I started my investigation, no, my amateurish probing, into China a few weeks ago (see 'China' under 'Categories' in the side-bar) with great enthusiasm and then, somehow, in some way, I was side-tracked. Story of my life, really! Anyway, it has been niggling away at me, especially with that fine example of Chinese justice in action at the trial of Gu Kailai plastered across the media in recent days. But still, Olympian distractions followed by American electoral thrills and spills diverted my attention. But today, I came across a fascinating article by Minxin Pei on The Diplomat site. Quite apart from his Chinese ethnicity, he seems to be a very shrewd observer, all the more so because he confirms my (as in 'me, me, me'!) suspicions concerning the real, as opposed to the apparent, strength of China.
He begins, quite rightly, by emphasising how tricky it is to gauge a nation's real strength. Too many factors are at play to make it an exact science:
One obvious problem is the measurement of power. Shall we look at the size of a country's economy or its level of wealth? Should we also consider the momentum and sustainability of its growth? Is its external environment a legitimate variable to include in calculating its power since any country's power is relative to that of its potential adversaries?
And misjudging another adversarial country is all too easy as the Japanese found out after they kicked sand in the face of the American sleeping giant in 1941. Even so, Mr. Minxin Pei tries his best to judge more closely than most the true strength of China today and comes to the conclusion that they have some deep and fundamental problems to overcome. He dates the decline from ('Dim' Dave please note!) the end of the Beijing Olympics. The global financial crisis hit China and caused a drop in the growth rate:
To be sure, Beijing's stimulus package of 2008-2009, fueled by deficit spending and a proliferation of credit, managed to avoid a recession and produce one more year of double-digit growth in 2010. For awhile, Beijing's ability to keep its economic growth high was lauded around the world as a sign of its strong leadership and resilience. Little did we know that China paid a huge price for a misguided and wasteful stimulus program. The bulk of its stimulus package, roughly $1.5 trillion (with two-thirds in the form of loans from state-owned banks), was squandered on fixed-asset investments, such as infrastructure, factories, and commercial real estate. As a result, many of these projects are not economically viable and will saddle the banking system with a mountain of non-performing loans. The real estate bubble has maintained its froth. The macroeconomic imbalance between investment and household consumption has barely improved.
Remember, dear reader, my stories of those fantastic cities without hardly a single inhabitant? Just like those blocks of empty apartments that cover the seafront of southern Spain from Gibralter to Barcelona, there are zillions tied up in what are now absolutely useless, non-performing loans. I have read elsewhere that the state-owned Chinese banking sector is seriously distressed.
There is a far more deep-seated problem the Chinese have to face and that is their demographic. For the first time the proportion of Chinese of working age has started to drop and the number of elderly has begun to increase considerably:
In 2010, 8.6 percent of the population was 65 and older. By 2025, the figure will likely be 14.3 percent. An aging population will increase labor costs, reduce savings and investments, inflate healthcare and pension costs — and slow down growth.
Any drop in employment for whatever reason will instantly begin to cause suffering to Chinese families. Already, the Chinese people, 'armed', so to speak, with modern methods of communication are able very easily to let their feelings be known. The Communist Party of China knows that its legitimacy is paper-thin but any effort to shift from one-party rule to democracy will be highly risky particularly if it is forced to take place in hard economic times. The ordinary Chinese people strike me, from this distance, to be the very opposite of the disciplined, ant-like marchers we saw at the Beijing games. They are a vociferous and independent-minded lot who have tasted the fruits of personal wealth. If the milk and honey ever cease to flow who knows what their re-action will be?
I would add two final thoughts of my own. China is run on the basis of state-controlled capitalism. That is an oxymoron both in a grammatical sense and also in logical terms. Sooner or later the Chinese will be forced to face the fact that governments cannot control the impulses of capitalism except in the sense of laying down a set of laws for all under which the capitalists can be free to pursue their personal interests. Until they sort out the incoherence implicit in state-controlled capitalism, the fault line will remain. Second, I have always believed that there is a centrifugal force inherent in a huge nation like China which might lie dormant for decades or even centuries but is never completely absent. There will be rich, powerful and international Chinese leaders in the regions who might think they would be better off on their own. They might not succeed in their ambitions but their efforts could prove disasterous.