By EWI BLOG | by Rachel Ehrenfeld, Sol Sanders
Friday, March 15th, 2013 @ 4:17PM
Recent exposes of Chinese cyber attacks on American government and private enterprises, media and banking and large investments in American industries, has strengthened the China’s image as an invincible fire-breathing dragon.
As it turns out, the fire that fuels the dragon, China’s economy, is in danger of being doused. Not surprisingly, China’s new President, Xi Jinping has declared he has the “China Dream” – to make China “prosperous, powerful and proud once again.” Addressing members of the Communist Party in a recent visit to Shenzhen, he indicated he wants to follow in the footsteps of Deng Xiaoping, who began China’s economic reform while keeping the Communist political system in power.
Previous economic changes have contributed to the rise of a middle class. However, growing inflation and low interest rates on deposits don’t encourage savings. At the same time, state-owned enterprises “can access money at below market rates.”
Chinese state-owned companies are investing heavily abroad, especially in Africa and Latin America, and increasingly in Europe and the United States. In addition, China Development Bank (CDB) has been handing out billions in “development loans,” especially to countries with large energy resources. Between 2008 and 2012, Chavez’s Venezuela, for example, received at least $40 billion, “$1,400 for every man, woman, and child” in the country.
Worries about a wide range of weaknesses in China’s economy are not new. Those who assumed that the Chinese leadership would try addressing them, were proven wrong.
Inflation is up, just as industrial output and retail sales are shrinking. Scarce economic opportunities, unemployment, corruption, capital flight and socio-economic inequities are but few of problems that stem from the artificially created market economy. The Chinese answer in the form of political control, as Sol Sanders points out below, will do little to fuel this dragon.
New studies by Chinese dissidents now calculate the loss of life during his man-made famine during the so-called Great Leap Forward (1958-61) by new tens of millions – yes, tens of millions. Hong Kong China scholar Father L. Ladany’s 30 million figure, was ridiculed at the time, but estimates now have reached 60 million. Note too this regime which is so demanding of others to acknowledge their sins in World War II and before has yet to take responsibility for this holocaust created by The Great Helmsman.
The trouble with the charisma hypothesis is that even were it to prove out, ultimately it doesn’t solve problems. Beijing has them in spades.
Environmental pollution is not just (at latest count) more than 6,600 piglet carcasses dead from some not quite identified virus floating down the Huangpu River threatening Shanghai’s water supply. Other late scandals include everything from pork that glows in the dark with a blue light to the use by Beijing restaurants of cooking oil rescued from the gutter. Increasingly, there are direct economic consequences from pollution: for example, in some instances factories have been forced to close, either because they were spewing pollutants into nearby water supplies, or because their contribution to air pollution was making it poisonous.
The recent record air pollution in Beijing blocked vision beyond a few hundred feet. Mainland pollution even drifts into Hong Kong and recently residents of Japan’s southern island of Kyushu were warned to stay indoors because winds had brought it across the Yellow Sea. (“Yellow” because of the steady flow of sand from China’s Gobi Desert increasingly creeping up on Beijing from the west).
Then there is the falling gross domestic product (GDP). Never mind that GDP is the sum total of economic activity, and in China this means literally including the building of ghost cities capable of housing several hundred thousand people. They stand empty because the central planners and State Owned Enterprises (SOEs) that still command the economy and monopolize its credit resources didn’t take residential jobs into consideration. They join the hundreds of thousand of empty apartments, too expensive for most buyers, but one of the few investment possibilities for savers who get actual negative interest on their bank holdings.
Statistically speaking — and that too opens questions with regional figures not adding up to national sums and electricity consumption figures belying the official GDP counts — growth is dropping below what had been considered acceptable limits. That is, it is falling under the 8 percent annual growth which conventional wisdom held was necessary to preserve stability in a still growing population of 1.3 billion.
That stability is already under attack. So-called “mass incidents,” outbreaks of local violence throughout the country, have accelerated to the point the government no longer issues statistics about them. They have arisen in the past over land grabs by local authorities — often cropland — without proper compensation to the peasants whose livelihood is undermined. No one yet suggests this opposition has national leadership or, indeed, that the incidents are linked in any kind of movement to overthrow the regime. In fact beyond their local support, most Chinese apparently see them as disruptive.
Too many people remember the chaos of the decade-long Great Cultural Revolution (1976-86) which only Mao’s death and calling in of the military got under control. “Luan,” unmitigated discord, is a threat hanging over China and a weapon of the regime used to blackmail the population to accept arbitrary government without the rule of law. Intellectuals remember it as what happened historically when a ruling dynasty crumbled slowly into anarchy.
Outgoing Prime Minister Wen Jaibao warned if reforms aren’t made another Cultural Revolution might be in store. Yet so far, while juggling bureaucracies — including folding the notoriously corrupt railway ministry where billions had been embezzled — the new leadership has not yet adopted a promised anti-corruption law. To do so, some observers suspect, would open the operations of the government and the SOEs to adverse publicity they could not hide. Furthermore, there is the argument that massive corruption is so much a part of the system, it could not function without it.
The problem, too, is that corrupt practices so permeate the regime almost all members of the Communist Party hierarchy are involved. The exposure of the enormous fortune amassed by Wen’s family by The New York Times dramatized the issue, and made a mockery of Wen’s calls for reform.
But, ultimately, one has to put two questions: is Xi all that different from the mediocre apparatchiks who have preceded him in office? Is it possible a Chinese leader could make it to the top in Communist Party, hiding as a mediocrity, and then blossom once he had escaped the head-lopping that takes place on the way up? Possibly, but not very likely it would seem.
In fact, many of the problems facing Xi and his buddies in the Standing Committee of the Politburo — now reduced to seven from nine to make it more efficient — are seemingly beyond China’s control. The remarkable growth and prosperity of the past two decades for millions of Chinese living in the coastal cities was based on two pillars: a rapid expansion of exports and expanding infrastructure of monumental dimensions.
Both of these phenomena are in trouble. Despite huge subsidies including a manipulated currency, the long-term outlook for exports is poor what with the continued crisis in the European Community and a slow American recovery. Furthermore, rising wages and other problems — there have been strikes — are threatening the low wage end of the Chinese exports which are moving off to Southeast Asia and other cheap labor countries. In some instances, with the digital revolution creating new economies, some manufacturing is moving back to Japan and the U.S. (In the American case, of course, the shale gas revolution which has chopped energy costs in the U.S. is encouraging such movement.)
China is, of course, trying to move up the manufacturing chain to less labor intensive products but the dependence on foreign technology (including the stealth of intellectual property) has probably crippled its own research and development. The government, despite announcement of new stimulus for the economy, has begun collecting currency in circulation because of the threat of inflation. Most local governments are in deep debt, unable to borrow even from government banks usually amenable to Party influence.
All this may just wipe that smile off Xi’s face, charisma or no charisma.
A version of this column is scheduled to be published in worldtribune.com