Japan from the inside out

Gordon Chang on China today…and tomorrow

Posted by ampontan on Wednesday, December 31, 2008

PEOPLE OFTEN quoted Winston Churchill’s description of Russia in an October 1939 radio broadcast as a riddle wrapped in a mystery inside an enigma–until the curtain collapsed to reveal that the phony wizards of Oz had kept alive their sham with more defective machinery and considerably less wisdom and insight than the title character in the L. Frank Baum novel.

Nowadays Churchill’s description might be even more applicable to China, a country of such opacity that it is inevitable people will speculate how long an increasingly restive populace will put up with the intrinsic contradictions of the country’s political and economic systems. Meanwhile, on a parallel track, the nation’s leaders repress incompatible ethnic groups as they fabricate a military machine that is simultaneously capable of standing astride the globe and is beyond the country’s realistic needs.

Writing in Forbes, Gordon Chang offers an excellent overview of post-Mao China that includes observations on how it got where it is today, where it stands now, and the contradictions it needs to resolve as it heads into the future.

The article is unfortunately broken up into four sections. In the first part, Mr. Chang observes that China progressed despite Deng Xiaoping, not because of him, and that the progression owes a great deal to the disobedience of the Chinese:

The now-accepted narrative is that Deng argued for a startling transformation of Chinese society. We buy the story that he first debated with his fellow revolutionaries, then experimented and finally decreed change.

Yet, in reality, reform progressed more by disobedience than design….Deng’s reforms succeeded because the Chinese people disobeyed Deng’s rules. Such defiance would have been unthinkable in the Maoist years. Deng’s great contribution, therefore, is not so much that he planned China’s “economic miracle” but that he let it happen.

Although analysts think China’s leaders can mix two inherently different economic systems, their arguments, however persuasive, are implicitly premised on Chinese leaders continuing their decades-long program of reform…China’s current political system, however, cannot sustain the pace of necessary economic restructuring.

In the second part, Mr. Chang raises several alarms about the Chinese economy. He describes the dangers China faces in a global economic downturn with an export-based economic model, a tendency to play games with the valuation of its currency, and domestic banks holding onto a loan portfolio packed with the non-performing debt of local governments.

Part three examines how the growing dynamism of the people is leading to greater instability, which in turn might lead to the Party’s loss of control.

After the abandonment of its ideology, the Communist Party made the continual delivery of prosperity its primary source of legitimacy. We are about to discover whether the regime can survive a downturn when decades of economic reform have weakened its mechanisms of control and made the Chinese self-aware and assertive, people who, for the first time in their history, are carrying on national conversations about their collective future.

In the fourth part, Mr. Chang concludes with an examination of Chinese military projections. He finds them inevitable because of the country’s growing strength, but also points out that Hu Jintao owes his support to hawkish elements. He also looks at the American response to Chinese behavior.

In one sense, the U.S. and the West have no alternative but to engage Beijing, yet Washington’s policies are often tolerant of behavior that it would not accept from any nation other than China. For example, American administrations, both Republican and Democratic, have failed to speak out about Beijing’s proliferation of nuclear weapons technologies to Pakistan, Iran, North Korea and undoubtedly other states, and Washington has adopted an amazingly indulgent approach to China’s commercial and diplomatic support of the world’s nuclear rogues. By continuing to assist China while ignoring deeply irresponsible behavior, the U.S. has unwittingly created perverse incentives for conduct that impedes, not advances, American goals and global stability.

Gordon Chang’s article doesn’t unwrap the enigma, but it does make the opaque slightly more translucent.

Update: Karl Denninger of The Market Ticker is offering an extremely pessimistic forecast for the global economy in 2009. Here’s what he had to say about China, which is interesting in light of Mr. Chang’s article.

China will have its first large-scale rumbling of civil unrest as a consequence of collapsing export demand and thus employment. They’ll manage to tamp it down – this year. Don’t take a bet on that holding together longer-term. Those who think China will be “ok” are deluded; they have a horrifying overcapacity problem (debt-financed, of course) and there is no way for them to get out of it. They are truly going to “take it in both holes” down the road, but the worst of it won’t be in 2009 – that is still a year or two in the future.

He also thinks the economies of both China and Japan are going “in the toilet”.

4 Responses to “Gordon Chang on China today…and tomorrow”

  1. Very interesting. Thanks for the summaries. Is Denninger’s “Market Ticker” article online?

  2. ampontan said

    Thank you, Marc. The Denninger excerpt was from a longer analysis that focused primarily on the US. I found it on a website unrelated to Asian affairs, and it didn’t have a link.

    Here is the link to the Market Ticker website, however. The article is on the front page.

  3. Thanks. Denninger seems to share the Austrian economics philosophy.

  4. […] Gordon Chang on China now and in the future. […]

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: