The Chinese Communist party will celebrate its 90th anniversary on July 1 with a pride that testifies to the pragmatism it has shown since Deng Xiaoping determined to lift the nation out of poverty some 30 years ago, and set a course to make China what it is today. But the party also faces three huge challenges that should make us wonder what the country will be like when the centenary comes round.
First, China will this decade make the transition from a borderline to a fully fledged middle-income country, with per capita income rising more than three times to about $13,000. This will be a quite different experience from the trebling of per capita income that has occurred since Deng, because richer, more complex economies need high-quality institutions, especially in the legal arena, to sustain human development. This is far more important than national output, steel production or any other metric.
In their absence, countries get stuck in a middle-income trap – as evidenced by Argentina, Venezuela and the former Soviet Union. The Fraser Institute ranks China’s institutional quality 82nd in a group of 141 countries. While it scores well in size and efficiency of government, it is weak in other areas, particularly regarding the rule of law and neutral legal institutions. The problem with reform in this area is that it clashes directly with the primacy of the CCP party over both the state and the judiciary.