Tag Archives: Wen Jiabao

Will China make it?

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 Pres. Hu Jintao and the current Pres. 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 the color of the cat was irrelevant as long as it caught mice. So in 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, Pres. 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 Singkiang, China’s huge western Central Asian province, 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 the hokou 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 revolutionarychanges, 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 building – 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.”


Is technology catching up with the Chinese Communists?

A continuing, often bitter, argument among “China hands” is over where the introduction of elements of market economy and attendant technology would take Communism “with Chinese characteristics”.

Just as two decades of remarkable Chinese economic successes has been exaggerated, Pollyannaish speculation argued economic development would bring greater freedom. Former Secretary of State Dr. Henry A. Kissinger, now claiming Chinese expertise, argues outside pressure cannot modify Beijing’s repression. But he holds out hope — as do many of his persuasion — economic progress will eventually bring a free society.

Another school has held economic development and technology is morally and politically “neutral”, as the successes of both the Nazi and Soviet regimes proved – at least temporarily. [The Nazis used vaunted German chemistry to develop a gas for efficient killing of Jews in the Auschwitz “showers”. And Stalinism sent man into space, suppressing all heavy missile launching losses.]

The Beijing regime’s successes after hundreds of rebellious students and workers were slaughtered at Tien An Mien square in 1989 has added weight to that hypothesis. For example, The Great Firewall of China, internet censorship – using at least 50,000 employees costing initially $800 million, along with “self-censorship”, the threat of imprisonment or worse — has stifled opposition.

But as so often happens, one event, sometimes relatively minor, can swerve history in new directions. We saw that when a Tunisian roadside fruit peddler’s self-immolation set off revolt throughout the Arab world. Surprisingly to most outside observers, Beijing feared contagion from Arab disturbances and launched a new crackdown. For example, in 2010 Beijing closed 1.3 million websites — almost halving the number.

Now comes the mid-August wreck of two new high-speed trains encapsulating what is happening culturally as well as in the economy and politics.

Having snookered Japanese, French and German train manufacturers into providing technology for vast high-speed rail network expansion, the Chinese had already tried to export trains. In the complex skein of globalized economy, there was a short-lived preposterous proposal to buy Chinese trains for California to be funded partly by Obama Administration’s stimulus funds. Foreign companies cried “foul”, arguing they were victims of all too common Chinese theft of intellectual property. And Japanese manufacturers formally abnegated responsibility for faulty Chinese manufacture and operation. Bottom line: the largely unexplained accident has dimmed hopes for high end exports needed to keep China’s boom going, now plagued with rising prices and worldwide competition from other low cost labor producers.

But the train accident unleashed far more. By standards of Chinese disasters, natural and man-made, it was small potatoes: officially 39 dead and 190 injured. Still some of China’s 457 million “netizens” [internet correspondents and bloggers] were quick to challenge official explanations one train had rammed into another immobilized by lightning. That kind of accident, Japanese developers of the first superfast trains were quick to point out, was impossible on their lines, virtually accident-free for three decades. And too many Chinese cellphone cameras recorded the wreck, government efforts to minimize the casualties, to bury wreckage and then – after protests — to uncover the same wreckage!

Quickly, too, bloggers ragged government’s dismissals of “responsible” railway officials – already under public accusations of corruption — when a replacement turned out to have been demoted after an earlier wreck. Then there was high comedy with outgoing Prime Minister Wen Jaibao who styles himself just a fuddydutty old Chinese grandfather arriving at disasters to console the mourners. This time he excused himself, ostensibly on doctor’s orders. But netizens quickly dug up video showing him buoyantly healthy, meeting a Japanese trade delegation only a day after the accident.

So loud has been the bloggers’ furor, official media reluctantly joined in — or as is common in intra-Party power struggles, were being used in the blame game, especially on the eve of next year’s planned generational changeover. An editorial in People’s Daily, the Communist Party mouthpiece, called for an end to the country’s blind pursuit of “blood-smeared GDP”. That comes close to the jugular: Beijing’s two decades old economic-political strategy in pursuit of maximum growth to assuage the absence of abandoned Communist orthodoxy. What has been that successful strategy to meet demands of an impoverished population is already threatened by cutbacks in its chief motor, unlimited infrastructure expansion, in order to rein in incipient inflation.

Next chapter in China’s 5,000-year history may have begun.


The Mother of All Bubbles?

When Prime Minister Wen Jiabao trotted out his litany of promised reforms to the annual rubber-stamp parliament in early March, they reconfirmed growing suspicions of the Chinese economy’s fragility. Now more veteran observers are joining that little band [including this writer] who has predicted an implosion of the jerry-built system. Granted that some of us have been saying it for several years. But like most human and economic events, not only when but what would trip such a crash is rarely predictable [as was the case for the U.S. credit markets implosion].

Wen characteristically predicted the gross national product would grow by 8%. That is the magic number Chinese leadership – shorn of any other raison d’etre for the regime except rapid growth – has pulled out of the hat. Chinese and foreigners conventionally accept it as the minimum necessary to provide additional employment to ward off social instability. But like all GNP figures – but especially in China where “creative accounting” is a highly developed art form – it has limited validity.

I remember accompanying Prime Minister Jawaharlal Nehru many years ago to the old undivided Bihar, among India’s poorest states. Nehru, surrounded by thousands partaking of his darshan [“spiritual enrichment”], often oblivious to his stream-of-consciousness monologue, made a startling admission. He could not understand, he said, why he saw such poverty in Bihar while the per capita GDP statistics showed it one of India’s richest states. Common sense gave you the answer: Bihar by then already had India’s giant new steel mills. [Nehru called them “our modern temples”.] Not only was their product exaggerating the local per capita income count but its workers were recruited elsewhere nullifying benefit for local subsistence farmers and tribal hunter-gatherers.

Today China’s huge growing inequalities which Wen as always promised to eliminate are a function of what remains a still largely government-owned and mismanaged economy. Experts may argue over the extent China is an export-led economy. But three-quarters of those exports are from multinational companies assembling imported Taiwanese, Japanese, South Korean and other high value components. While producing jobs, they contribute minimally to the livelihood of most Chinese. For despite the vast migration into the cities – which regime policy rationalizes as strategy since it has no solution to a rural, agricultural sector it has shortchanged for more than two decades – no respite is in sight for growing regional and class disparities. And the highly publicized “Gucchi culture” of the coastal cities – increasingly the world’s largest market for luxury goods — represents only a small proportion of 1.3 billion Chinese.

Fewer world mainstream media maven are still pushing the idea Chinese growth would save the rest of the world from the continuing ravages of a universal recession. Since last fall when Beijing announced a somewhat bogus huge half trillion stimulus package [almost half was already committed funds to infrastructure projects decades out like the South-North Canal], there had been that hope. But the highly celebrated increase in intra-Asian trade depends on ultimate markets in the U.S. and the EU – both now deflated with stagnating if not increasing unemployment. China does rally the world commodities markets with energy and ore purchases albeit only as its steel inventories grow. [Beijing’s inexperience in negotiating with oligopolies is part of that mix.] Its vast foreign exchange holdings appear an unparallel asset – until it’s recalled they represent, largely, U.S. debt as counterpart for Chinese currency circulating in a rigidly protected and therefore limited consumer market.

After almost six months with foot on both gas and brake, Beijing has decided to slam the brakes, unable to “sterilize” stimulus funding even with the help of Chinese housewives’ phenomenal high household savings.

Not only are there signs of inflation, but the four major commercial banks – under political pressure from the semi-bankrupt State Owned Enterprises – were again tossing out vast loans likely never to be repaid. Instead of producing higher consumption over a broader market, estimates had 20% of the additional liquidity going into stocks despite unjustified dividend ratios. Real estate – including one infamous whole city in Inner Mongolia – for various reasons goes unsold and unoccupied. Like glorious Beijing Olympics white elephants, new skyscrapers were added to already untenanted silent towers a decade old in Shanghai’s Pudong “financial” district. Millions of motorcars have been sold with large government subsidies – but the cost of their operation including increasing imported energy is a calculation Beijing’s planners will soon have to face.

For all the talk of “capitalism with Chinese characteristics”, the economy remains run top-down in ghost-like Soviet fashion. True, the small private sector, even with its limited access to capital, produces most new jobs. But they are dependent largely on foreign markets which have not yet, and may not for the foreseeable future, return to their former glory.

Hang on for the Chinese to be mugged by reality. And the impact will hit its Asian trading partners hard too with unanticipated consequences for the West.