China dream alive and kicking (economy ripe for collapse)

The New Australian ^ | June 2002 | S.P. Seth

[spycatcher]

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China dream alive and kicking

by S.P. Seth

Tiawan: Taipei
TNA News with Commentary
No. 339, June 2002

A new book The China Dream: The Elusive Quest for the Greatest Untapped Market on Earth, provides an analysis of the unrealized hopes of foreign investors and businesses regarding the limitless scope of the mainland China market.

In his review of Joe Studwell’s book in the Far Eastern Economic Review, David Murphy comments that, “From the 19th-century English writer, who wistfully hoped that Lancashire's cotton mills would boom if every Chinese was persuaded to lengthen his shirt tail by an inch, to today’s car manufacturers, who hope that one in 10 Chinese will buy a car, businesses have dreamed of making it in the Middle Kingdom.” Still, the potential and promise of the mainland “El Dorado” is spell-binding, reinforced by official growth “statistics.” The statistics do not tell the whole story; the murky side is carefully hidden.

According to Nicholas Lardy, an expert on the mainland economy, “The official data overstate the pace of economic expansion ... if for no other reason than over the past decade there has been an extraordinary buildup of unsold and unsaleable inventories. While these inventories are counted as part of output and thus contribute to growth of gross domestic product, they are not utilized for either consumption or fixed investment. The real resources that have gone into the production of these goods has been largely wasted.”

Take one example. “On average from 1990 to 1998, annual additions to inventories absorbed 42 percent of incremental output,” much of it reflecting “the continued production of low-quality goods for which there is little or no demand.” Considering the mainland’s padded statistics, one must be very skeptical.

The economic rot, though, is much wider. The mainland banking system is crisis-ridden and corrupt. In an open political system, it would in all probability have collapsed by now, considering that half to two-thirds of all bank loans are nonperforming and growing.

High-level linkages between the perpetrators of such fraud, however, result in disinterested investigations. According to the Far Eastern Economic Review, “China Construction Bank has been involved in financing the information-technology business activities of President Jiang Zemin's eldest son.” Still, banks like these control US$900 billion in individual savings. If people knew what was going on, there would be an instant run on the banks, which would bring the Chinese economy to a halt.

In a broader sense, any discussion of the mainland economy without taking into consideration the social context is extremely misleading. As Alvin Toffler observed when interviewing Japanese Prime Minister Junichiro Koizumi, “The central risk for the world over the next 30 years will be the mainland. This is because the changes that the government in Beijing is trying to bring about are of such great magnitude. The population of the mainland is so big that these changes will naturally create domestic turbulence.”

In a meeting with the mainland’s State Development and Planning Commission, Toffler was told, “We have 900 million first-wave peasants involved in agriculture. We have a second-wave urban industrial population of 250 million to 300 million involved in manufacturing. Finally, we have 10 million third-wave people with computer and Internet access.” Even with the best scenario for economic development, the relative income mix of the vast population is not likely to change significantly.

In other words, the overwhelming majority of people will continue to live on the land. But land and jobs are shrinking in rural areas. According to Jiang Xueqin, “Across the mainland, people are losing their land to expanding cities and attempts to make tiny farm plots more efficient by merging them into large agribusinesses.” Land confiscation is a serious issue in the countryside, and has sparked large-scale riots. The worst culprits are almost always local officials.

Jiang quotes a local community leader to sum up the people’s feelings: “What's happening is land transfers to a few rich people. The government has had a long-standing policy of letting a few people get rich first.” One can only imagine the pervasive sense of helplessness and frustration among the peasant masses. This is because there are no effective channels for political or legal redress open to them. No wonder grain production is falling steadily. Last year, it reportedly decreased by 1.9 percent, following a 9-percent drop in 2000.

At the same time, unemployment is alarming. The state-run China Daily has put the number of jobless at 132 million — 120 million of them in rural areas. The real figure is obviously much higher. It is expected that this will only get worse following Beijing’s accession to the World Trade Organization.

Despite all the razzle dazzle of big coastal cities, there is widespread poverty. According to World Bank estimates, there are 200 million very poor people in central and western China living on the equivalent of less than one U.S. dollar a day.

If the poverty bracket were raised to include also those living on or below US$2 dollars a day, the number of poor would be much higher.

[TigerLikesRooster]

Re #38

Leaders of China are not clones of Lee Kuan-Yew. I do not discount that, in the business of catching up with front-runners, top-down reform can be done effectively as long as ruling elites can maintain some integrity. That is the case of Singapore. Old German empire and post-war Japan could keep some level of integrity too. In S. Korea, they were not as successful but bottom up pressure of popular dissent kept things under control. I am not sure Chinese leadership is sticking to voluntary code of integrity as much as they should or people's bottom-up pressure is effectively checking any corruptions or excess before it is too late.

[Mark17]

the Chinese will assign 400 people to milk a single cow and report full employment.

Ah, government employees!

Perhaps 399 of them call in sick every day.

[AIG]

The people talking on cell phones in China these days are slaves but only to fashion.

[AIG]

Perhaps, but we know for sure that China's been doing better over the past 20 years than most Third World democracies. If the alternative to China's current system is to become the next Russia, Indonesia, India, or S. Africa, who can blame China for wanting to avoid that and preferring the E. Asian one-party authoritarian path instead. Remember, if China became a democracy tomorrow, it would be ruled by 800-900 mil. poor peasants, and the first thing thing they would do is stop economic reforms in their tracks, raise agricultural tariffs, pull out of the WTO, etc. India's been a democracy for 50 years, but constant bickering and political gridlock has needlessly wasted the lives of 2 generations of Indians. Democracy is great in theory, but in practice in Third World countries, it's a joke. As we speak, it's the Third World democracies in Latin America which are collapsing, not China, so democracy is no magic panacea. As for India, chronic gridlock has prevented economic reforms with the result that foreign investors largely avoid it. When you recommend China change its path, you have to keep India, Latin America, and other Third World democratic basketcases in mind before you idealistically recommend China become the next Third World democracy.

[AIG]

Democracy means majority rule. China's got a majority of peasants. In every Third World country today, the majority-poor populations tend to oppose capitalist reforms, tend to want to maintain their big government welfare states, and tend to elect politicians who will do their bidding. It's unrealistic to expect that it would be any different in China. Merely imposing a democratic political structure doesn't make a Third World country any less corrupt either. Democratic Russia, India, Latin America, etc. all have massive bribery and corruption problems. But at least China's government is passing economic reforms. It's just too difficult for most Third World democratic countries today to pass economic reforms due to democratic legislative gridlock. Economic progress is the best long-term solution for bribery, so whereas China is likely to achieve First World status in the next few decades, most of today's Third World democracies will still be Third World countries in the next few decades.

[winodog]

I am sure someone has pointed this out already, but just in case. If that 20% is right, then I bet the other 80% comes from countries that depend on the US economy in order to do as much business in China as they do.
So if US falters china falters much worse then 20%

[Red Jones]

bump