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Most developing economies face periods of political or economic crisis in their quest for growth. America is no exception.
But China’s meteoric rise is puzzling pundits for two reasons; growing without the embrace of democracy and largely, free of major economic bubbles in its 40 year- history of high growth.
Puzzling as it may seem, of late, the tempo of criticism has elevated, given the present China’s tight maneuvering space to convert an export to domestic consumption-driven growth model.
In the fall-out of the Great American Recession in 2007 leading to the European Union debt crisis, western pundits have been predicting a similar catastrophic real estate bubble in China, the most vocal being prominent American short-seller, Jim Chanos of Kynikos Associates. His doomsday prediction of China is the talk of the town big bet ; shorting Caterpillar as a proxy of China’s bearish construction and mining industries. Hard to say, if Mr. Chanos is preaching greed or pointing out an economic flaw of Chinese growth story.
Mr. Chanos is just one of the many fund managers and political analysts who view China’s growth as unsustainable, driven by state-sponsored credit growth, not real productivity. Most criticisms implicate China’s growth with increased social imbalances – explosive local government debts, poor public safety accountability and unstoppable corruptions. On the other hand, militarily, an assertive China is raising eye brows on overlapping sovereignty claims in Asian seas. Then, how do we know what China is aiming for – growth or power.
How the world assesses a developing China is viewed from a western perspective of change, based on logical analysis. But China, wised up under several thousand years of turning society inside out, thrives nonchalantly, on sublime philosophy. Modern China relies on a compass of Confucian values, not based on democratic logic. It means developing networks ( guanzi), controlling resources and be cognizant of external threats. But the larger goal is; China thinks holistically, interpreting rather analyzing, cultivated relationships, random occurrence of events and the dynamic of risk experimentation because the world is such a complex political system.
Hedge fund managers and intelligence agency, searching the mixed signals of day-to-day event, have difficulty deciphering a country like China, which operates along a continuum of a long term philosophical objectives. A definition of this principle is based on successfully coercing the wider society to value national vitality, government, not markets determines growth and risk-taking for long term benefits. Two recent high-profiled incidents can throw some light on China’s fidelity to a higher purpose configurations of its own universe.
In a country birth of ancient philosophy , an occurrence of an accidental man-made disaster is viewed as a leap, positively, towards progress while a natural disaster connotes a heavenly displeasure. Accustomed to taking great leap forward technologically, in 2003 China announced the construction of a 7500 miles stretch of high-speed railway, valued at $260 billion, costing more than any nation had ever attempted for a public project since the American interstate highway. On July 23rd 2011, three years after it debuted, the first major crash with 40 dead and hundreds injured, struck in Wenzhou, just south of Shanghai. The tragedy exposed the systemic corruption and incompetence of top Chinese bureaucracy, paid for by the dismissal and imprisonment of ex-powerful railway minister, Liu Zhijun. Realizing, the high-speed rail achieved an iconic international status which had won praised by
Barack Obama
President Obama in his 2011 State of the Union speech, China sought to leverage this accolade with an eye on exploiting the burgeoning overseas infrastructure sector to be marketed with preferential loans, given its largest foreign currency holdings in the world – an easy success for getting projects. By this way, China challenges to rival American Boeing and European Airbus engineering feats. Not surprisingly, the relatively light sentence- not death penalty- given to Liu Zhijun, illustrated an exceptional pragmatism communist China chose to prize national achievement whilst mentioning little about the deposed Mr. Liu’s key role in the railway project. For a great engineering project, the trial-and-error dynamics of making it happen is more important than the tragic crash.
On the rise of military power, China faces the humiliation of a turbulent past. It conceded Hong Kong to Britain in the opium war and lost two naval wars with Japan in 1900s. That dark chapters of Chinese history invoked a stigma of shame which modern China is beholden to overcome. For that reason, the Diaoyu island sovereignty dispute with Japan reignites dormant nationalism by highlighting two values; to unite the Chinese under the concept of a strong and wealthy nation; an assertive China to restore its greatness among the foreign power. In displaying military prowess with aerial and sea intrusions around the disputed island, not aggression, symbolized China’s objective of overcoming past humiliation and scoring points on national wealth and power. China argues that by becoming a global super power, the civilian approval of the central government, in this case, the Communist Party, translates into a priceless loyalty.
However, China is worried about two destabilizing issues; firstly, structural demographic variables like unemployment, widening income gap, welfare safety net, aging society and corruptible services; secondly, high awareness of individualism among the younger age group learning from the social internet media. Currently these indicators reflect very worrying negative trends.
With 1.35 billion population, already the second largest economy in the world and holding a massive foreign reserves of over $3 trillion, China seeks to continue providing more for its people, but not western democracy, to legitimize the monopoly of political power. As President Obama has recently said of his plan – one nation, under government- to change American mindset towards growth : “So government must accrue power and act to correct the errors of a market economy and the injustices spawned by too much individual freedom”. Quite the contrary, China is run with excessive government power which must lead unfailingly, to good governance eventually, for achieving stability.
Poh Kok Bing is an economics graduate with a career that spans 28 years in international business development. He now writes commentaries on world business and economics.
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