China and Russia: On the Rise and Decline of Two Nations

In the late 1970s, the economic size ratio between the Soviet Union and China was 4 to 1. In 2001, the ratio between Russia and China was less than 1 to 4, or even less than 1 to 5, if one includes Hong Kong with China. Although the collapse and dissolution of the Soviet Union contributed to this profound reversal of economic strength, domestic factors have been more important: decollectivization of Chinese agriculture versus an unwillingness to reform in Russia, the establishment of township village enterprises in China versus an extremely weak small and medium enterprise sector in Russia, economic openness and market-preserving federalism in China versus limited participation in globalization and confused federalism in Russia. Although Russia was faster than China in privatizing state-owned enterprises, the preferential treatment of insiders and the weakness of the rule of law or functional substitutes for it neutralized this potential Russian advantage. The strength and character of Chinese nationalism might also help it to outgrow Russia. While the rise of China and the corresponding power transitions imply security risks, reinforced by China's central geopolitical location, there are also opportunities, because of the pacifying impact of free trade and globalization and prospects for democratization. By trade China might become prosperous and, ultimately, even democratic. In the long run, a "capitalist peace" between China, Russia, and the West is conceivable.