Posted on 07/16/2004 8:04:54 AM PDT by Dr. Marten
China: The center cannot hold
By Li YongYan
BEIJING - The West has often referred to China as the Middle Kingdom, in a mild mockery of Chinese emperors' illusion that their land occupied the middle location on the flat and square earth. Actually, the name has another, more accurate interpretation that has escaped Western observers: China also means central state. The "Middle Kingdom" is a misnomer because the central authorities don't know, or care, as much about the world outside their empire as about the provinces within their borders.
The central state functions like the central nervous system that issues orders to outlying localities on matters great and small. As the kingdom grows larger and the number and complexity of various affairs - military, administrative, economic and judicial - become too large, some of the administrative powers have to be delegated to local officials, starting the perpetual tug-of-war between the central authority, which fears losing control, and locals who want to have more autonomy. When the "center" becomes weak due to political incest, inaction, indulgence or just plain incompetence, the provinces get increasingly aggressive and keep pushing the envelope to expand their own powers.
Yet the center has managed to hold the state together. For the past two millenniums, dynasties and regimes have succeeded one another, but the fact that the central state has not disintegrated, except on a few short occasions, is an amazing testament to the strength of the glue, the political cement, despite the diverse and often conflicting interests in the vast land. The formula - punishing dissent and rewarding loyalty - is no secret, but consistently effective. It was then, and remains so today.
However, when the central state issues a public warning against disobedience, it can only mean one thing: the threat to centralization is too strong to be ignored any longer.
On May 29, the People's Daily, the Chinese Communist Party's official mouthpiece, ran an editorial blasting recalcitrant officials for violating restrictions on the continued investment in certain industries.
'Cool down' decrees fall on deaf ears
What happened is that, with energy and transportation sectors already bursting at the seams under the deluge of investment in industries such as steel, cement and real estate, and with bad debts piling higher on banks' books, Beijing tried to rein in the runaway enthusiasm, issuing a moratorium on further investment in those key industries. The central state's decree fell on deaf ears. Local governments kept pouring money into these booming sectors. First-quarter investment in infrastructure jumped another 47%. Infuriated, Beijing resorted to the one method that it finds most handy and proves most effective - it sacked the party secretary of one city that is home to a steel mega-project.
That would have been the end of the story. By tradition, all officials, all newspapers, experts and academics would sing along about the "necessity and wisdom" of the center's decisions, until the next wave of opportunities present themselves or a new crop of enterprising, opportunistic officials grow up.
But in a sign of changing times, some newspapers have aired opinions criticizing the central decisions as coming too late, being too arbitrary, too simplistic and ill-advised.
China Business Daily on May 9 reported that thanks to unstoppable rumors about implementation of macro-policies, panic is setting in and that damage has been done: in 17 trading days, Shanghai's stocks index dropped 200 points. Commodities prices such as copper, rubber and soybeans also lost a lot of ground. Even the Hong Kong Hang Seng Index's dive under 12,000 points was blamed on Beijing. The paper went on to quote the president of the finance school of the Northeast Finance University as warning against an over-drastic adjustment under the current pressure of unemployment and the reform of state-owned enterprises. Dr Huang Jinlao, head of domestic financial research at Bank of China, agreed, saying that administrative measures should be avoided as much as possible, because it is up to the banks to decide where to invest, free from government intervention.
Local governments, too, tried to make themselves heard through sympathetic media. A Jilin provincial official told Economy Magazine that some of the central government policies are not very reasonable, because the decision-makers are too high above, and too far away, to have a clear grasp of everything at the grassroots level. The southern Yunnan province believes its economy is lagging too far behind the rest of the country. So investment into the "western" area should be increased rather than decreased. "The problem is that investment in our province is not hot enough," the magazine quoted the locals as saying.
In a May 11 article, the Chinese Enterprise Association made a veiled criticism of the "braking policy". It called attention to "two disadvantages of the administrative measures" adopted by the government: 1) The government is suspected of returning to a command economy, contrary to its own overarching market reforms. And 2) Government controls may harm the healthy parts of economic growth and add to volatility.
Scathing attacks on economic policies
The most scathing attack came in the No 18 issue of Beijing-based biweekly, Outlook, which pointed out that macro-control measures aimed at regulating the speed of the economy "missed the point" because deceleration, like acceleration, addresses only the rate rather than the performance and efficiency of economic growth.
To outsiders, scientific, economic and particularly political issues are all very debatable. No government is stupid enough to step out and tell the public that it knows best and always does it right. But here in central state, the public has an obligation to believe in the wisdom of the authorities who make sure that the only voice it hears is its own. So when Mao Zedong launched the Great Leap Forward, media were full of testimonials by prominent scientists confirming that grain production could increase 90 times in one year. The same officials who only yesterday vowed to "carry the Cultural Revolution through to the end" would later condemn it as a wrongful purge after Deng Xiaoping came back and took charge.
To dance to the central tune was not only essential for advancement but also necessary for survival. Of the handful that voiced skepticism toward central policies, none came to a good end. Mao persecuted his two defense ministers and one president of China to death. Deng placed the Communist Party's general secretary Zhao Ziyang under house arrest from June 4, 1989, when he supported pro-democracy protesters in Tiananmen Square. Former president Jiang Zemin outlawed a quasi-religious sect, the Falungong, for breathing differently. So this unprecedented vocal disagreement with the central's economic policies is truly revolutionary, testing the limits of the current central state leadership that has done nothing yet to inspire fear, and consequent obedience.
The fact that people have been ignoring the central state and have not lost their freedom or lives will embolden further decentralization toward not only more economic autonomy but also political choices. Meanwhile, an increasingly endangered central government will be forced to rely more heavily on "administrative controls" to keep itself from collapse. Until a federal definition of obligations and rights is established between national and local governments and the transition to a market economy is complete, this war of attrition will continue.
Li YongYan is an analyst of Chinese business, economics and politics.
The first character in the chinese word for China is "chung" which among other things has the meanings of "middle" or "central".
Neither is the United States.
You know, alot of the language in this article describes Boston to a tee, and how it deals with the western 2/3 of the state.
By the way Dr, thank you for your wonderful product. I'm wearing my size 11 8-eyelets as I type.
G
Throughout the article, I was musing that there was no discussion of the policies controlling currency and whether there are so many dollars, yen, or euros floating around in the country that a central monetary authority has a diminishing grip on the principal levers of economic statism. It's an interesting hypothesis on the dangers of a positive balance of trade that I had not considered.
My dad flew a C-46 in the CBI with a large "Chung" character painted on the side of the airplane.
What is China's position on holding by the guards and tackles?
Mr. Journalist, I don't care if your name is Chinese but you,sir, are wrong.
1) As far back as almost anyone can trace it was the Chinese who refereed to themselves as the "Middle Kingdom", and it nothing to do with the middle location on the flat and square earth. It refereed to the belief -- by the Chinese -- that their land was the middle kingdom between heaven and earth.
2) "Actually, the name has another, more accurate interpretation that has escaped Western observers: China also means central state." Again, wrong.The word China does not mean "[the]central state". It comes from Ch'in Shih Huang Ti, First August Emperor of the Ch'in Dynasty. The first ruler (back in 200 B.C.) the at conquered/unified a good part of what we now know as China.
Cheeze louise! I hate to make a big deal out of this, but this character muffs this basic stuff this bad right out of the gate....
This is the central problem, most Asian countries do not have an investor-class, they are a nation of bank savers. This puts the banks in the position of having to invest these enormous funds. In Japan, for over a decade the banks propped up their weaker customers to hide the bad loans on their books. Banks were literally loaning companies just enough to keep making their loan payments, then adding to that to keep them on "life support." Good money after bad.
When the inevitable crash came, Japan had serious deflation and stagnant growth for over eight years. China is following the same path. The central government is trying to assess just how serious the problem is by drastic means, no more short-term loans. The banks don't want to admit how many of their loans will default without more and more cover-ups.
FYI
The fundamental problem is one of centralized wisdom. The longer I live, the more I believe this theory: individuals can be very smart, but people in groups are remarkably stupid.
This principle applies to any centrally-directed economy. In truth, any centrally-directed economy is, in fact, a dictatorship. The wisdom of the decisions of a dictatorship is limited to the wisdom of the individual(s) in question. What do we know, however, is that such wisdom inevitably fails. When that time comes, you see gross distortions of resource allocation.
For example, Japan was subsidizing and supporting its ship building industry for decades beyond its useful life. In order to compete with cheaper Korean labor, Japan engaged in subsidies which propped up defunct businesses at the expense of the taxpayer discretionary income (e.g. taxes). While ship building may have been an important industry to Japan at one point, free trade dictated that the Koreans were better (greater value/cost proposition). In the face of this and other inefficiencies, it is any wonder that Japan faced the protracted economic recession? Not to this author.
This resource inefficiency is negligible in the short run and insurmountable in the long run. Reagan accelerated this efficiency gap in the 80's with the USSR by aggressively pursuing cold war weapons systems. In the end, the USSR simply met its natural conclusion - only sooner than it would have otherwise. China faces the same fate with a centralized bureaucracy and state planning. It logically faces a singular decisions: conquer or change. As with the USSR, our vigilance will ultimately be a major determinant of their decision...
"China is no more immune to the eventual consequences of a parasitic government than was the USSR.
Neither is the United States."
Agree with the former, burst out laughing at the later.
Wait until about fifteen years into the boomers' retirement. We shall see who is laughing then.
"Wait until about fifteen years into the boomers' retirement. We shall see who is laughing then."
He he he....riiiight, Social Security is going to do what Communism, Facism and Socialism has failed to do, bring down the United States of America?
Get a grip. We have faced far worse things and thrived in the aftermath. This will be no different.
Social Security brings down America......LOL! Damn, you are funny.
Interestingly enough... two totalitarian regimes have hosted the Summer Olympics: Germany (Berlin 1936) and the USSR (Moscow 1980). Curiuosly enough, both regimes fell 9 years later.
Will the People's Republic of China (Beijing 2008) fall in 2017? (One hundred years after the Bolshevik revolution.)
The rule of 9 ?
I don't know when but its a definite thing Chinese Communism will sooner than later disappear. The contradictions propping up the Communist Party are too great to easily bridge over. Yeah, the regime probably has a decade or two of life left. No totalitarian regime has lasted a century.
1) As far back as almost anyone can trace it was the Chinese who refereed to themselves as the "Middle Kingdom", and it nothing to do with the middle location on the flat and square earth. It refereed to the belief -- by the Chinese -- that their land was the middle kingdom between heaven and earth.
2) "Actually, the name has another, more accurate interpretation that has escaped Western observers: China also means central state." Again, wrong.The word China does not mean "[the]central state". It comes from Ch'in Shih Huang Ti, First August Emperor of the Ch'in Dynasty. The first ruler (back in 200 B.C.) the at conquered/unified a good part of what we now know as China.
Cheeze louise! I hate to make a big deal out of this, but this character muffs this basic stuff this bad right out of the gate....
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I think what he was trying to say was that the English translation of the word "Zhong Guo", which is almost always "Middle Kingdom", gives the inappropriate connotation. The word "middle", just like the character "zhong", is very vague in the sense that we have to ask, "in the middle of what?". Without knowing Chinese history, most people would interpret middle in the sense of "top-middle-bottom" or "left-middle-right" and not "middle vs. periphery". In this case, "middle" is in the sense of "middle vs. periphery" and refers to the traditional Chinese concept of "middle of the civilized world". Thus, "zhong" is better translated as "central", a more specific word that always gives the correct connotation of "middle vs. periphery".
Regrading point 2, I think he meant to say "[the Chinese word for] China also means central state". I don't think anyone would argue with the fact that the English word "China" was derived ultimately from the name of the Chinese emperor.
I was trying to figure out how clarify what I meant in a manner that didn't involve invoking Unicode, which would mean that whatever I did would probably display improperly on the browsers of most US readers.
After learning a bit of spoken Cantonese for a trip to China, I've started studying Mandarin out of the belief that WHEN Communism falls in China (the use of WHEN and not IF is deliberate) the opportunities for round-eyes who speak Mandarin will be significant indeed.
Although I must confess that I am a poor student indeed.
spam_bank: I am from Beijing China. U are right to figure out the Chinese word "zhong" in " zhong guo" has the connotation in the sense of "middle-peripheral".
i would like to add some other words with which we call ourselves as a people collectively and/or state.
-Hua Xia
-Zhong Hua
-Yan & Huang's descendents (verbatim: sons and grandsons=descendents.
all this words come with history and cultural attachment.
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