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No change amid great change: the China Syndrome

By Patrick Smith
BLOOMBERG, NORFOLK, CONNECTICUT
Sunday, Nov 24, 2002, Page 12

A young Chinese soldier waits with his colleagues in Shanghai Railway Station, before boarding a train to Tibet on Friday. In the article below, Patrick Smith states: ``Everything that happens in China will happen under the party's auspices.'' PHOTO: AP

Now that China's Party Congress is over and a new generation of leadership is officially in place, what's the nature of the beast before us? What does the world have to look forward to in years to come? Not too many pretty sights, it seems. Continuity is the key theme as the baton is passed in Beijing, and continuity isn't what China needs. Absent the change the nation requires -- notably in its growth strategy and its political system -- the stability that China's leadership has made its priority is likely to prove brittle.

In terms of arriving and departing faces, there has been change across the board in Beijing. Jiang Zemin (江澤民) has stepped into the background, if not precisely into retirement, and is replaced by Hu Jintao (胡錦濤), a nondescript but nonetheless tough bureaucrat, as secretary general of the Chinese Communist Party.

Li Peng (李鵬), the head of parliament, and Prime Minister Zhu Rongji (朱鎔基) have been key reformists and both are fading out. Half the party's 356-member central committee has been replaced.

`China lacks the political and social mechanisms to absorb the fallout that reforms necessarily entail.'

This is a perfect example of that old Asian specialty: no change amid great change. Beneath the talk of "keeping pace with the times" -- the refrain in Jiang's keynote address at the congress -- China's leaders have merely reaffirmed that they decline to do so even as younger figures assume control.

Beijing's commitment to an export-focused economy fueled by foreign direct investment, which is expected to surpass US$50 billion this year, is more or less consolidated for another generation. It's effective, clearly, but the price is high. This strategy leaves China a social mess in the making, as it is now, a missed opportunity in terms of democratization, and -- it's not too much to suggest -- a kind of national tragedy. It leaves many of us with a profound uncertainty about the very stability China wants most.

Too pessimistic? I don't think so. In effect, Beijing proposes the same social contract almost every nation in East Asia tried during the Cold War decades: Offer your citizens material prosperity in exchange for a blighted political landscape -- life in a civic desert. Self-interest eclipses public interest. It's a quintessentially 20th century idea -- and failed to prove out even in its prime.

All the signs are there -- not least an unhealthy assumption that growth statistics alone are a measure of national success.

When Jiang announced his goal of quadrupling gross domestic product by 2020, I couldn't help but think of the ``income doubling'' plan Japan launched in the early 1960s.

Export dependence and foreign investments as a primary economic engine don't engender vital civil society organizations or the necessary risks that accompany a nation's evolution toward democracy. Pick your East Asian example -- Korea, Indonesia, even Japan in its way -- and draw the conclusion. As a growth strategy this is a formula not only for political dysfunction but also for its sibling: institutional fragility and underdevelopment. With varying degrees of success, East Asians are still recovering from this mistake.

Of the several hollow ideas advanced by Jiang as he makes his way toward the gate, the one we learn most from is his notion of the "Three Represents." In essence this is a euphemism for the enlargement of the party's franchise to incorporate new social and economic elements created by the past 20 years of reforms. Chief among these are entrepreneurs and the managerial elite that have emerged in Shanghai and other major cities.

Jiang now calls capitalists in the party "advanced forces of production," and the language may be a matter of mirth. But the message it sends isn't: Everything that happens in China will happen under the party's auspices; no matter how great the stretch, no aspect of economic, social, or political life will flourish outside its control.

China's leaders reckon they need 7 percent GDP growth yearly to pull this strategy off and avoid severe social and political dislocation. Is this sustainable, even if you accept China's statistics at face value? It's a legitimate question, given that not even the economy is as promising as it seemed a year or so ago. A banking crisis now looms large.

Non-performing loans total up to 37 percent of gross domestic product, according to CLSA Emerging Markets, a Hong Kong brokerage house, which puts it right up there with Japan's banking crisis.

Fiscal debt, by some estimates, comes to more than 100 percent of GDP, which again puts China in the major leagues with Japan.

Income imbalances, urban dwellers and villagers, those employed in the booming export sector and jobless refugees from state enterprises are all mounting.

As Jiang and his colleagues made clear repeatedly during their just-ended 16th congress, China's commitment to reform is unshakable. This may or may not prove reliable, for there's a missed connection here that seems to have passed Beijing by more or less completely.

Having addressed the easy reforms, those needed now will be all the more difficult precisely because China lacks the political and social mechanisms to absorb the fallout that reforms necessarily entail. The fight against corruption, establishing the rule of law, regulatory transparency -- these are all tasks that depend upon process, not fiat.

Modernize the economy and retard political development: It has been on the docket in China for years, and it is now fixed as the way forward. There are models galore for this strategy, and not a one has produced an encouraging result.

Patrick Smith is a former correspondent in Asia and author of Japan: A Reinterpretation.
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