13/02/2007 - 22:00

Whispers get louder on China

13/02/2007 - 22:00

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State Scene dislikes pooh poohers – those who, just for the heck of it, pull down everything others feel nice or comfortable about.

State Scene dislikes pooh poohers – those who, just for the heck of it, pull down everything others feel nice or comfortable about.

Criticism is needed, but only if evidence is available to warrant it.

It’s primarily because of this that I’ve held back over the past few years to more closely consider the growing elation about China’s economy.

Treasurer Eric Ripper enjoys saying Western Australia has a “V8 economy”, after which he generally highlights China’s demand for WA’s iron ore and gas.

Others, including local and national business writers, sometimes write in the same vein without giving much attention to what’s happening across China.

However, State Scene has been encountering writings by a growing number of experts who seriously qualify such elation.

Although it’s silly to pooh-pooh everything Chinese, evidence continues to emerge that indicates we should be markedly more circumspect about China.

According to noted Iranian international columnist, Amir Taheri, the so-called Chinese economic model is the brainchild of the late Deng Xiaoping (1904-97), “who ruled China with an iron fist for almost two decades without occupying the highest positions of state”.

Deng emerged as de-facto ruler after Chairman Mao Tse-tung’s death in 1976 and denounced the hugely destructive Cultural Revolution

According to Taheri, the Chinese model: “consists of combining an authoritarian political regime, symbolised by one-party rule, with a laissez-faire capitalist economic system of the type that [François] Guizot had preached in France in the 1830s.”

He says it’s becoming common to hear only praise and admiration of the Chinese economy.

“Anyone who visits Shanghai, where more than 1,500 skyscrapers, 10 times as many as in New York, reach for the clouds, cannot but agree,” Taheri says.

“But what if this colossus has feet of clay? What if the so-called “Chinese Model” consists of nothing but brief, though impressive, fireworks of history?

“Such questions might sound impertinent about an economy that is projected to double in size every seven years.

“And, yet, some of these questions are being posed, albeit in private conversations, in Beijing itself.

“And, on rare occasions, they even find a measure of public airing.

“One instance came last January [2006] when The China Youth Daily published an essay in its weekly supplement ‘Freezing Point’.

“Not surprisingly, the ruling Communist Party reacted by temporarily closing down the newspaper, cancelling its supplement, and firing its editorial staff.

“What was surprising, however, was the protests provoked by the crackdown.

“These included dozens of former party officials, academics and intellectuals, who signed an open letter denouncing censorship.

“The signatories have suggested a more open discussion of economic policies that have always been made behind closed doors and by a handful of politicians and their technocratic advisers.”

Writing last April in the San Francisco Chronicle, Minxin Pei, a senior Carnegie Endowment for World Peace associate, wrote: “The only thing rising faster than China is the hype about China.

“China’s economic boom has dazzled investors and captivated the world.  But beyond the new high-rises and churning factories lie rampant corruption, rising social injustice and an elite preoccupied with its own survival.”

Pei said it’s understandable so many are ecstatic about China.

However, he added: “But before we all start learning Chinese and marvelling at the accomplishments of the Chinese Communist Party, we might want to pause.

“Upon close examination, China’s record loses some of its luster.

“China’s economic performance since 1979 is actually less impressive than that of its East Asian neighbors, such as Japan, South Korea and Taiwan, during comparable periods of growth, especially if adjusted for the quality of growth.

“Its banking system, which costs Beijing about 30 per cent of annual GDP in bailouts, is saddled with non-performing loans (ones without an expectation of repayment that have not yet been written off) and is probably the most fragile in Asia.

“Behind the glowing headlines are fundamental frailties rooted in the Chinese neo-Leninist state.

“Unlike Maoism, neo-Leninism blends one-party rule and state control of key sectors of the economy with partial market reforms and an end to self-imposed isolation from the world economy.”

This isn’t good news for what Mr Ripper calls WA’s V8 economy.

Pei continued: “Today, Beijing oversees a vast patronage system that secures the loyalty of supporters and allocates privileges to favored groups.

“The party appoints 81 per cent of the chief executives of state-owned enterprises and 56 per cent of all senior corporate executives

“The Chinese economy is not merely inefficient; it has also fallen victim to crony capitalism with Chinese characteristics – the marriage between unchecked power and ill-gotten wealth.

“And corruption is worst where the hand of the state is strongest.

“The most corrupt sectors in China, such as power generation, tobacco, banking, financial services, and infrastructure, are all state-controlled monopolies. None of that is unprecedented, of course.’’

He said China’s politically connected tycoons had cashed in on China’s real estate boom with nearly half of Forbes’ list of the 100 richest Chinese in 2004 being real estate developers.

State Scene has encountered other writers with similar views.

The most recent is an Australian, Andrew McIntyre, who worked in China last year and published his conclusions in the January-February issue of Sydney’s Quadrant magazine in an article titled ‘China’s Copycat Capitalism’.

He quoted from a book by a WJF Jenner, The Tyranny of History: The Roots of China’s Crises, who wrote: “What has stopped China from becoming economically successful over the centuries has been the lack of commercial law.”

It appears few business writers, and even fewer Australian politicians, are aware of this crucial absence in China’s business sector.

McIntyre also adopted a historical outlook.

“When Marco Polo went to China in the 13th century, he remarked on the vibrant commercial activity there that completely dwarfed that of Europe,” he said.

“The Chinese have always considered land, labour and products as tradable commodities, but central control has always been the key for successive dynasties, and the state, through the omnipotent Mandarinate bureaucracy.”

Jenner backs Pei by saying: “China is still under the rule of a thinly disguised, pre-modern imperial bureaucracy.”

In similar vein, Taiwanese writer, Bo Yang, has written: “Chinese demo-cracy means the people doing what their self-selected betters tell them”,

The message is loud and clear – China’s economy remains dominated, if not by politics, then by a political administrative elite that’s neither civic-minded nor broadly popular with the country’s hundreds of millions of squalidly poor workers and peasants.

That being the case, China may not be as stable as might appear after superficial inspection by inexperienced and uninformed media and political outsiders.

It’s worth noting that Eastern Europe and the Soviet Union in the late 1970s seemed thoroughly stable, if not exactly dynamic economically.

Then, seemingly from nowhere in 1979, Poland’s Solidarnosc movement appeared and quickly won admiration across the entire Soviet bloc as well as the West. Soon after, all Bolshevik governments tumbled.

Closer to home we witnessed the famous Asian meltdown.

When reading writers such as Taheri, Pei, Jenner and even short-term visitors to China such as McIntyre, one finds that the China scene isn’t all economic roses.

Pei has gone further in his prognostications: “For the moment, China’s strong economic fundamentals and the boundless energy of its people have concealed and offset its poor governance, but they will carry China only so far.

“Someday soon, we will know whether such a flawed system can pass a stress test: a severe economic shock, political upheaval, a public health crisis or an ecological catastrophe.

“China may be rising, but no-one really knows whether it can fly.”

Such warnings are worth keeping in mind, especially by Western Australians, whose current unprecedented real estate boom and full employment accompanied by skills shortages depends significantly on what’s happening in what was once known as the Middle Kingdom.

State Scene believes reporting this isn’t stooping to crude pooh poohing.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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