Probing Question: Is China's economic growth sustainable?

China is sometimes called "The Red Dragon," but another, less common nickname for the world's third largest country is "The Kingdom of Bicycles." For some economists, the bicycle -- a vehicle that must keep moving to remain stable and maintain forward momentum -- is an apt metaphor for China's economy. For over three decades, China has had the world's fastest growing major economy. But some believe that the speed and size of its recent expansion mean the country is steering headlong into a crisis.

Is China's economic growth sustainable?

"Yes, unless the political system becomes unstable there," says Min Ding, professor of marketing and innovation in Penn State's Smeal College of Business

China is in the midst of urbanization on an unparalleled scale, says Ding. With more than 1.3 billion citizens, China is the world's most populous country. Until the late 20th century, most of its citizens lived in villages or rural areas. Then, within a 50-year span, the percentage of city-dwellers rose from 13 to 52, and is predicted to grow past 60 percent by 2030.

Ding says economists are closely studying the potential effects of the country's massive urbanization on the economy, the environment, and the political system.

"The vast inland regions in China have yet to be fully developed," he explains. "Compared to the coast, the labor cost and the land are much cheaper there."

After decades of encouraging inland residents to seek work in coastal factories, he says, "the central government now feels it is obligated to develop these regions to ensure social harmony, even at other costs. They will heavily invest in urban infrastructure to a scale that is unprecedented in history and unimaginable to outsiders. Every medium-size city in China is now putting a subway system in."

Some believe that the autocratic one-party system will eventually be at odds with China's long-term economic growth and stability. Can the country create higher standards of living for its people within the communist system, or will it shift to a more democratic system?

"I cannot forecast whether China will develop a Western-style democracy," says Ding, "but I am quite confident that, over time, China will gradually develop into a system that is more transparent, cleaner, more law-based, and less ideological." The Singapore model may be a possibility, he adds, "or it is also possible that the Chinese Communist Party will allow different factions as an experiment in intra-party democracy, among other possibilities."

Democratization is not necessary to keep the Chinese economy humming, he says. "I think many Westerners let political views and emotions get in the way of understanding how the Chinese system works. When it comes to economic matters, the Chinese are, in some ways, more capitalistic than Americans. China is run like a big corporation. Everyone has to report to someone above him or her, who has the power to fire and hire. Such a system has its advantages in terms of efficiency and optimization."

Ding, author of several books including The Chinese Way, believes that Chinese people today are more aptly described as socialists rather than communists, "at least in policies and practice. They are not only hardworking, they are obsessed with accumulating wealth for themselves and for their children."

Some point to stories of China's millionaires moving abroad or transferring their wealth out of the country as a trend that undermines China's economic growth. "This isn't a threat to the country's success," counters Ding. "Substantial wealth has already been transferred to outside China, but many of these emigrants are still very wedded to Chinese society, and are always looking for opportunities to invest in their homeland."

There are some cross-cultural misunderstandings between Chinese and Americans that make global business more difficult than necessary, says Ding. "Counter to conventional wisdom, Chinese people can be quite emotional. If they like you, they will do business with you even though you may not be their best option. There's a Chinese expression that translates 'I want to share success and money with friends.'"

What's more, he says, despite the media focus on China being a collectivist culture, Chinese are also quite individualistic. "They are collectivists within their tribe, meaning their circle of family and friends, but individualists outside their tribe."

Chinese tend to think Americans are too rigid, adds Ding. "Americans are thought of as following rules and regulations 100 percent, and being somewhat inflexible. In China, there is a saying that rules are meant to be broken, and you are not smart enough if you can't figure out how to circumvent a rule or a roadblock."

The world is certainly watching as the Bicycle Kingdom navigates the complex highways and byways of its rapidly changing landscape.

Min Ding is Smeal Professor of Marketing and Innovation in Penn State's Smeal College of Business. He can be reached at minding@psu.edu.

Media Contacts: 
Last Updated July 28, 2017