China on the Brink?
Today being the twenty-second anniversary of the Tiananmen Square massacre, it’s time to open the betting window on China. Will the China we know today survive another twenty-two years? Will it survive another eleven years? Or is it gone in five?
With American and European manufacturers rushing to take advantage of China’s cheap labour, the country seems on the brink of world commercial dominance. Is it?
My guess, given the disparities between urban China and rural China, it is not. Given the rising incomes and the accumulating wealth, and the fact that Communist party is Communist in name only, it will soon give way to some more democratic form of government—dare I say a multi-party system. Right now everyone who becomes financially successful is being invited into the Communist party as a means of cooption. Eventually this must fail, because the interests of the successful are always forced to diverge through competition. The little man standing at the head of a column of tanks in the next go-round is more likely to be a software engineer of factory owner demanding the government get out of his way.
We in the West look at the staggering economic growth rates in China and either marvel or feel threatened. But what we more often than not forget to ask is what growth rate do the Communists need to maintain power and stability? Is it three, four, or ten percent per year? What if that rate is closer to ten percent than two? What is the prospect that China will be able to maintain that required growth rate over the foreseeable future when what we see today is a country desperate to move as much foreign currency out of its domestic economy as possibly in order to staunch unsuccessfully inflationary pressure at home. With the disparity between rich urban Chinese and poor rural Chinese, inflation will likely prove a killer.
My guess is that the Chi-coms are running as fast as they can and losing ground in the process. This cannot go on, and over time they will not be able to produce the jobs China needs. When that happens we can kiss the Chinese Communist party good bye. Personally, I give them ten years tops.
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Feb '11
Re: China on the Brink?
The attraction of China's cheap labor is fading a bit, as more companies come to understand the forecasting and inventory issues created by a month-long delivery pipeline, communications problems between engineers and factory, and loss of intellectual property...not to mention those labor rates are headed up. Some companies are indeed moving manufacturing back to the US, unfortunately the scale of this trend will be limited by anti-manufacturing policies and a significant cultural prejudice against manufacturing in the US.
Mar '11
Re: China on the Brink?
Your point about the lack of sustainability of the current regime in China is likely correct, Stratfor has some interesting analysis here. Consider this, their internal security apparatus consumes more of the budget than their military. There are incredible pressures being suppressed, the Central Committee's obsession with stability is more than paranoia. However the conclusion you reach about about an emerging democratic governance is I fear part and parcel of the excessively optimistic prognosticating we see all too often regarding China. I would regard that as the least likely outcome. Looking broadly at Chinese history you can see two patterns: a China with a strong, brutal, authoritarian central government vs a China split into various competing states. I suspect a civil war resulting in the later will be the outcome of CCP's current rule.
Jun '10
Re: China on the Brink?
Roberto, I agree with most of what you say, even with your assertion about my optimism regarding emerging democracy in China. However, in my defense, I would add that democracies tend to emerge spontaneously in countries that surpass a certain per capita GDP. I grant that this emergence is greatly facilitated by pre-democratic institutions such as legal and financial systems. It seems that once people acquire enough toys they want a say in how they and others play. China has never been this wealthy, a condition that on its own favours democracy and one that shall certainly moderate how future governments evolve even in the absence of a strong democratic tradition.
Edited on Jun 4, 2011 at 11:56amFeb '11
Re: China on the Brink?
Hey, wait a minute. I recall reading a long time ago that one reason why the British system was successful was that at the low end the aristocracy was open to admitting the lower orders. So a successful peasant could hope to join that aristocracy, and thus become a member of the ruling class.
This reminded me of that: "Right now everyone who becomes financially successful is being invited into the Communist party as a means of cooption."
Hmmm. Considering the Chinese Communist party as sort of an aristocracy and not a political party party per se, I suspect you may be incorrect in assuming that it's fall is preordained. England also endured bloody internal strife, yet the aristocracy still maintained power for centuries.
Perhaps instead of collapsing such the USSR China will instead evolve gradually into a democratic system over time- as England did- with the current Communist dynasty remaining in power throughout the long transition.
We'll see.
Oct '10
Re: China on the Brink?
The U.S. has a much more transparent financial/political system than China, yet we had an economic meltdown. I fear that if the economic bubble bursts in China, it may be so severe they may do what dictatorships often do to divert the public's anger, start a war.
Edited on Jun 4, 2011 at 10:52pmFeb '11
Re: China on the Brink?
Biology may play a role.
What will be the impact of selective sex abortion? There's already 30M more boys than girls under 20. For second children, the ratio's 140/100. In some provinces, first child ratios reach 2/1.
The typical male member (of the species) thinks about sex once every three minutes. This begins at 14 and continues until approximately 1 hour after death. The Chinese desperately need an alternative.
Line marriages? Worked for Heinlein's Loonies.
A separate branch of the military, with life centered on the barracks and ritualized homosexuality? Worked for the Spartans.
What of the ratio of old folks to young folks? In Europe, one worker will be supporting one pensioner (after they've killed all their Muslims). In China, it'll be worse. In Europe, they'll likely just kill all the old folks, too. Hard to see how the Chinese will manage: Logan's Run but with filial piety?
How would such an economy even work? Who makes things? Who grows them? Japan may have the answer. They're betting their future on robots. (Skynet's less dangerous than immigrants?)
Perhaps life really is a giant Ponzi scheme.
May '10
Re: China on the Brink?
The future of China is uncomputable, but you have to be prepared for the worst-case scenario: China as the Germany of the 21st Century. I'm not saying it will happen, but it could...
Jun '10
Re: China on the Brink?
Roberto: Thanks for reminding me to read my Stratfor updates. That's an astonishing fact that they are spending so much on internal control. We know it's a lot because their military is huge and getting bigger every day.
Totalitarian states are so evil in this way. I remember reading about life in the USSR and how bad it was to get on the wrong side of any of the watchers or commissars in the hierarchy of your daily life. In America we might get fired at work but this has absolutely no effect on our landlord or mortgage holder. Think of what it is like to have this level of scrutiny to force us into compliance and conformance -- that all the authority figures in our life are talking amongst themselves, comparing notes and slowly grinding us down.
I grew up Catholic and we used to pray regularly for the "conversion of Russia" -- maybe it's time we all started to pray for something like this (or less ambitious) regarding China....
Feb '11
Re: China on the Brink?
Actually the potential scenario is worse than that. One of the big reasons Germany failed to conquer Europe was because there simply weren't enough Germans. For example the German invasion of France at the beginning of WW1 almost succeeded. I've read that the few divisions diverted from the Eastern front after the Russians were crushed at the battles of Tannenberg and Masurian Lakes would have been enough to enable the capture of Paris, potentially giving Germany a quick victory in the war.
Lack of manpower is not a problem that bedevils China.
Mar '11
Re: China on the Brink?
I have a different take. One I've had for a number of years. An economic system such as China's, which is famously corrupt, can only get so far. A lot of attention has been paid to the growth rate of their putative GDP. GDP is an extremely bad proxy for wealth. A ton of cement in excess of need adds to the GDP but it is essentially worthless. I'm sure you've seen the photos of China's empty cities - elaborate, modern cities devoid of life. Some people got very rich - cronies. It was added to GDP. It added no wealth and diverted enormous resources to Swiss bank accounts.
The CIA infamously botched their estimates of the Soviet economy. They were looking at the same kind of information we now use to assess China. The map is not the territory.
Jul '10
Re: China on the Brink?
GDP is pretty poor measure even in a relatively transparent country, where some information can be gotten privately and, as has been happening some lately with inflation and unemployment numbers, the formula can be challenged. That Obama spending counts as production, for example. Of course, servicing that Obama borrowing counts against. When I look at the GDP numbers I head toward the private sector bits first, and always check the public spending versus private spending ratio. Markets or cronies, that is the question.
If only young Barack had played Sid Meier's Railroad Tycoon he might have come to appreciate debt, interest rates, and insolvency. As it stands, his first round of the game is with the lives of over 300 million men, women, and children. From the results so far, I'm betting Michelle always handled the checking account.
Krugman's "we're not busted yet, people are still buying our debt!" reminded me of the wife who knew her checking account wasn't empty yet because she still had checks in her checkbook.
May '10
Re: China on the Brink?
1) The last indomitable economic power that was going to swallow us up based on linear projections of infinite economic growth was Japan in the 1980's. How did thta one work out? Our enemy is us, not China.
2) Anyone who has ever watch the PLA play soccer all afternoon is not concerned about Chinese outward-directed military aggression. Look at the investment rates of the GMD in China and it is pretty clear that there also won't be any missiles fired at Taiwan. Threats, bullying, ASAT development programs, aircraft carrier production, yes. Not invasions and explosions.
3) The male-female imbalance exists, but it is nowhere near the numbers thrown around, nor is the one-child policy very effective in preventing lots of families with several daughters outside of the large cities.
4) Watch carefully to see how the Christian house church crackdown proceeds. I predict failure, and eventual accommodation- which will have the same effect it did in Russia and Poland.
5) For the real story, read (and enjoy) "http://eastasiadiary.blogspot.com/2004/11/how-democracy-will-overtake-china.html" to learn how democracy is inevitable.
Jun '10
Re: China on the Brink?
Well, Duane, I hope you are right. We all hope that engagement gets them regularized in the world. But, China is a law unto itself. The British sure couldn't crack them.
I will watch how the Falung Gong and the Christians are treated in the near future -- I hope to see what you are saying come true.
I guess I must admit that they haven't been too aggressive outside their sphere of influence historically. But, it is hard to even think about what is going on in Tibet and other states in their orbit.
Finally, their use of North Korea is really despicable. That whole country held captive by the Chinese for all these years -- our troops are still in South Korea simply because of the bullies in Beijing.
I also hope to see Mao's picture only in places where it belongs -- UC Berkeley and the like. It's depressing to see that Mao is still an icon even if they (strangely) admit that he is partly wrong, partly right. This is a long national nightmare of doublespeak.