JP/7/KEINICHI

New Model China

Kenichi Ohmae President, Ohmae & Associates Project Syndicate

Over the coming decades, China will become a thoroughly new form of political and economic entity. Brutally competitive in both politics and world markets, innovative and resilient, China will be more dominant than any nation save America.

Such a shift in the global balance of power occurs only about once every century and is comparable to the emergence of the U.S. as a world power a century ago. The magnitude of this change is due, in part, to a radical and rapid shift in China's governance. Because of its suddenness, it is tempting to write this shift off as a fluke. But China's restructuring is permanent and will affect every aspect of its national life, as well as its global standing.

The People's Republic now embodies two systems: The centralized, autocratic Communist administration, dominated by an outdated ideology and military interests, and the decentralized free-market economic regime.

Whether deliberately or not, China is reorganizing itself to balance central authority and common purpose with decentralized freedom, in the same way that nimble companies balance home- office and divisional control. The result is an entirely new geopolitical model -- the country as corporation.

Call the new China Chung-hua, Inc. (China -- meaning the prosperous center of the universe). Like many corporations, China is moving most decision-making to the "business unit" level -- semi-autonomous, self-governing economic region-states that compete fiercely against each other for capital, technology, and human resources (just as America's states do).

This new, decentralized free-market regime currently encompasses only a small part of China's vast territory, and many Chinese officials still refuse to acknowledge its existence. Indeed, only seven years ago, the word federation was banned from the Chinese language; companies like Federal Transport or Federation Merchants were required to change their names.

Today, China has the most federal governance structure of any large nation except the U.S.

Two broad categories of region-states exist. The first are relatively small, composed of cities and their surrounding areas, generally with a population of 5 million to 7 million people. Some of these -- Shenzhen, Shanghai, Dalian, Tianjin, Shenyang, Xiamen, Qingdao, and Suzhou -- are now growing economically at a rate of 15 percent to 20 percent per year -- faster than such Asian "tigers" as Malaysia, Taiwan, Thailand, and Korea ever did. These smaller region-states, in turn, are propelling the growth of larger mega-regions, with populations approaching 100 million each.

The mega-regions, which tend to share common dialects, ethnic identities, and histories, are becoming economic powerhouses in their own right. If they were separate nations, five of them -- the Yangtze Delta, the Northeastern Tristates area (formerly known as Manchuria), the Pearl River Delta, the Beijing-Tianjin corridor, and Shandong -- would rank among Asia's 10 largest economies.

Regional governments have also been toughened up by the Chung- hua, Inc. ethic. Most officials are appointed, not elected, but their posts are not sinecures. Not only are they held to targets of 7 percent annual economic growth or better (like many corporate executives), they must also improve environmental quality, build better infrastructure, and reduce local crime levels.

In October 2001, a half-dozen bureaucrats were expelled from one of China's major cities for not meeting their economic growth and security targets.

Local officials are often considered heroes, not oppressors. In January 2001, Bo Xhi Lai, then mayor of Dalian, was promoted to governor of Liaoning province. Thousands of women, many in tears, spontaneously came to a park to bid him farewell. During his nine-year tenure, Dalian evolved from a ramshackle port into one of the cleanest and most prosperous cities in Asia.

It now has a street life more vibrant than Singapore, a layout reminiscent of Paris before the automobile, and a reputation among Japanese tourists for high-quality hotels, transportation, and restaurants.

All of this is taking place in a nation where Communist ideology remains strong and that remains in many respects a military dictatorship which threatens to conquer Taiwan by force, as well as uses North Korea, Pakistan, and Libya as stalking horses for weapons development.

Introduction of foreign companies, technologies, and unfettered mobility for corporations and people would all be viewed as a threat to the Communist system if it were publicly acknowledged.

Instead, China's highest officials publicly insist that they run the most centrally controlled government in the world, with full authority to appoint or dismiss mayors, governments, and bureaucrats. Strictly speaking, they are right. But they dare not overrun the open, commercial ethic of China's region-states -- the source of their country's prosperity.

So debates about China should not be cast as a simple matter of right or wrong, but of when and how. Politically, China is comparable to the U.S. in 1800: An emerging nation with high ideals but widespread poverty and many practices that others find intolerable.

A decade or two of economic freedom and growth will give China's people an appetite for self-determination and participation that may surprise the rest of us. Already, some village leaders are elected; this may slowly spread to regional officials, and then upward to the central government.

Even top communists appear to acknowledge and embrace change. Recently, China'shead of state, Jiang Zemin, said that the Communist Party "represents" every good aspect of China, including wealthy capitalists, not just the poor, the exploited, and the proletariat.

We should not be surprised if soon -- perhaps at the Party's 2002 General Assembly -- China's leaders formally call for a new doctrine to match its new model.