The Chinese Communist leadership is racing pell-mell toward a crisis of the regime.
Although all statistics about the Chinese economy are notional, the fact that Beijing has officially called the growth in the gross domestic product [GDP] for the last quarter of 2008 as only 4.6 percent is staggering. It would represent a reduction of almost half from the quarter before, a third of the generally claimed recent annual rates.
There is overwhelming anecdotal evidence to confirm a drastic slowdown in the Chinese economy. And it appears likely, again from media reports however truncated, censored, and optimistically interpreted – by those who know the Chinese economy best but who have a vested interest in its continued prosperity – that it is continuing to decelerate at a very rapid rate.
Reports of factory closings and growing unemployment – again the official media have spoken of 10 to 30 million – litter the media. More reliable Hong Kong sources report their own “offshore” manufacturing in the nearby Pearl River Delta, from where one-third of China’s exports are said to originate, is closing down.
Exports, to the U.S. and the higher income countries of Western Europe, Japan, Australaisa, and to the Persian Gulf oil sheikhdoms, are again said to account for at least 2 percent of the growth of GDP. The largely assembly operations of the multinational companies – which, again, are said to represent as much as 75 percent of Chinese exports in value – are hard hit by the rapidly falling demand in their subsidiaries in the West and Japan.
The social and political significance of these events probably cannot be exaggerated.
The Beijing regime has virtually abandoned all claims to its legitimacy – despite occasional outbursts of absurd Marxist-Leninist-Maoist gobbledegook – except rapid economic growth. Its return to traditional gigantic Confucionist state rituals of pomp and ceremony – not excluding last year’s Olympics – are evermore in evidence. But it is growth in living standards, real or promised, along with its oppressive nature which keeps the regime afloat
But there has developed a generally approved concept that should the GDP growth rate fall below “acceptable” limits – variously held at 8 to 6 percent – the absorption of China’s rapidly growing labor force, especially from the impoverished rural sector, would bring on social and political instability.
Chinese leadership has answered this onset of a downturn in the world economy with a series of nostrums.
It has lowered interest rates, but given the peculiarities of the government-owned banking system, carry far less weight than they have in this crisis, even in the Western economies. It has encouraged the government owned major banks to open their loans spigots, partially trimmed in recent years to limit bad debts to political and corrupt lending to the mammoth and often inefficient SOEs [state owned enterprises].It has announced a massive new health welfare scheme which is unlikely to be able to be implemented, even nominally, given the absence of a delivery system. It has touted up huge infrastructure schemes already conceived, some to be administered by incompetent and corrupt local government, but with their inflationary aspects far out in the distance. There is a suspicion that some additional government expenditures represent new subsidies to exports. And Chinese authorities have halted and probably reversed any move toward a market exchange rate for the yuan, too bost exports and discourage imports. But, again, this latter may be meaningless, in the face of unconfirmed reports of a substantial outflow of hot money which had sought to profit from a long anticipated, eventual upward currency adjustment but is now betting the other way.
Politically, the Beijing leadership has bluffed its way through public statements and conferences.
Both President Hu Jintao and Prime Minsiter Wen Jiabao have lectured foreign and domestic audiences on the benefits of the Chinese economic system in the face of the credit freeze in the U.S. and onset of worldwide recession. They did not lose the opportunity at the annual gathering of fatcats at Davos to put the blame for the world economic scene on the U.S. And when Treasury Secretary Timothy Geithner openly charged Beijing with manipulating its currency in his confirmation hearing, Beijing reacted with only slightly camouflaged fury, even letting the government media hint China might reconsider its continued buying of American debt through bonds and amassing huge foreign exchange holdings mostly in dollars.
At the same time, there were encouraging sounds from the controlled media and Chinese officials of welcoming the new Obama Administration. Unofficial observers had earlier reflected Beijing’s concerns that there might be a sea change in U.S. policy from the relatively benign [and confusing] positions of the Bush Administration with the new president. And there mutterings about continuing to fund the American trade imbalance with buying U.S. government debt.
In fact, it could have been argued that Washington was getting a “good cop, bad cop” routine from the Chinese. The Chinese sent a naval contingent to collaborate – if not to work directly – with the multinational effort led by the U.S. Navy to inhibit piracy off the Horn of Africa. But almost simultaneously Gen. Jing Zhiyuan who commands Chinese missiles inventory [and apparently has the nuclear button] directly under the Party’s Central Military Commission published in a Party theoretical journal an aggressive rationalization of China’s huge and growing defense expenditures which Washington continues to criticize for its lack of transparency as well as its size. Ruse is, after all, at the very essence of traditional Chinese military strategy.
But perhaps more important than any of these possible feints were two speeches by President Hu Jintao in December directed at his own military. Considering the fact that repeatedly during the Mao Era, it was the People’s Liberation Army [PLA] which had to come to the aid of the Party and the civilian government leadership to restore order, the tone of these speeches was startling.
On Dec. 18, for example, Hu warned: “…stability is our overriding task, because nothing can be accomplished without stability…” But then Hu raised the possibility of just such a chaotic period as the Great Leap Forward, the Great Cultural Revolution, or the Tiananmen Massacre, when he said past methods of control might not be sufficient given the nature of a new crisis: “What we possessed in the past doesn’t necessarily belong to us now; what we possess now may not be ours forever.” The Chinese Communists have always puzzled and tried to understand how such seemingly impervious and bloody regimes as Ceausescu’s Communist Romania – with whom Beijing was highly compatible in the waning days of Communist Eastern Europe – could vanish overnight.
Hu reiterated all these themes during a tour of military establishments in northeast China in December, going even further to remind the People’s Liberation Army of their past rescue efforts. The old slogans of the Party’s role in leading the military were repeated ad nauseum. But visiting the critical northeastern Shenyang Military Region GHQ, Hu warned the officers of the economic crisis at home and abroad. But he also said that “…[T]he forces’ preparation for ‘military struggle’ [had to include efforts to] comprehensively raise the army’s ability to tackle different types of threat to security, to improve its capability for multifaceted military missions, and to strengthen its ability to engage in nonwar-related military operations.” No one who knows the history of the initial clumsy efforts to subdue the student-worker demonstrators in the center of the capital in 1989, the growing unpopularity, corruption and incompetence of regional and local police forces, and the repeated failures of the People’s Armed Police [recruited from PLA cast-offs] to misinterpret that statement. It was explicit warning that the PLA might again be called upon to put down internal disorder – or even revolt – by firing on its own people.
The recent more outspoken behavior of Chinese intellectuals, even including some former government officials, and their imitation of the anti-Communist Czech Charter 77, the growing use of the Internet for criticism of government officials, is probably less important in measuring the temperature of the Chinese political scene than the frequent and generally spontaneous explosions of local rioting. These are as often as not directed against the avaricious activities of the local Party cadre over such things as land rights and evidence of exasperating corruption – as in the revelation of faulty construction in school buildings revealed by last year’s disastrous earthquake in Szechuan which took a heavy loss of children’s lives.
The Ministry of Internal Security has ceased publishing the official statistics on such incidents – last tallied at 57,000 in 2005. But anecdotal references in the press and on the Internet indicate they have snowballed.
And it could not be otherwise with some government media putting the number of jobs lost in the urban area at 33 million last year as a result of the collapsing construction bubble, the end of the Olympics, the postponement of several large water projects, and the general downturn in manufacturing. Government media, again, reported variously 10/12 million newly unemployed rural recruits over the past few years, largely to the export industries, going home for the traditional Chinese New Year’s in January to provincial families living off remittances. Many of them will either have to choose between a return to an abysmal subsistence agricultural existence or return to look for any kind of employment in the cities where there are already large numbers of marginal part-time workers.
But the fact that Hong Kong now hears serious Mainland businessmen and economists – of course, not for publication – suggesting that the Chinese economy might dip, not just to “unacceptable” lower growth rates, but to actual negative growth, is a marker for how far the rot has set in.
Just as in the West and Japan, the psychological aspects of the economic crisis have a stultifying effect. Chinese householders are notorious savers, and with no government social network to sustain them, savings rates are probably increasing, not only refusing to soak up the excess capacity in the export industries-economic generator but nullifying any government attempt to boost internal markets. [Government officials must have gritted their teeth at a CNN video of a young Beijing worker who had bought an apartment during the boom, was now living as frugally as possible to continue to pay for it, and organizing on the internet an association of fellow savers!]
There is no evidence, at least to foreign observers, of any nationally organized network to exploit the growing doubts and opposition to the regime. Not only have ethnic dissidents as those in Tibet and the Uighurs in Singkiang been dealt with along the horrendous traditional lines of Chinese suppression, but the followers of the nativist Fallun Gong been pursued by the regime’s security apparatus. Falun Gong spokesmen who report that their imprisoned followers – some of whom had been Party members – were not only tortured but that their vital organs were extracted for the human parts black market appear to be true.
The regime has one important and enormous asset in the present growing crisis: the fear of chaos. It is always present in traditional China with its seemingly endless natural calamities – a drought in north China now appears to be wiping out half the wheat crop and may imperil the water supply in the capital.
And, ironically, the urban elite which has profited so disproportionately from the Deng Xiaoping partial marketization of the economy, while a generation or more away, is all too aware of the horrors of the Maoist Era when Mao Tsetung, in an effort to shake up old Chinese ways, had the country almost constantly on the edge of chaos and disaster. The threat of instability is one the current leadership almost courts in an effort to maintain its control.
Organized repression, like torture, is often minimized in the more stable societies of the West. If it comes to that, the leadership of this regime is probably prepared to use maximum force to root out any opposition or subdue outbursts of public disorder. Chinese youth, to whom revolutionary fervor has always come as natural as to young people elsewhere in the world, may have been inoculated against it. The sophisticated urban youth have profited more than any other segment of the Chinese society by the growing disparities of income, poor to rich, urban to rural, professionals to hourly labor. Their sometimes bizarre expressions of conspicuous consumption have been the evidence.
Most foreign [and some dissident Chinese] observers who knew an older culture have been appalled at the crass pursuit of material gain that has characterized this generation of the Chinese upper class. But, here too, the growing unemployment against the massive increase in what passes for tertiary education, is exacting an enormous toll. Government propaganda emphasizing the joys of “being sent down” to teaching and menial jobs in the rural areas now being mooted are certainly not attractive to a generation reared on cell phones and the internet. [Both Hu and Wen could tell these youngsters something about the joys of exile to China’s rural environment, much of it hardly touched by the coastal boom, which they both endured and only by luck and guile escaped from during the Maoist Era.]
As the rosy picture of China’s isolation from the worldwide economic downturn evaporates into thin area, even the most optimistic – the investors in Chinese banks and companies – are now beginning to draw in their horns.
There is no joy in Chinese misfortunes, of course.
For the moment, Chinese threats to stop buying U.S. debt seem to be empty. With two trillion dollars in currency reserves – wisely or unwisely being used to try to stimulate the economy and already incurring losses through sovereign funds – Beijing has a vested interest in the U.S. dollar. Its earlier movements into Euro turned out to be loss-leader, as may well be its efforts to block EU protectionism with large purchases in Western Europe on Hu’s recent visit to Davos and Britain. And America, for some time, is going to be less interested in Chinese products, however cheap, although down the line they may be as helpful as Japanese goods was in dampening the earlier stagflation of the Carter years.
Japan, again now moving into recession, had made China its number one trading partner in recent months. Perhaps even more important the assembly operations of the Japanese multinationals [with their Taiwan affiliates] had made it possible for Tokyo to postpone, again, its movement into an economy which would not be overwhelmingly export-led. Ditto for South Korea. Taiwan is already floundering with its growing dependence on Mainland trade to reduce its costs and help to keep the flow of foreign investment and transfers of technology moving.
Thus China is in for a blow. And no one can make predictions how it will end. But the regime will be tested in a way the leadership has not known since the disappearance of Paramount Leader Deng, and his decision in 1989 to murder fellowcountrymen in cold blood, even though some of those were sons and daughters of the elite.
The question may well be whether there are still Chinese such as that ikonic young man who stood in front of the tank?