Beijing Needs the South China Sea to Stay on Top

Richard Caroll

Economics, Asia

Economic pressures are pushing the party south.

The increasingly aggressive and militaristic behavior in the South China Sea by China is driven by the economic needs of the Chinese Communist Party (CCP), which currently controls mainland China’s government. While the world has looked in wonder at the economic revival of China since its economic reforms, enacted in the late 1970s, it has overlooked a serious flaw by the CCP in its failure to establish an independent judiciary that would adjudicate contract disputes.

A paper written in September of 1996 by a team of economists led by Dr. David Rose at the University of Missouri at Saint Louis entitled “China’s Development Dilemma: Property Rights and Growth” revealed the serious—perhaps fatal—flaw of the CCP in opening up economic growth by encouraging investment in private industry without also reforming property rights and providing for impartial contract adjudication. That the CCP did not provide for such reform was not done in error. Any type of impartial adjudication of contract dispute would, in the CCP’s eyes, threaten its hold on power. Because of this, the economic reforms of the late 1970s did not include any reform of the judiciary.

In their paper, Dr. Rose and his team argue that the phenomenal rate of economic growth enjoyed by the CCP economy would slow and then return to stagnant economic growth, as the economic growth then being enjoyed by the CCP economy in the 1990s was the result not of “steady-state growth” but rather by the removal of the constraints imposed by an economy that was centralized and unresponsive to the demands and needs of a dynamic culture. In the words of the economists from UMSL, the Chinese economy benefited from “catch-up growth” once these constraints were removed—though when “catch-up growth” has run its course, it cannot, by its very nature, be repeated.

While the increased growth rate exhibited residual evidence of positive steady-state growth, the sheer size of the population of China, and the very backwardness of the CCP economy prior to the reforms of the 1970s, formed the foundation of residual evidence of positive steady-state growth. In simpler terms, the trace residual evidence of positive steady-state growth was a false positive.