Author: steinringen

CHINA – PRETENSE, MYTH AND REALITY

I’m reading proofs of my forthcoming book on the Chinese state, The Perfect Dictatorship. A theme running through it, I now see, is the tug-of-war between myth and fact. There has been too much hype about China, too much wishful thinking, too much boasting by the leaders, too much believing what is wanted to be believed.

Here are a couple of extracts:

“There is much we do not know and much of false information and propaganda swirling around. The observer’s guide must be skepticism, always skepticism.”

“This particular putting of China in perspective has been of consequence. It opened my eyes early on to two observations that have stayed at the back of my mind while working my way through this project. First, China’s achievements are big in quantity but small in quality. The numbers may be impressive, but much of the substance is shabby. Second, even in quantitative terms, what bedazzles is not growth as such, although observers often think it is, but bigness. China weighs more in the world than, for example, South Korea, not because it has outperformed South Korea, which it has not, but because it is so big.”

“Here is the basic truth about the Chinese model in all its glory, economically, politically and administratively: it is effective but not efficient. There has been growth, but only thanks to massive debt and excessive investment. There has been governance, but only thanks to massive and extractive bureaucracy. The machine delivers but is exceedingly expensive to run. It get results but only with monumental inputs that do not translate efficiently into outcomes.”

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ELECTIONS IN TAIWAN – CHINA IN RELIEF

Taiwan has elected a woman president in direct, democratic elections. Unthinkable in China, both direct elections and a woman at the helm.

Both Taiwan and South Korea now have women presidents. That’s symptomatic. These are genuinely modern countries and cultures. They have modernized not only as economic tigers, but also followed through politically and socially. That puts China’s modernization in perspective. China has modernized, to some degree, economically, but politically it stubbornly holds on to dictatorship and socially it remains immature. On the standing of women in society, for example, when young women demonstrate for protection against sexual harassment in public transport, they get rounded up and detained.

China’s foreign minister, Wang Yi, has described China as ‘the greatest success story of our time’ (at the World Economic Forum in 2014). How wrong he was. China is big and looms large, but for genuine success in the region we must look to the smaller neighbors, to Taiwan and South Korea.

 

CHINA – THE MAKE-BELIEVE ECONOMY

It is reassuring that the world is coming to a more sober view on the Chinese economy. The truth about the downturn in the second half of 2015, and confirmed by market and currency events at the beginning of 2016, is that these are the result of long-term structural weaknesses in the economy and should not be seen as sudden inevitable shocks.

China is a big and important economy and will so remain, but it is not. and has not been, as big and dynamic as the Chinese leadership has boasted and the world, headed by the World bank and the IMF, has mostly believed. Too much of it has been in the nature of digging hols in the ground and filling them up again: economic activity with no value being produced. Too much of it has been unproductive over-investment, funded by a merry-go-round of state-induced debt.

Well into the middle of last year, it was good gospel among economic experts that the Chinese economy was overtaking or had overtaken the American one in size. But this was just smoke and mirrors and inflated GDP statistics, believed uncritically by gullible and starry-eyed lookers-on inside the bubble of China watching.

There are two lesson to be learnt:

  • Never take Chinese official boasts on face value.
  • Always look to China through a lens of skepticism and try to see beneath the surface.

CHINA – A DEVELOPMENTAL STATE?

Political scientists are fond of ‘typologies’. Political systems are of this or that kind, and one way to explain individual systems is to determine which type they belong to.

One such category is ‘the developmental state’. This is a type of state that has been seen to evolve in East Asia in the latter part of the last century when the ‘tigers’ displayed remarkable development. It has been suggested that the reformed China is the most recent developmental state. But is that a good way of understanding the Chinese system?

The arch-typical developmental state was South Korea in its authoritarian transition. The characteristics of this state were:

  • a strong authoritarian state
  • a dedication of that state to the modernisation of the country
  • rapid economic growth the main engine of modernisation
  • a state-led economy of crony capitalism, steeped in two-way corruption.

The Korean state, although with economic development always the no. 1 priority, was also activist in other areas of public policy, including social protection. For example, the first autocratic leader/dictator, General Park, immediately after the military coup in 1961, started to build a welfare state in Korea, with the same energy he put into creating the Korean CIA, his secret police.

The Chinese state has many of these characteristics but the similarities with previous East Asian developmental states are only on the surface. Compared to authoritarian South Korea, for example, the current Chinese regime is

  • not just a state, it’s a party-state
  • not just authoritarian but dictatorial, including with the military as the armed wing of the party
  • not dedicated to modernisation but to the perpetuation of the regime, with modernisation a means towards that goal
  • not a case of crony capitalism but of a corrupt socialist market economy.

The Chinese state is activist in what it needs to be activist in, mainly the control of its population, but not where it does not need to be activist in the interest of perpetuation. In social protection, for example, it does only what is productive in the interest of ‘stability’, and no more. Another difference is that, even in the authoritarian period, public administration in Korea was in the hands of a civil service which retained some element of autonomy. In China, the public sector is a party service, not a civil service.

The difference between these state systems came on display in the late 1980s. Both regimes were challenged by uprisings in their populations, in Korea in 1987 and in China in 1989, but reacted differently. In Korea, the authoritarian regime tried to survive through the crisis of popular revolt but was unable to hold on to power and stepped aside to allow democratic reform. In China, the regime did not give in but reached for its ultimate power resource, the military, and crushed the revolt with weaponry. In Korea, there being no party-state, the leaders could not react similarly. They did not have a similar resource of ultimate power at their disposal and did not have the justification for the use of force that is contained in the ideological and organisational structure of a party-state. Presiding over a country that was not monolithic but built on vibrant civil society institutions which had evolved during the period of modernisation, including in business and voluntarism, the authoritarian leaders could relinquish control without fearing that their project of modernisation would collapse, indeed had to give in since an attempt to hold on to power with force would have destroyed the project that was their raison d’être and their only claim to legitimacy. In China, the leaders could not compromise because that would have meant the demise of the party-state and because there was no civil society for China to fall back on, wherefore compromise would lead to chaos. Nor did they have to compromise because they had the physical and ideological means to hold on in their hands.

Typologies are sometimes useful in political analysis, but sometimes also misleading. In the Chinese case, it is almost always misleading to suggest that the system can be understood by how it conforms to any general category. The Chinese system is entirely of its own kind and needs to be understood on its own terms. That is true whether we look to the political system, the party-state, or the economic system, the socialist market economy. The way this system works is like nothing elsewhere or previously known to man.

For my own case, when I started my research on the Chinese system I expected to see a similar story to the South Korean one (on which I had co-authored a previous book), only writ large. As I worked on, however, a completely different and unique story emerged.

IS CHINA A DEVELOPING COUNTRY?

At the ongoing global climate conference in Paris, China is claiming to be a ‘developing country’. That is a way for it to reduce the obligations it will have to take on in a global pact, and to shift responsibilities on to others.

But is China a developing country? It is often opportune for the leaders to be able to put their country into that category, but this is a case of modesty that others should reject.

First, it is false. A developing country is one in which governance is severely restricted by inadequate fiscal and administrative capacity. That is not the case for China.

The state is fiscally solid. It was near to being bankrupt after Mao’s disasters. The first purpose of economic opening up was to rebuild the fiscal basis of the state. That has been successful and the Chinese state now has ample resources for public policy. When Mao left the stage, state revenues were at about 10 percent of (the then small) GDP, now they are at about 40 percent of (the now big) GDP.

It is also administratively solid. There has never been a bureaucratic state like the Chinese one. About 75 million officials are in the pay of the state. The Internet is controlled by an army of about 2 million ‘internet opinion analysts’. The birth control bureaucracy is about 500 000 strong. This is a state that has adequate administrative capacity for such policies as it wishes to pursue.

Second, it is always wrong to try to understand the Chinese regime as belonging to any general category. It is a dictatorship, but not like any other. There is much capitalism in the economy, but the economy is not a capitalist one. There is also much socialism, but not a socialist economy. The regime is totalitarian, but with a brand of totalitarianism of its own making. And there is much underdevelopment, but China is not a poor, helpless and backwards developing country.

Always, we need to understand China on its own terms, not as a system of this or that kind, but as one of its own kind.

THE LOVE AFFAIR WITH CHINA IS OVER

You may not have noticed, but 2015 was the year the shine went off China.

The last two or three decades, businesses from around the world and foreign governments have been falling over each other to get in on the China act. They have for comfort wanted to see a state that is worthy – authoritarian, yes, but delivering good governance for the benefit of the people. Academics, like Henry Kissinger and others, have helped by praising China as a ‘civilization state.’

But slowly, we are seeing that the regime is being reshaped by Xi Jinping and his team, into a less attractive one than had been hoped for.

An early signal went out immediately on the new leadership taking up office. Their position in the East and South China Seas was classified as one of ‘core interest,’ a message that China will do as it wants in these areas and that there will be no settlements by mediation, a policy, according to the defense minister, of ‘no compromise, no concession, no treaty.’ Since then, China has done what it wants, unilaterally setting up an ‘air defense zone’ between Taiwan and Japan and establishing bases on islands of its own creation in other countries’ areas. China is now an aggressive and expansionist state, certainly in its own neighborhood. And not only towards its smaller neighbors. During Xi Jinping’s official visit to India in September 2014, Chinese troops moved briefly into the contested border territory they call South Tibet, repeating a larger incursion a year earlier.

A second change has been in domestic policy. The leader the world hoped would be a modernizer, has instead tightened all the screws of dictatorship. Censorship is harder. Maoist mass-line and rectification campaigns are back in use. Internet control is ever more uncompromising. Non-official NGOs have steadily less space of action. Activism is increasingly dangerous and activists more severely persecuted, including for causes such as women’s rights. In the most recent campaign, hundreds of human rights lawyers across the country have been detained or had their practices shut down.

Here, too, there is an aggressive edge to the new policy. Principles we in the democratic world hold high, are virulently denounced in the party press as ‘western’ and purged from school and university teaching and textbooks. Their promotion is said to be the work of foreign agents.

While the tightening of controls has been clear to see, less noticed has been a rejection of Deng Xiaoping’s pragmatism in policy. Collective leadership is gone and one-man rule back, complete with a veneer of person cult. Also back is a cultivation of ideology, now in the form of a narrative of nationalistic greatness and glory. In this ideology – Xi Jinping’s ‘China Dream’ – nation comes first, greatness is the purpose, and ‘each person’s future and destiny is closely linked with the future and destiny of the country and nation.’ A big and powerful country, a strong state, an ambitious and shrewd leader, a commanding ideology – that adds up to a force to be feared.

As policy has turned to aggression abroad and dictatorship at home, the economic ground is shifting under the feet of the state. Growth is slowing. It is becoming recognized that China’s self-promotion has been based in part on bogus statistics. More importantly, the state’s reputation for steady management is crumbling. Last year, it opened its stock market and encouraged households to put their savings into equity. This year, the stock market crashed and millions of savers lost their money. The government then wasted billions in a failed attempt to stabilize prices, only to reveal that they did not understand what they had unleashed.

A regime that has pinned its reputation on effective governance turns out not to be in control. The most recent evidence is in the trumped-up abolition of the one-child policy. It is more than twenty years since Chinese and other demographers started to sound serious warnings of the detrimental economic and social effects of the birth control policy. But the new policy amounts to no more than a twigging of the rules, universally received as too little too late. The government has built up a birth control bureaucracy more than half a million strong and is unable to do more for fear of retribution from vested interests.

The world is taking stock of the new China, but with confusion. When Xi Jinping came to Washington in September, he was received with all the honors due to a great leader and could show the folks back home that he had been given respect. But there was a conspicuous lack of substance to the visit. One reason is that China looks after itself, ruthlessly so, as in cyber espionage, but takes little interest in collaborating on the solution of world problems, such as in the Middle East. It has nothing of positive interest to offer the other great power.

When he came to London a month later he was received with open arms and the British government offered itself up as China’s best friend in Europe. There was much criticism of Britain humiliating itself in order the obtain Chinese investments, but the real humiliation was the other way around. It will not have escaped the Chinese leaders that they were received not for the brilliance of their civilization but for, and only for, the weight of their gold.

If America is apprehensive and Britain a case study in folly, how should the world deal with a China that is more aggressive and dictatorial than is comfortable?

First, we should engage with China on all levels. That is in our own interest. But also, by engagement China binds itself to international rules and commitments. A China that feels snubbed is a more dangerous country. For every bond, China is less dangerous.

Second, we should speak out in clear language against China’s breach of human rights and rule of law. That should always be done with reference to China’s own constitution and laws, which are in these respects sound (if ineffective), and with reference to the many relevant international commitments that China has signed up to.

Third, we should speak out in clear language against China’s policies of aggression, in particular against neighbors. That should always be done with reference to international law. We should know from history that if aggressors are not stood up to early but instead met with appeasement, there will be a higher price to pay later.

For now China has the upper hand since others are divided and hesitant. Above all, neighboring countries need to collaborate more and better. Others should support that collaboration and speak with one voice. Have no doubt: speaking out is effective if it is consistent. The Chinese leaders are desperate for respect. They should know that the way to get it is to respect their own people and other countries.

THE CHINESE ECONOMY? NOT ALL IT’S MADE OUT TO BE.

Slowly, even those most bearish about the Chinese economy are reverting to caution or scepticism. There has been economic growth, of course, but there has also been smoke and mirrors.

There are two main reasons why the size and strength of the economy has been overestimated. First, the official statistics have been wrong.

From about 2010, even official growth rates have been edging downwards, from about 10 to about 7 percent. But independent analysts, such as the Conference Board, Capital Economics and Lombard Street, have found that either growth has long been officially overstated and/or that the decline has been steeper than officially stated, down now to about 4 percent or less in annual growth. In a survey of American economists by the Wall Street Journal (11th of September), the overwhelming majority said they do not believe the official estimates accurately reflect the state of the economy.

Second, and more permanently, there are weaknesses in the economy itself that have not been easily visible and not recorded statistically. The government has stimulated economic activity by pouring in cheap credit and directing its enterprises to turn that credit into a stream of investments, some sound and some bad. The GDP statistics record all of the economic activity but do not adjust realistically for the burden of bad debt and investment.

Estimates by researchers at the Chinese National Development and Reform Commission, an official agency, suggest that near to half of the total investment in the Chinese economy in the years 2009 to 2013 (the period of post-2008-recession stimulus) were ‘ineffective.’ Their research also found that investment efficiency has fallen sharply in recent years, which means that the economy gets steadily less additional economic growth for every unit of additional investment, to the effect that annual growth in the relevant period corrected for ineffective investment would be 2 to 3 percentage points lower than in the official statistics.

If you dig holes in the ground and fill them up again, that’s economic activity without anything being produced. If you borrow money to build highways that are never used or apartments that are never lived in, that’s investment but not investment that creates real capital that is converted again into real consumption or further production.

It works like this: If an unnecessary airport it built, that’s economic activity. It creates demand for steel, concrete, glass and the like and jobs are created. This shows up as GDP in the statistics. But once the airport is there with little traffic, it becomes a drain on the economy. It has to be kept up and maintained and kept in service for little or no business, or at worst abandoned.

During the growth period, China has had a steady flow of such ineffective investments. That has notched up the GDP numbers to artificial levels. The numbers have not always been ‘incorrect’ but nor have they reflected real economic strength.

Part of the reason why measured economic growth has been falling recently, is that the burden of debt and ineffective investment has been accumulating and caught up with the real economy, and come to weight more heavily in the balance. The new figures are lower partly because real growth is down but partly also because the previous exaggerated figures are no longer statistically maintained.

Xi Jinping and his team announced early on in their tenure that they intended to restructure the economy to make it less investment-heavy and more consumption driven. However, the consensus among watchers of Chinese economic policy is that this reform programme is, at best, being taken forward hesitantly and at a low pace. In the best years, Chinese economic growth looked too good to be true. Well, we are now coming around to accepting that it wasn’t quite true. The new leadership early on seemed to be true modernisers, but that also looks too good to be true and there has been little of bold reform to be seen.

The Chinese economy is best understood as big and lumbering, rather than strong and nimble. It continues to churn on in its lumbering way as an economy that is impressive on the visible surface but with huge if less visible structural weaknesses under the surface. Of economic activity there is much, of economic strength less.