Why China Should Dream of Building Better Institutions

Whether a place can attract immigrants relies fundamentally on institutional competition.

Daron Acemoglu and James Robinson concluded in their book Why Nations Fail that countries with "inclusive institutions" will attract a diverse citizenry and adequate resources, and that this is advantageous for sustained economic progress. They also argued that countries with more isolated, insular institutions won't enjoy the same kind of economic growth.

My own experience in the United States tells me that China is becoming increasingly important. First, there are more and more media reports about China. From culture to politics, a wide variety of subjects are being covered. Second, Washington's think tanks are engaging in more discussions concerning Chinese issues. Two years ago, maybe one to two China-centric subjects a month would appear on Linktank, a service that specializes in publishing information about think tank events. But these days, there are at least two events a week related to China.

Some might think this suggests the China model is becoming more attractive globally. But this is very possibly an illusion, given that the increasing mentions of China more often involve criticism, not praise. There are, after all, also more Linktank mentions about North Korea and Iran. But among policy-makers and the media, these two countries are regarded negatively.

So which is it: Is China becoming more or less attractive?

In 2010, my friend Jia Jia wrote an article titled Becoming an American Dad in which he defined the American Dream this way: "The idea that one can definitely achieve a better life through one's unremitting efforts." But I don't think this is much different from the Chinese Dream. We all want to improve living standards and make the most of ourselves.

Jia outlined two ways Chinese people can become American citizens. The first is through investment. He joked that "Beijing residents with property who live within the boundary of its Fourth Ring Road are all potential American citizens." Considering Beijing's sky-high real estate prices, this isn't really a joke. And the recent problems of smog-ridden Beijing and disease-carrying dead pigs in a river near Shanghai are probably responsible for another wave of Chinese immigrants to America.

The second way for Chinese to become American citizens is more complicated — to become American parents by giving birth to a child in the United States. Once the child confirms his or her status as a U.S. citizen, this fulfills the parents' wish.

Pursuit of Knowledge

What Jia left out is the option to study in the United States and then find a job, settle down and finally earn citizenship. This is really the Chinese-style American Dream.

Since 1978, 1.06 million Chinese have gone abroad to study, and only 275,000 of those have returned home. Although not all of them end up in the United States, the high quality of American higher education is very attractive to Chinese students.

Competition is extremely important, and if the Chinese elite and their offspring all long for America, then the ideal model of the Chinese Dream seems to be the American Dream. This is somehow ironic.

So do the Chinese elite indeed aspire to become American citizens? A glimpse of the data from the GRE, an admissions test for American graduate schools, offers a clue.

Between 2011 and 2012, India and China trail only the United States in representing the most candidates sitting for the GRE — 33,504 students were from India and 29,255 were from China. Relative to the more than 1.6 million Chinese students who take exams to get into domestic graduate schools, this is a small percentage. But if it's truly representative of the number of elite Chinese students who pack up and go live in America, then there must be a problem somewhere.

According to the data, these Chinese students demonstrate a very high average academic level. This is important because it shows that though China's higher education system has been improving for years, it nevertheless fails to retain an important slice of the student population. Though some of these students may eventually choose to return and work in China, that may be because of intense competition within the United States rather than because Chinese institutions are attractive to them.

I mention this Chinese-style American Dream to make the point that the Chinese elite class has clearly voted with their feet regarding which has the better system, or at least which has better higher education. And universities are probably the ultimate embodiment of a country's institutional competitiveness.

But the Chinese and American dreams share a lot in common. The principles of freedom of choice and opportunity are universal aspirations. The difference between the two is in the attractiveness of their various institutions. This is where the Chinese can learn from the American model.

To achieve China's institutional reforms, we need to understand how and why the United States stands out globally. And this isn't just about education but also about the country's constitution, which helped give birth to this system. That is ultimately what nourishes the American Dream.

The author is a research fellow at the Shanghai Institute of Finance & Law, a non-profit research center

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