Beijing's credibility test over Sars

Heads have finally rolled over the Chinese government's inaction and cover-up of the Sars virus.

Sacking the health minister and mayor of Beijing may calm public anger and demonstrate the resolve of the new leadership under Hu Jintao, who took over as President in March.

But the problem does not end there. The mishandling of the crisis has put China's political and administrative system in the dock. And to the surprise of many seasoned China watchers, the Chinese media has raised the previously taboo subject of political reform and democratic governance.

"China should build up a national system of honest politics and administration as early as possible to prevent corruption" said Professor Hu Angang, in an article published on the website of the People's Daily, the ruling Communist Party's official newspaper.

The Chinese leadership is acutely aware of the need to salvage the government's much-dented creditability, both at home and abroad.

If things go well, fine. But if they don't go well, then Mr Hu's position as party secretary could be in danger

Ever since Deng Xiaoping came to power in the late 1970s, China's rulers have relied on the country's economic success for their legitimacy. The leadership believed that so long as people felt their daily lives were improving, they would not worry about one-party rule or political reform, with all its risks of social upheaval.

Under Jiang Zemin, Deng's successor, China's considerable economic growth and material improvements for large sections of Chinese society continued to obscure the underlying fact that the Communist Party, so long as it remained an unelected, one-party ruler, lacked popular legitimacy.

There is agreement among China watchers that one of the main reasons for China concealing the true picture of Sars was to protect its glossy image for foreign investors, guarantors of sustained economic growth.

The strategy has now back-fired. And the short-term deception could carry a huge price in the long run, both economically and politically.

Bao Tong, political secretary to the disgraced party chief Zhao Ziyang, pointed out in a recent analysis on Sars that the politicization and manipulation of news has been second nature to the Communist Party ever since it took power.

Unfortunately, the practice of manipulating information goes further. For instance, China's dealing with the WHO, the UN's public health body, also presents a costly lesson.

By being secretive and concealing the full picture when the virus first emerged in November, China effectively turned down an expert helping hand and a much-needed sympathetic partner in combating the unknown epidemic.

The Sars crisis also raises the spectre of a possible political power struggle. The Chinese rumour mill has been working hard recently, with serious concerns being raised about Hu Jintao's political future if the crisis gets worse.

Wu Guoguang, a former government aid who now lectures at the Chinese University of Hong Kong, said Jiang Zemin and his protégé, Zeng Qinghong, were waiting to see what happened next.

Under one scenario, China could emerge as more honest and more confident in dealing with itself and the world

"If things go well, fine. But if they don't go well, then Mr Hu's position as party secretary could be in danger," he said.

"Hu Jintao could become the scapegoat in a power struggle, with Mr. Zeng taking real power," he said.

It may seem unfortunate for Mr Hu and the rest of the newly-installed leadership that they face one of the Communist Party's biggest credibility tests so soon after taking power.

But it could become their finest hour. Under one scenario, China could emerge as more honest and more confident in dealing with itself and the world.

But to achieve this, China needs to urgently move towards establishing a genuine civil service so that its government can become open, transparent and accountable. In doing so, it would nurture citizenship and people's confidence in the system, rather than in individual politicians.

One thing seems certain. Without credibility, China watchers argue, the country's economic and modernisation hopes are at risk. More seriously, if the Sars crisis spills over and causes political instability, that would alarm the rest of the world.

>A tense and dangerous time coming up in China now for a lot of reasons all coming together.
>Are the Chicoms able to protect their leaders from the disease?

Check out the old link
below. Let's hope China's brass
doesn't believe SARS

is a Western thrust...
And let's hope that the writer
is at least somewhat

mis-informed about
our military versus
their military --

War With China

Charles R. Smith

Tuesday, Aug. 14, 2001 On the first day of World War III, the United States lost two-thirds of its military and nearly half its population, yielding superiority to communist China. U.S. orders of the day were of high alert, and there is simply no evading the fact that we were not ready.

The Chinese rain of missiles on U.S. installations and homeland cities was a military masterpiece. The People's Liberation Army Second Artillery Corp achieved complete surprise, armed only with a small force of more than 300 tactical and 10 strategic missiles.

Defenseless against the attack, U.S. forces in Hawaii, Alaska, South Korea and Japan were quickly overwhelmed by the guided warheads of the Chinese missiles. The bombs plunged out of the inky blackness of space, striking within seconds of each other. The rain of death fell swiftly upon a sleeping America with precise and devastating accuracy.

In a span of little more than 30 minutes, China wiped out Los Angeles, San Francisco, Seattle, San Diego, Chicago, Washington, Boston, New York, Hawaii, Manila, Seoul, Taipei and Tokyo.

China sank five U.S. carriers, seven Ohio class submarines, vaporized more than 200 MX and Minuteman missiles and destroyed more than 800 combat aircraft including 15 B-2 strategic bombers. The strikes also killed more than 100 million people without the loss of a single PLA soldier. ...

> I was wondering why this hadn't hit the news. It is a major story. The ChiComs are in full scale panic mode I am sure.

Strangely, money talks,
and, also strangely, money
ain't in panic mode --

Warren Buffett Bets on China -- Should You?:
William Pesek Jr.
By William Pesek Jr.

Tokyo,April 30 [!?] (Bloomberg) -- Warren Buffett's search for cheap stocks has brought him to a surprising place: China.

A month after telling Berkshire Hathaway Inc. shareholders U.S. shares were too expensive, Buffett's company upped its stake in PetroChina Co.

It's an intriguing move for a man not known for risky foreign investments. You would think China's dodgy corporate governance, fragile financial system and questions about social stability would keep value investors like Buffett away. China's crisis with the deadly virus causing severe acute respiratory syndrome could be another cause for concern.

That hasn't stopped Berkshire Hathaway from boosting its stake in China's largest oil producer to 13.35 percent, making it the No. 3 investor in the company's traded stock. While Buffett is always reticent to explain his investments, we can surmise two things from the move. One, some of China's biggest companies are trading cheap. Two, Buffett is gaining confidence in China as a long-term investment.

The 72-year-old billionaire isn't a big fan of emerging- market investments -- unless he's getting a real bargain. One could argue PetroChina is such a stock; as of last week it was trading at 6.3 times its estimated earnings this year. Exxon Mobil Corp. and BP Plc were both trading at 17 times estimated earnings.

Buffett's Sway

The biggest question is whether Buffett is right to view Chinese companies, or China in general, as a good long-term investment. While the answer is many years away, the significance of Buffett's PetroChina stake shouldn't be lost. It will sway other investors to follow suit.

That could be a huge plus for China's economy, and investors in it. ...

Dream on. Let me quote Brain Allen's previous post below:

I live in Asia around 11 months of the year and have spent almost half of the past 40 years here. In that time I have never been in a country in which and about which more lies are told [Particularly by CNN-like American "business consultants"] than China -- and/or in which lying and looting and stealing and counterfeiting and corruption is so much an everyday to day part of living.

And nor have I ever come across a more accurate synopsis of the real "china prospects" than those so plainly stated by John Derbyshire in his reviews here and elsewhere of the works of other "old 'china' hands," Joe Studwell and Gordon Chang -- who also know the real "china."

To believe the much-vaunted Peking-based pack of invading, colonizing, enslaving, mass-murdering, [More than one hundred million -- and counting!] lying, looting, thieving gangster bastards that so grandiosely self-styles itself, "china" -- snatchers of power from other despotic dictatorships that, in "5000 years of history" haven't yet managed to invent so much as a form of government worthy of the name -- is to amount to anything more than, say, the Soviet Union, is to believe in fairies.

Dictatorships exist only to keep themselves in power and will eat their own young to hang on to it -- and Peking's gangster/tyrant "politicians" are no exception to that rule.

Book Review by John Derbyshire

The Washington Times - April 14 2002

Dream On

The China Dream - By Joe Studwell

Atlantic Monthly Press - 360 pp. $27.00

The dream of Joe Studwell's title is the dream of the China market: of 1.3 billion consumers just waiting to be sold clothes, medicine, cars, toothpaste, or whatever else the dreamer has to offer. As an English writer of the 1840s put it: "If we could only persuade every person in China to lengthen his shirttail by a foot, we could keep the mills of Lancashire working round the clock." The dream has been dreamed by many westerners across many centuries. For a very few - the opium merchants of the 19th century, the fast-food franchisers of our own time - it has actually come true. Much, much more often, it has proved to be only a dream, the waking from which has sometimes been abrupt and unpleasant.

In recent years there have been three cycles of dreaming and waking for foreign businessmen eager to tap into the China market. The first cycle began in the early 1980s, after a 50-year period when dreaming about China was out of fashion altogether. With the ascendancy of Deng Xiaoping's faction following Mao's death, it became clear that the fantasy economics of the Mao period had definitely been abandoned. So far as industry was concerned, they had mostly been abandoned in favor of the kind of incentivized state socialism attempted in Eastern Europe twenty years before. This was not much noticed, however. What was noticed was Deng's maxim "to get rich is glorious," and the revitalization of Chinese agriculture that followed the retreat from collective farming, and the surge in disposable incomes among urban Chinese from a Mao-era base very close to zero. Western businessmen, dreaming the dream, poured in to set up "joint ventures" with Chinese partners.

The massacres of June 1989 are a convenient punctuation mark for the end of this first dream cycle. Many businessmen had already woken even before that, though; the book Beijing Jeep, published earlier that same year, told the dismal story of a typical "joint venture" fiasco.

The atmosphere of widespread state terror that followed the massacres offered a splendid opportunity for the Chinese government to administer some unpleasant medicine to an overheated economy. When this had been done to the leadership's satisfaction, Deng started the second cycle of dreaming with his famous "southern tour" of early 1992, in which he urged his countrymen to go for maximum economic growth. Following the massacres it was clear that the Communist Party had no intention of going away; but it seemed, from Deng's 1992 speeches, that it might be willing to leave the economy alone. This all happened just as the rising fad for "globalization" was seizing the attention of western business people. Once again, the dream took flight.

The actual experience of western business in China during the 1990s was closely watched by Joe Studwell, a writer on business and economics - he is founder and editor-in-chief of the excellent China Economic Quarterly - who lived in China for the entire decade. He saw the 1990s flood of dreamers arrive, bright-eyed and eager to engage this new, busy China. He watched the bright eyes glaze over as the reality of China gradually revealed itself to them. Signed agreements and "memoranda of understanding" turned out to be worthless; court rulings were not enforced; state-owned enterprises were exempt from costly environmental regulations; expensive licenses, processed by lackadaisical bureaucrats, were required at every turn; counterfeiting and abuse of intellectual property rights were rampant; the early-1990s purchasing-power models for the disposable income of the Chinese turned out to be too optimistic; ad hoc technical standards were used to impede trade; local management personnel were scarce, and of poor quality. As difficulties multiplied, the dream faded.

Then, in December last year, China's accession to the World Trade Organization became official. As this author points out: The government committed to the WTO from a position of weakness, not strength, because of quiet desperation, not unified political resolve. It reached for an outside force to do a job it was failing to do itself - the deregulation and de-bureaucratization of China's economy.

WTO accession arrived just as serious disillusion was setting in among foreign investors in China. There are signs that it has initiated a third cycle of dreaming. Certainly the Chinese government hopes this is so. Knowing that they cannot solve their country's economic problems without making political reforms they are unwilling to contemplate, China's communists hope that the standards implicit in WTO membership, and the compulsory procedures for resolving disputes between members, will, all by themselves, force China's domestic economy to shape up.

Joe Studwell shows convincingly why this is unlikely to happen.

The China Dream will inevitably be compared with last fall's book on the same topic, Gordon Chang's The Coming Collapse of China. [Which I reviewed in these pages 8/12/01]

Studwell's book is lighter on cultural insights than Chang's, but better organized and richer in hard economic facts. He notes, and abundantly documents, such large and intractable truths as the following:

For all the talk of reform, of retreat from socialism, of the unleashing of the energies of the Chinese people, and so on, government payrolls increased all through the 1980s and 1990s.

From being debt-free in 1979, China is now saddled with liabilities that will soon make it the world's most indebted nation.

"Given the state's determination to micromanage economic activity, there [is] almost no strictly legal way for foreign investors to make money."

Studwell offers two possibilities for China's near future: a long period of stagnation and low growth like the one Japan has been enduring, or a major fiscal crisis, with runs on the banks followed by Latin-American levels of instability and social disorder. He notes that neither scenario offers a very exact analogy to China: a stagnant debt-crushed economy with a per capita GNP of $25K per annum is not the same thing as one with $300.00 per annum, and Argentina has never had either Chinese levels of social and political control or modern China's imperial responsibilities and hegemonic ambitions.

The author's advice to foreign investors is to use the country as a manufacturing base for exports [If you can squeeze in among all the overseas-Chinese doing exactly that] -- but to engage in the domestic market only with utmost caution. It sounds right to me, though given the violence of regime change in China, and the xenophobic outbursts that traditionally accompany such change, I would add one more thing:

Keep a suitcase packed and ready under your bed at all times.

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