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Economic future of PRC hangs by a thread

When Chinese President Hu Jintao (胡錦濤) meets with US President George W. Bush in Washington on Thursday, he will have behind him a troubled and vulnerable nation that will surely put him in a weakened negotiating posture with the US.

The conventional wisdom on China today holds that it has generated an economic miracle that is propelling Beijing into the top ranks of the global arena. While there is much truth in that image, it overlooks widespread political unrest, vast unemployment and under-employment, and a disruptive disparity in the sharing of economic progress.

Moreover, China's reliance on exports to drive its economic engine has left it exposed to external pressures, notably from the US. Foreign investment has faltered. China has sought to lock up supplies of energy without much success, and its shipping lanes through the Malacca Strait in Southeast Asia are unprotected.

In addition there are looming water shortages, inadequate public health and safety programs and pollution.

The Chinese government has disclosed, through its official Xinhua news agency, that there were 85,000 incidents of protest last year, up from 74,000 in 2004 and 58,000 the year before. A study by the Council on Foreign Relations in New York attributed those outbursts to "land confiscation, pollution, taxation, corruption and religion," meaning religious persecution.

"Surging social unrest reflects frustration, particularly in the countryside, with the lack of redress available through official channels," the council found. Many protests are peaceful demonstrations, but occasionally the police become repressive and, in one instance at least, opened fire on the protesters and killed several.

Accurate estimates of unemployment and under-employment, meaning a worker has only one or two days' work a week, range between 20 and 40 percent. Some 125 million people, equal to the population of Japan, are on the move every day looking for jobs. While urban Chinese have become better off, people in rural areas are getting poorer.

In trade, China ran a US$202 billion surplus with the US last year, the highest on record. A disruption of that export surplus, which might inconvenience the US, could tip China's economy into a tailspin.

China sells little to the US that Americans couldn't buy for comparable prices and quality from India, Southeast Asia and Latin America. China, however, could not find a market anywhere near the size of that in the US. Privately and candidly, Chinese academics acknowledge this. Moreover, foreign investment in companies and plants in China has leveled off. It peaked at US$60 billion in 2004, was the same last year, and is projected not to rise this year. Some Americans worry that China's holding of US$262 billion in US Treasury bills gives Beijing leverage over Washington. That, however, is less than 12 percent of all foreign holdings.

US Deputy Secretary of State Robert Zoellick said in September that US business executives who saw China as a land of opportunity in the 1990s now "worry about Chinese competition, rampant piracy, counterfeiting, and currency manipulation." Emblematic of China's energy concerns is what Ian Storey, an academic at the Asia-Pacific Center for Security Studies in Honolulu, calls "China's Malacca Dilemma." China gets 60 percent of its oil imports from the Middle East, mostly shipped through the Malacca or Lombok Straits into the South China Sea.

"Any disruption to the free flow of energy resources into China," Storey concludes, "could derail the economic growth on which the Chinese government depends to shore up its legitimacy and pursue its great power ambitions."

It has long been said that all foreign policy is rooted in domestic politics and economics. In China's case, that is doubly true.

Richard Halloran is a writer based in Hawaii.
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