China's Governance Options

Governance form and GDP per capita are closely correlated.  Very few poor countries can sustain democracy, and virtually no rich countries can exist without it.  

On the graph below, we rank countries by GDP / capita and assign to them a form of governance, from 'dictatorship / anarchic' at the low end to 'advanced democracy' at the high end.  Specifically, countries as classed as

  • Chaotic countires or Dictatorships like Sudan, Eritrea, Chad, Zimbabwe and Yemen.  
  • Authoritarian, including Russia, Vietnam, the 'stans and China. 
  • Oil Autocracies, some of which are quite wealthy but are properly classed as dictatorships, even at very high levels of per capita GDP.
  • Weak Democracies, like El Salvador, Sri Lanka, Bulgaria, Hungary, Poland, India or Mexico.
  • Established Democracies like Chile, Croatia, the Baltics and Slovakia
  • Advanced Democracies including Great Britain, the US, Switzerland and other western economies, and
  • Asian City States, notably Hong Kong, Macau and Singapore, all of which are wealthy but only weakly democractic at best

If we rank countries by GDP per capita, we can see a pattern emerge.  Almost all very poor countries are chaotic or dictatorial.  Governance is poor to non-existent, human rights are routinely trampled, civil unrest is common.

Around $2,000 of per capita GDP, countries start to take on more formal authoritarian regimes accompanied by greater political stability.  Individual rights are not honored.  Corruption and cronyism are likely to be endemic.

Around $4,000 / capita GDP, we begin to see the emergence of weak democracies characterized by extensive corruption and electoral fraud, weak governance and a penchant for slipping back into non-democratic rule from time to time.  Nevertheless, representatives are chosen by contestable elections.

 Source: IMF. Princeton Policy governance classifications

Source: IMF. Princeton Policy governance classifications

Established democracies begin to appear around $12,000 / capita GDP.  These countries may not have a long experience with democracy -- perhaps a few decades -- but elections are generally clean and fairly contested.  Governance is adequate if not brilliant, and corruption, although present from time to time, is not a fundamental characteristic of the political system.  The Baltics, Slovakia, Uruguay and Chile fall into this category.

Also, around this level, $10,000 / capita, we see autocracies essentially disappear.  Those which remain are principally oil autocracies, whose governments retain power through disbursement of oil revenues to buy public support.

The advanced economies begin around $20,000 / capita GDP.  All these countries have highly functioning democracies, solid governance, and limited or non-existent corruption.  

The exception to the rule are three city states: Singapore, Hong Kong and Macau, all of which have been know recently for low corruption, a high level individual liberty and protected property rights in the economic -- but not political -- sphere.  Governance has been outstanding, certainly in the case of Hong Kong and Singapore.

China now occupies a precarious space.  Even today, its per capita GDP puts it at the high end of the Authoritarian range.  Many countries with similar income are already weak democracies.

At a 6% GDP growth rate, by 2025 China will occupy a governance space where it will be the sole authoritarian regime surrounded by weak and established democracies.  By 2030, at a 6% growth pace, China will be knocking on the door of the advanced economies.

What are the implications for China's governance?

China's options appear to be one of the following:

  1. Remain an autocracy.
  2. Institute democratic reforms and transform into a weak democracy.
  3. Emulate the City States
 Source: IMF, Princeton Policy classifications, analysis

Source: IMF, Princeton Policy classifications, analysis

In autocratic form, Chinese politics will see increasing stresses, as an ever better educated and prosperous citizenry seeks greater certainty of their property rights and greater freedom to act autonomously.  Remaining an autocracy will likely require slowing the economy, and possibly turning inward, as China has many times in the past.  Whether this can be achieved without a financial crisis and resulting civil unrest remains to be seen. 

In virtually every other country in the region, the ruling party has faced a crisis at some point, and ceded power to democratic forces.  This has to be considered the most likely path of development for China over the long run.

Finally, China could seek to emulate the City States, granting limited political rights but establishing highly developed economic rights.  Whether such a plan could be implemented in a country of China's size is an open question, but if it could be achieved, would represent the Communist Party's best hope to dominate Chinese politics without a societal crisis into the 2030's.

Unlike many other analysts, our view holds that China is coming to a crossroads of governance.  At some point in the coming years, China will face a crisis which will either take it forward towards advanced country governance or turn it back and lead that great nation to withdraw from the world, as it has without fail throughout its long history.