy and society?

The China we have known for 30 years has been a phenomenal success, but one with some increasingly evident weaknesses and failures. “Making it” in this sense would mean that the China of, say, two decades from now will look like something other than a bigger, faster, more intense and frenetic version of what it is today.

The successful side of China’s record is familiar. No society has ever created wealth faster nor alleviated poverty on a more sweeping scale. As every wide-eyed Western visitor reports, its super-modern infrastructure makes the rest of the world seem pathetic and paralyzed.

Meanwhile, the Chinese public has been consuming only half of the total output of their economy, the rest being set aside for public and private investment in China and amassing overseas assets, from American Treasury notes to real estate, artwork and companies.

Along the way, the texture of Chinese life has liberalized in ways very hard to imagine when Deng Xiaoping began this process more than 30 years ago.

On my early visits to China in the mid-1980s, I assumed that as a Western journalist I would be noticed, followed, surveilled â€" and I was. Most of the time today, however, foreigners are noticed only to the extent that they provide an opportunity for, or create an obstacle to, a business deal some Chinese dreamer has in his or her sights.

These are the successes. Some of the limits and failures are well publicized: among others, the environmental despoliation that has made cancer the leading cause of death in China; the demographic shift caused by the one-child policy that threatens to make China the first society to grow old before it grows rich; and the problems of transparency and accountability in the Chinese governing system, illustrated most recently by the Bo Xilai and Chen Guangcheng cases.

Those, at least, are the problems that get the headlines. But there’s a bigger one, which the Chinese government and public are only now starting to recognize: whether the success of China’s current model is leading toward a “low-wage trap,” in which its outsourcing factories get bigger but don’t necessarily move the country toward the higher tiers of the world economic structure.

PUT differently, will Chinese companies ever go from assembling iPads to fostering future Apples of their own â€" or, similarly, from selling knockoff copies of Western movies, music, search engines and online apps to establishing China’s own pop-culture industries with worldwide profits and soft-power appeal?

Nearly every Apple product is “made” in China, but barely 10 cents on the Apple sales dollar stay with workers, suppliers or anyone else in the country. The rest goes to designers and shareholders in the United States, component makers in Japan, machine-tool makers in Germany and retailers or shippers around the world. The problem for America with this arrangement is that it disproportionately rewards the top rather than the middle of our income scale. The problem for China is figuring out how to capture more of the rewards to begin with.

James Fallows is the national correspondent for The Atlantic and the author, most recently, of “China Airborne.”