news feature At No 100, Xinye Lu, in Shanghai's downtown business district, site of the first Communist Congress, hangs two huge banners celebrating the 80th birthday of the founding of the Communist Party of China on July 1.

In the surrounding neighborhood an area of some 30,000 sq meter rises Xintiandi, which literally means 'a new world' in Chinese. Xintiandi is a trendy cultural and entertainment hub symbolic of the good life celebrated in capitalism. It is an urban renewal project, a joint venture between the Shanghai Municipal Government and Hong Kong entrepreneur Vincent Lo.

Xintiandi, says the developer, is where the past and future meets; a place where history was made some 80 years ago with the founding of the Chinese Communist Party that has brought the new China.

Today, the same venue has been transformed to witness a new era of prosperity and renaissance under capitalism, nurturing the hope that China will return as a key player on the world stage with a new ideological character.

The Revolutionary Museum stands amidst a modern entertainment and commercial hub; housed in the famous Shikumen architecture of the 1930s, now meticulously restored to blend in with connecting modern structures.

Xintiandi is also symbolic of the ideological uncertainty of the new era; where traditions meets modernity, East meets West, and communism shakes hands with capitalism. While visitors applaud the impressive and creative work that gives birth to Xintiandi, one can not help but also ponder anxiously about the new China.

What kind of new China will emerge from this historic transformation? And what impact does this transformation have on the rest of world? What will be its new guiding ideology?

A happy 80th birthday

The backdrop to the 80th birthday bash for the Communist Party of China is most impressive. Twenty years of opening and reform have radically transformed Chinese society and improved the material lot of the people greatly.

The cultural and social landscapes have changed dramatically; from the once dull and grey survival mood to one of hope and vibrant prosperity. China's international standing is also fast rising; driven on one hand, by its immense economic competitiveness and growth momentum, and on the other, by its display of determination to host the 2008 Olympics in Beijing.

Undoubtedly, amidst the current gloom and uncertainty of the global economy; China is the only bright star on the radar screen of most international businesses; China draws in some 70 percent of the total foreign direct investment (FDI) flows to Asia.

The Chinese economy that has surpassed the US$1 trillion dollar mark last year, although expected to slow, will still grow at between 7.5-8 percent in 2001. China's export machine is extremely robust and formidable, with an unending stream of cheap labor supply and an aggressive progression up the value chain, unmatched anywhere else in the world.

To the relief and gratitude of its Asian neighbors, China bit the bullet and did not devalue the Reminbi during the Asian financial crisis four years ago. That decision has indirectly forced many Chinese producers to upgrade and find niches on the higher points of the value chain.

China's super presence is being felt in everything from paper flowers to electronics and computers. Apart from being a key supplier of the goods that make up the good life for Americans and Europeans, Japan has also moved up to become China's largest trade partner with trade between the two nations at a record US$66 billion last year.

Japan also recorded with China its biggest trade deficit with any country in its history, standing at US$22 billion in 2000. In the same year, China's export to the ten countries of Asean increased by 41.3 percent, the biggest increase to any region in the world.

With China's entry to the World Trade Organisation (WTO) which it hopes to materialise at the end of this year, tariffs of many imported raw materials will be removed; which will further make Chinese products more competitive on the global front.

One country, two worlds

In May this year, the market for mobile phones in China reached its 100 million mark; it became the second largest in the world. Mobile operators and Internet enthusiasts in China estimate that the market for mobile phones would grow to 350 million by 2005 while the Net population doubles every six months!

Most folks in the cities dream of buying their own homes in the next two years. Industry experts say the home furnishing market is expected to explode to 200 billion Reminbi by 2005.

China is two worlds in one country; one optimistic and feeling good about its current prosperity and the promises of the future; and why shouldn't it?

China has doubled per capital income seven times in the last 20 years; the value of her exports rose by 150 times in the last three decades, she is a darling of global investors, total FDI in China now stands at US $350 billion, and every year it increases by another US$45 billion.

The Chinese electronic good maker Haier, which is aggressively making its presence felt in international markets, has seen its revenue grow from US$400,000 16 years ago to today's US$4.96 billion!

And to top it all, Shanghai has seen 2,000 new tall buildings rise in the last 20 years, exceeding the total number Manhattan built in the last 100 years!

Grave concerns

The other world of China has not been entirely left out as far as the the fruits of development are concerned. It is suffering from the natural consequence of the market economy; that of inequality.

Both the urban and rural areas have recorded real improvement and growth during the reform decades, and the challenge today is how to close the gap in income and growth disparity. The growing disparity in income and wealth has become a key concern, dominating newspaper commentaries, think-tank research and the agenda of policy makers and party leaders.

While the great achievements to date are to be celebrated; the resultant challenges are also looking more and more daunting by the day.

When paramount leader Deng Xiao Peng suggested that 'some can grow rich faster than others,' tremendous energy and productivity were released in the coastal regions and these areas attained runaway growth.

While the rural areas have also grown, they were left further and further behind the urban and industrial sectors as the rate of growth widened. The resultant uneven distribution of income and wealth is not only confined to the rural and urban areas.

In fact, for the first time in the last 100 years, growth has created distinct income disparities between different economic sectors, industries and professions making such concerns a key focus in the last 10 five-year plan meetings of the Chinese Consultative Congress.

"The Chinese people displayed tremendous momentum to catch up and to improve their lot, but such energy must be channeled to create a virtuous cycle," said experts in China.

Last week, when the three tenors, led by Pavarotti sang at the Forbidden city; some rich Chinese paid 13,280 yuan (US$1,660) for the front seats and 3984 yuan (US$ 498) for the back seats to attend.

"To get one backseat ticket for the concert, it takes the annual gross income of six rural farmers," said the Southern Weekend in its editorial.

Rural China crisis

China's income disparity index now stands at 0.456, worsening from the 1980 figure of 0.30, 0.32 in 1988 and 0.434 of 1994. Although there are still some 30 million Chinese living below the poverty line, by and large, the livelihood of the 800 million peasant population has improved.

In fact, for the first time in history; farmers have the security of surplus grain, more than what they need to keep them well fed today. The excess supply of grain in China is also historic.

A recent report by the US Department of Agriculture reveals that it has underestimated China's grain supply by 300 percent, a revelation that could shatter US farmers' hope of export to China when she opens her market with WTO entry.

"Farmers, by far, don't have to worry about filling their stomachs anymore, but they have no income to spend in today's market economy which transacts with hard currencies.

"With falling grain prices; limited farmland and scarce non-farm jobs in their neighborhoods, farmers just don't have the avenue to earn those currencies, " said Dr Cao Jin Qing, a sociologist who has been studying the lot of the rural farmers and author of the book, The China by the banks of the Yellow River.

The consumption capacity between urban and rural is 4:1 with city folks having four times more the capacity to spend than their rural cousins. According to one study, urban income grew from 2,025 yuan in 1991 to 6,780 yuan in 2000, while rural income dropped from 2,100 yuan in 1998 to 1,640 yuan in 2000.

Rural reforms seem to be hitting real obstacles; signs are the government has no choice but to slow down the process. There is also serious underemployment; some 150 million excess labor exists in the farm sector while a million new labor enters the market every year.

Attending to the farm sector is the first priority of the government's present development program, hence the 'Go West Development Initiative' and the State Council's approval of 20 billion Reminbi to be spent on rural infrastructure and reform .

There is also the question of mismatch of production and consumption; supply of farm produce from rural areas far exceeded demand by urban consumers - the 300 million urban folks can not consume all the produce of the 800 million rural farmers.

Moreover, with rising affluence in the cities, food consumption as a percentage of total spending is also going downwards, with demand surging for other durables such as homes, cars, home furnishings, education, travel and other lifestyle products and services.

Growth has been uneven; the government reported differences in revenue collection amounting to as much as 30 percent with some 1,061 provinces not collecting enough to pay the salaries of the local government!

Tough balancing act

Indeed. China's 666 cities house 36 percent of its total population and the industrialised economy only accounts for 40 percent of her total economy, which 800 million people don't partake in.

China hopes to increase the number of cities to 710-800 by 2010; urbanising more rural folks could be one solution to channel the labor in the rural areas. But the proposal is not foolproof.

Experts say already there is so much excess capacity of goods produced by low and unskilled labor; if these rural folks were urbanised, what kind of industrial goods would they produce and who would buy them?

What would happen to prices in the global markets if these light industry goods were released to the world plus the impact on other labor-intensive developing economies?

"Following the industrial model of development; which basically means automation and reducing labor, this cannot solve China's excess labor situation," said Jiaotong University's Prof. Gu Jiang Guang.

Moreover China has limited land and resources; the population pressure on her resources is too high. Some academics said that with China's resources, it can only support half of its present population optimally.

And "if Chinese consumers were to emulate the good life of the Americans, we simply don't have the resources to make everybody happy. Attaining xiao kang (lower middle class) status is possible, but if everybody wants a house, a car, and holidays, our resources just can't support that kind of lifestyle," said Dr Cao Jin Qing.

"There is a difference between aspirations and possibilities; we have to look at the future of China, no just from the viewpoint of what it should be, but also from what it can be. The challenge is to spread the wealth; to ensure the fruits of development are being shared, and at the end of the day, it is not zero sum.

"We have to have our own definition of the good life for the Chinese people so as to preserve harmony, " Dr Cao added.

Low-value unsustainable

On closer examination, one finds that the mismatch between supply and demand is not only confined to the farm sector.

The inability of producers in the other industrial sectors to adjust to the demand for rising quality and innovative styles also accounted for the accumulation of low-value goods. For example, last year, industry experts put the excess inventory of furniture at 20 billion.

Operators from the Southern Huanan area, especially in Shunde, Guangdong province, a centre of furniture production, saw their margins eroded from 40 percent to 10 percent, with some 2,000 low-value producers now on the verge of closing down.

Everywhere one can see an abundance of low-value products with designs and styles that have virtually remained unchanged in spite of the rising prosperity.

A vicious cycle seems to persist in the lower value production sector. Factories and machineries of state firms are now leased to workers who have been retrenched, and in their rush to get returns, they increased production volume and resorted to price competition.

As a result, one can see an enormous supply of low-value products flooding the market. A teapot maker in Yixin, in Jingsu province told me, "Here, people just keep producing cheap products and keep cutting prices, but the purple clay is not a renewable resource. Making cheap products with such valuable resource is such a waste."

The picture repeats itself everywhere. In Jingdezhen, China's ceramic capital, I see an entire street market, and for that matter, the entire ceramic industry, stocked with similar products with vendors undercutting each other on prices.

Fifty years of stability

If the market economy can work out the inequality problem and generate continued growth, experts still think that China needs at least another 50 years of continuous stability.

To realise that and to enable sustainable development, China must reconcile the differences now existing in its urban/rural sectors and the lot of the impoverished class must be improved steadily.

Intellectuals in China are realistic about the resolution of their development paradoxes. "Our present predicament is a leftover baggage from the development over the last 100 years."

They are referring to the explosive growth of population triggered by the introduction of maize, soya bean and other hill crops to China that started a move towards having more children to support farm production.

"In the last 100 years, we thought our underdevelopment problem was due to our political system, and we struggled to find the right system of governance. But that is not the whole story.

"Our fundamental problem is the burden of our huge population on the limited land and resources we have.

"Unlike other countries which in their development history they resorted to colonisation, expanding their sphere of political and military influence to obtain resources, China has remained a closed economy, trying to develop on its own to meet the needs of its population," explained Dr Cao, who also taught history and philosophy at Huatong Science and Technology University before devoting himself to study the state of rural China.

"The controversial one child policy introduced in the 80s has worked, otherwise the population would have grown to 1.6 billion today!" he adds. According to the recently completed fifth population census, China has a1.26 billion population now which will grow to 1.33 billion by 2005, 1.4 billion by 2010 and 1.6 billion by 2050.

The stress on the environment is huge; pollution and the shortage of water being the most serious problems. Farmers to the north of the Yellow River draw water for irrigation from underground, and the underground water table in dropping rapidly, partly aggravated by the declining rainfall in the region.

The Yellow River dries up many times in a year, so much so that China is now reviving an old plan to direct water from the south to the north and also ask the farmers to replace crops with planting trees.

The capital of Beijing and the northern region is facing an acute shortage of water. The Eastern part of Beijing has sunk some 70cm in the last 40 years. Water per capita has dropped to 300 cubic meters per year, 15 percent of the national average in year 2000, and will drop further to 200 cubic meters.

The Communist Party today

The Communist Party today has 64.51 million members, some 5.2 percent of the population at end of year 2000, with 21.159 million new members from the period 1990-2000.

Workers, farmers, herdsmen made up 31.66 million, and 14.391 million are under 35 years old. The membership composition of the Communist Party today is more diversified; it also includes professionals, government official and intellectuals.

Although the reforms have brought much inequality and problems such as serious corruption among the cadres, Deng Xiao Peng's direction of gradual development has gained wide acceptance.

It is also true that many in the rural areas reminisce and look back to what they say was a more stable period under the earlier days of Mao. While Deng's theory and his advocate that development is a certainty is celebrated widely; there is also anxiety on the need for a new guiding ethos to bind the people together spiritually and assure social stability.

President Jiang Zemin's answer to the need for new values in a changing China is the principles of the Three Representatives: economic, technological and cultural.

The key question now confronting China is how to bring in the rural sector; how to assure the 800 million peasants, who watch the prosperity on their television screens and wonder, some impatiently, when their turn will come?

Jiang's new theory is an important attempt to provide the ideological transition and create new values for a rapidly changing society. In the face of rampant corruption and reports of officials exploiting the people, the Communist Party also faces the important task of redefining itself.

It needs to enhance its relevance as the entire society undergoes a historical transition from a centrally-planned economy to a market economy.

It is true that a single party centralises power, but even in a democracy, the ultimate power to govern is centralised. The difference lies in the process of how that power is centralised. In China it is through a single party (and that is now representing 5.6% of the population).

At this stage of the Chinese economy, with a huge percentage of the population still illiterate, it needs absolute efficiency, and the one-party rule, albeit its weaknesses and risks, seems to provide that.

So long as the party steers the nation in the right direction, and conditions keep improving, few would want the uncertainty, inefficiency and disruption of western-style democracy - China, and the world can not afford that kind of disruption.

A responsible China is one that has to find its own path to development. This sentiment about the Communist Party prevails in China. There are many supporters to this view, and they call upon the Communist Party of China to assert the advantage of single party rule to steer China through its difficult transition.

One can be overwhelmed by the magnitude of China's challenge, and to be fair, not living in the system and culture, few in the world can truly appreciate the exact nature of the Chinese challenge.

Of course, China's challenge is not entirely her own. On a broader perspective, whether it is in terms of industrial competitiveness, demand for natural resources, emission of green house gases or expanding domestic consumer markets, developments in China and the outcome of her future will have important reverberations throughout the world.

While the Communist Party of China reflects on its mission for the next 50 years on its recent 80th birthday, the rest of the world, too must ponder on how they would adjust to the new China.

FOONG WAI FONG is the author of the book New Asian Way and the director of Megatrends Asia (http://www.megatrendsasia.org). She has been based in Shanghai since May this year.