China drew the right lessons from Tiananmen Square

BY DONALD H. STRASZHEIM

A visiting scholar at the Anderson
School of Management,
Straszheim is vice chairman
of Roth Capital Partners in Los
Angeles. He is a former global
chief economist at Merrill Lynch
and previously served as
president of the Milken Institute.

Anniversaries of the 1989 student uprising in Tiananmen Square matter more to Americans interested in China than to the average Chinese citizen. Consider the outlook this month, exactly 19 years after the event.

It is clear now that the West was wrong on two counts. For one, it misjudged how China's economy might perform in the aftermath. Second, it took an overly critical stance on the tactics Beijing has employed to manage various challenges, from the Tiananmen protest to the SARS scare to the recent Olympic torch relay protests.

Many feared that the government crackdown would launch a new period of economic stagnation. Inflation was rampant and the opening up of China’s economy, launched as a test in southern China in 1978, was still a gamble. In late 1989, few in the West could foresee the coming economic advances.

Real gross domestic product growth in China since 1989 has averaged 9% a year. Another 19 years of comparable growth is plausible; China would continue to move up the global ladder. Keeping this expansion going is crucial. Nothing would threaten social stability like a real economic setback. The Chinese people have decided, not surprisingly, that rich and growing is more satisfying than poor and stagnant.

In 1989, China made up only 3% of total world GDP and was no more than an afterthought on the global economic map. Today, that figure is 18% and rising. Real per capita income gains have averaged 8% a year. I have had many years in my career in which an inflation-adjusted 8% pay hike would have been welcome.

Since 1989, 300 million Chinese have migrated from the farms to the cities and are now earning 10 times (or more) what they previously earned. Employed in manufacturing, trade, construction and services, these ambitious people just want to be allowed to work, earn and consume. China is the world leader in steel production, cement consumption, cell phone usage — the list goes on. It is a World Trade Organization member, and it’s becoming the manufacturing capital of the world. Every multinational corporation that matters is in China. In 1989, the country had no equity market. Last year, the Shanghai Stock Exchange, formed in 1990, saw the world's biggest initial public offering in recent years.

The public remains broadly supportive of how the government has handled the economy. And understandably: Beijing wants the economic music to keep on playing. Part of protecting these gains, from Beijing’s vantage point, is a continued focus on control.

The second misinterpretation of the Tiananmen Square events, then, is the still remarkable degree to which the West focuses on political or other non-economic developments. These courses of action, and their portrayals, should not take on a life of their own, threatening stability or economic advances. Beijing does not rule with the heavy hand of the past. The administration works to ensure that government officials are competent, responsive and accountable for their actions. That’s really all that the public wants. But many events in recent years — and up to this day — reveal a new kind of response from Beijing: To address a problem promptly and preemptively. Additionally, it manages the public awareness of and reaction to a problem so that it doesn’t spin out of control. Beijing has not forgotten the lessons of 1989.

Those of us who were saddened by the 1989 Tiananmen Square events, who favor representative democracies and are fans of a free press still harbor misgivings. We need to give Beijing credit for facilitating an unprecedented economic advance when no one in the West thought it could happen. But we should also remember that China runs China as it sees fit.

To all the outside advice coming in — and there is plenty — China is likely to continue to listen politely. Its officials will learn where they can, and accept that with which they agree. But ultimately China will decide what's in its own best interest, as any sovereign would.

A longer version of this article recently appeared on Forbes.com.