Will China Make It?

By Sol W. Sanders
Monday, November 11th, 2013 @ 3:51AM

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Despite the ballyhoo, there is little prospect significant reforms will emerge from the current upper echelon Chinese Communist Party meeting.

That’s despite virtually all foreign observers and most Chinese experts agreeing major changes are absolutely necessary to continue the past three decades’ fantastic economic progress.

China has now reached blocking obstacles, in part created by its very success. If those are not overcome, the economy could freeze up with half its population at near subsistence. Or it could face collapse of the ruling Communist Party regime. That possibility has been suggested publicly by former President Hu Jintao and the current President Xi Jinping.

If drastic reform is not forthcoming for a variety of reasons — not least the difficulty of the issues — it is bad news not only for China but for the rest of the world. For when the Chinese left Communist orthodoxy, it rapidly became part of the world economy. Maximum Leader Deng Hsiaoping philosophized that the color of the cat was irrelevant as long as it caught mice. So in the 1978 Party meeting, similar to this one, he plunged into opening to foreign investment with its priceless accompanying technology and foreign markets. That invitation to the world resulted in unleashing what all who were acquainted with them knew was innate Chinese entrepreneurial talent.

Unlike the 1990 implosion of an autarchic Soviet Union, a China breakdown would reach into every facet of world economy, for example, even American kitchens. I shudder each time I pass Chinese frozen food-laden counters in my local big box outlet. It is unlikely their production could have escaped China’s growing omnipresent air, water and chemical pollution. Hardly a week goes by without a major poisoning scandal reported even in China’s controlled media. But neither an earlier episode of imported contaminated dog food nor the recent disclosure of 600 dogs killed by poisonous Chinese “treats” has awakened the normally overactive Obama administration’s regulatory appetite. It is only a matter of time until a major disaster occurs in the U.S. with the kind of food handling prevalent in China. Examples reach bizarre limits: waste cooking oil salvaged from gutters repackaged and sold to unsuspecting cooks.

It’s this corruption in all its 57 varieties heading the list of China’s problems. Repeated anti-corruption campaigns have been unsuccessful in making a dent. That’s because, too often, those nailed is a result of Party infighting while others with more influence escape unscathed. And it reaches the topmost levels: former Prime Minister Wen Jiabao was unmasked by a New York Times expose — undoubtedly sourced from his political enemies — as head of a huge family fortune.

The threat corruption poses for the Party was dramatized in the continuing saga of Bo Xilai, former Communist boss in the huge [30 million] southwest federal city of Chungking. It moved in stages from the murder of a British businessman and intelligence agent, to the failed attempt of Bo’s police chief to defect to the U.S., to Mrs. Bo’s conviction for murder of her business partner and lover. As the son of a famous Civil War revolutionary figure, a “princeling”, on his way up to a major national role, Bo’s conviction for a whole police blotter of crimes tore into the Party’s bowels. Not the least ominous was Bo’s close association with China’s secret police chief, now removed but probably still an intra-Party player.

But whatever their other differences in their search for “reform”, virtually all leading Party figures reject the notion of ending the Communist Party power monopoly. In fact, President Xi Jinping, now a year in the catbird’s seat as Party general secretary, chief of state and chairman of the all powerful Central Military Commissions (Party and State), has made enough noises about the beauties of Maoism to suspect he may want to return to its more rigid suppression..

Growing dissident episodes have fed this Party nostalgia for a Maoist crackdown. In mid-October a jeep filled with Uighurs, a Turkic people, once the majority in China’s huge western Central Asian province of Singkiang, escaped surveillance. They crashed and burned before the giant Mao painting on Tien An Men square, scene of the 1989 government massacre of students and workers. The provincial Party chieftain, conducting a decades-old campaign against a low-level insurgency fed by Central Asian expatriates, was immediately cashiered. Whether the rebels have ties to worldwide Muslim jihadists as Beijing claims, those relations are developing as bitterness over the effects of the Chinese Han in-migration.

Uighur (and continuing Tibetan) opposition to Chinese rule are less important that Beijing’s dilemma presented by its exploitation of the digital revolution for economic development and its use by social networks undermining Party control. A staggering ­­­­two million “internet opinion analysts” censor forbidden materials on networks like the semi-official Sina Weibo, with more than 500 million registered users posting 100 million messages daily. But when railway officials tried to bury derailed cars after a 2011 major accident, digital telephone pictures revealed the attempted literal cover-up. Their exposure led to a death sentence, later reprieved, for the minister and wiping out the ministry.

Bloggers are routinely exposing growing local civil unrest, often involving attacks on police. Beijing has stopped listing the number of incidences because of their increasing frequency. These often involve the expropriation of land in private use, the only fallback highly leveraged local governments have for financing both legitimate government and Party corruption.

Regime strategy sees solving poverty through continued urbanization, absorbing another 300 million of the half of China’s 1.3 billion still rural dwellers. But it has not been able to resolve overburdened city governments opposition to thehokou problem, which is a legal transfer of the migrants’ village registration. To do so, hardliners argue, would remove an important control. That means one sixth of China’s population, mostly part-time workers, living in the cities are treated as illegals and denied access, for example, to educational opportunities.

Underlying all this is the dropping rate of economic growth. An 8% annual increase in gross domestic product, conventionally considered the minimum to maintain political stability, has been broached — how much often concocted Chinese statistics do not really reveal. In fact, rapid growth may no longer be the panacea, a concept the Party leaders adopted after abandoning Marxist-Leninism-Maoism in all but name. But unlike the immediate post-Mao period, there is no single voice as strong as Deng’s to push through revolutionary changes, even were they as relatively simple as those which Mao’s old enemy chose.

In addition, a nebulous but growing debt crisis has vitiated the growth formula of massive infrastructure expansion and expanding exports. China tossed more than half a trillion dollars into the economy to successfully escape the worst effects of the worldwide 2007-08 financial crisis. It cannot repeat that for fear of inflation, the death knell historically of all Chinese dynasties. Chinese banks have, meanwhile, built a whole world of “shadow banking”, dodges to escape the regulators and set aside debt of unknown magnitude. Similarly, the Central Bank is now trying to fathom indebtedness of local governments. Economists have offered estimates ranging from $2.46 trillion to $4.92 trillion, 30% to 60% of gross domestic product.

But the list of problems goes on:

· China’s population is ageing even faster than its northeast Asian neighbors, estimated to trim 3.25% from annual growth between 2012 and 2030,

· Because of infanticide due to China’s one-child policy, it faces a growing gender imbalance which the government estimates will mean 24 million men will not find wives by 2020.

· Relics of its Soviet era, China’s 144,700 State Owned Enterprises [SOEs], soak up 85% of total credit but produce less than half its industrial profit, most of that concentrated in a half dozen highly successful oil, metals and electronic monopolies.

· There are increasing signs China has a housing bubble, vast numbers of unsold new buildings — including whole uninhabited “ghost cities” — created by easy credit, top-down planning and traditional faith in real property.

· Assemblies of foreign components with what was cheap labor along with lower quality exports now face stiff competition from low-wage producers in Southeast Asia, and, potentially, India.

· Growing complaints (and disinvestment in banking) by foreigners against government xenophobia, unfair domestic competition, and violation of intellectual property rights are taking some of the shine off direct foreign investment to exploit those legendary huge China domestic markets.

Hanging over all this is Chinese growing– and largely opaque — expansion of its military machine accompanied by dangerous aggressive public statements by high-placed officers matched by claims and feints on territorial claims in the East and South China Seas. Incessant public statements glorifying Party control of the military lead to questions. In two previous government breakdowns brought on by Mao’s ruinous policy adventures — the Great Leap Forward (1958) and The Great Cultural Revolution (1966-76) — the military salvaged the regime from chaos but returned control to Party civilians. In a new failure of control, would a more rambunctious and technocratic military hand back the reins of power?

For all these reasons none of these questions are likely to be answered after this week’s secret deliberations.

Alexis de Tocqueville said it succinctly:”The most dangerous moment for a bad government is when it begins to reform.”

A version of this column is scheduled for publication Nov.11, 2013 at worldtribune.com

Categories: ACD/EWI Blog, China

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