21/01/2009 - 22:00

China’s regime running on empty

21/01/2009 - 22:00


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WA’s economic future is critically tied to that of China, and the signs aren’t promising.

China’s regime running on empty

WESTERN Australians, particularly those who are fly-in, fly-out workers, appreciate the importance of China's resource needs to the state's economy.

Last year, I lunched with a senior WorleyParsons project consultant. After entrees, I asked what WA's economy would have been like if China hadn't emerged by, say, 2000.

He was brief, "We'd have been in recession".

Perth's many thousands of engineers, like fly-in-fly-out workers, fully appreciate the impact of that market.

Not only would Australia's balance of payments have looked less impressive, so would all of our pay packets, bank accounts, and home prices.

Understandably many are wondering what China's future resource needs will be because of the ongoing global crisis.

However, what needs to be emphasised is that those who focus only on global aggregate demand for Chinese manufactured output, and the likely magnitude of backward linkages upon our resource sectors, aren't necessarily seeing the entire picture.

Purely economic or business cycle considerations miss a crucial aspect - China's failure to reforms its political and judicial order, which remain primitive and markedly authoritarian.

What the neo-Communists controlling China have done since 1979 is unlock the economic dynamism of the Chinese following decades of suppression.

But they've remained short sighted by battening down the authoritarian order inherited from their late, genocidal leader, Mao Tse-tung, by retaining one party rule.

Unfortunately for them, economic and political reforms often go hand-in-hand, so that those seeking to preserve authoritarianism and conjointly modernise economies inherit ongoing challenges that inevitably mean strife.

That's what happened in Poland during the 1960s and 1970s, where the government experimented with economic reforms but doggedly preserved Bolshevik-style monopoly controls.

In less than two decades Solidarnosc emerged and affected not only Poland but countries across the entire Stalinist bloc, including even the Soviet Union whose then leader, Mikhail Gorbachev, belatedly set about emulating his Polish comrades with glasnost and perestroika.

Demands for human rights and democracy were again voiced.

And what of China while that was happening in Europe throughout the 1980s?

The same thing; growing calls for political reform.

And it was only at the last minute that Beijing's authoritarian hardliners prevailed by shooting hundreds of pro-democracy protesters in Tiananmen Square and police dungeons and jails nationwide.

What State Scene is highlighting is that China's Communist primitivism, which has created a super-rich crony-capitalist elite, still finds itself needing to embrace political reform.

That's pertinent to WA, to fly-in, fly-out workers, engineers, and all of us.

The failure to adopt such reforms may eventually mean a far harsher impact upon our trade with China than that caused by the so-called economic melt down sparked by Wall Street's myopic greed.

State Scene was reminded of this likelihood in a feature article in The Times (A tidal wave of discontent threatens China, January 14 2009) by noted Chinese dissident, Wei Jingsheng, who was imprisoned from 1979 to 1993 and again from 1994 to 1997 for advocating human rights reforms.

In 1996, he was awarded the European Parliament's Sakharov Prize for Freedom of Thought, and was expelled to the US in 1997.

Jingsheng believes widespread discontent threatens China today because its leaders are "trapped between the angry poor who have been overlooked and the powerful rich who have not only been created by the post-Maoist leadership but favoured by it.

"The whole world is suffering from an economic crisis," he continued.

"Some in the West, like a desperate drowning man clutching at a straw, have said the Chinese government has a lot of money, let us beg them to save us from the crisis.

"But they do not realise that the government in Beijing does not know how to save itself."

China holds two trillion dollars in foreign currency reserve with less than half a per cent of its population owning 70 per cent of the nation's wealth, "while a fifth of its population - more than 300 million Chinese - have daily incomes of less than one dollar".

This huge disparity, says Jingsheng, threatens the government's grip on power.

But it also means that there are too few consumers to sustain a vibrant domestic market.

"So 'the workshop of the world' is particularly reliant on the fortunes of the world economy," he says

"The government claims that unemployment is running at 4 per cent in urban areas; but the official figures cannot be believed.

"It is more likely that the unemployment level already stands at about 20 per cent, meaning the crisis is already far more severe than in the US and Europe.

"Second, growing unemployment and stagnant wages will stoke the rising resentment against the super-rich, threatening the position of the ruling class.

"The government regards the tens of millions of peasant workers who will return to the cities after the Chinese holiday season to closed factories and no jobs as an urgent threat.

"Chinese peasants have a long tradition of rebellion."

Nor is the Chinese government's November $US600 million public spending package likely to help.

"Because China's government is not elected by the people, its policies are run on behalf of the bureaucratic-capitalist class," Jingsheng says.

"Instead of acting in the interests of ordinary Chinese, it will try to save the big business enterprises of the ruling elite. But the owners of these big businesses will simply move their assets to safety outside China.

"The evidence can already be seen: from Los Angeles to the shores of Lake Geneva, China's super-rich are anxiously snapping up real estate, paying with cash.

"The more turmoil there is - as unemployment shakes the social order - the more capital will flee China."

Evidence exists of widespread discontent already emerging, and on a large scale, with this likely to be transformed into violence.

"According to the Chinese government there were more than 80,000 'sudden incidents' - its euphemism for protests - in 2006; it is now thought that last year the figure rose to 100,000," Jingsheng says.

"This rising tide of discontent is Chinese history repeating itself - the end of each dynasty was marked by a crescendo of violence.

"Military suppression cannot work. Soldiers are the relatives of the peasant workers who have lost their jobs; the families of the military officers will also suffer through the economic crisis.

"The internal conflict between the various vested interests within the Communist Party is getting bigger with each wanting to make the rival factions scapegoats.

"From what I hear from people of all backgrounds from inside China they believe, 20 years on from the anniversary of the Tiananmen Square massacre, that time is up for the regime - they believe that, in 2009 or 2010, the Chinese will reach the limit of their toleration for the Communist Party.

"The people of modern China are different from their ancestors: they no longer expect a wise emperor and fair judges to rule over them.

"They know that only democracy will guarantee what they want: prosperity, security and fair treatment.

"The Chinese ruling class thinks this too - that's why they are already sending their children and their money to the West."

Since Jingsheng's assessment rests on well-founded intelligence and an understanding of China's past, WA's economy could well feel the full fury of the turmoil that could even be protracted.

And Wall Street won't be able to be blamed for this.



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