As the Chinese Communist Party celebrates the 80th year of its founding, there are growing worries about the viability of the autocratic political system that it oversees from Beijing. Given this concern, there is little wonder that Beijing wonders about the cause of the collapse of the Soviet system 10 years ago this month, after seven decades of Communist misrule.
The convenient interpretation is that the political openness associated with glasnost invited an ensuing period of chaos. Conversely, Beijing's heavy-handed treatment of "counter-revolutionaries" and unarmed student demonstrators at Tiananmen Square are validated by China's material gains.
With the convening date for the 16th Party Congress drawing near, the question is whether China's system is any more capable of reform than was the Soviet system. Both systems shared an entrenched autocracy guided by dominance of one ethnic group over other minorities, the Slavs in Russia and the Han in China.
Some troubling signs indicate that the current regime is becoming increasingly wobbly. Evidence of widespread dissatisfaction includes scattered rioting and even bombings. The motivations are mixed, ranging from disaffected ethnic separatists to disgruntled workers dispossessed from their jobs by downsizing or reactions against rapacious local officials.
There has been an increase in dissident activities, including an attempt to form an opposition political party, the Democratic Party of China. Unfortunately, the communist authorities have tried to choke this infant movement in its cradle by imprisoning its leaders and raiding their meetings. And then there is suppression of the Falun Gong and other religious groups.
Much of this is glossed over by Communist Party officials rosy portrayal of economic conditions. Interestingly, some Chinese scholars are on record to challenge Beijing's Panglossian view.
Among them is Yang Fan, an economist with the Chinese Academy of Social Sciences. In a magazine published in Beijing by a Communist Party think-tank in 1999, Strategy and Management, Yang predicts that a major crisis would occur in China within five years or less. In his opinion, most of the optimistic tales are designed to induce foreigners to overlook the deep problems in the Chinese economy to persuade them to invest more.
Another book by He Qinglian, China's Pitfall, was published in 1998 that supports this view. He has written a widely discussed book about deep-seated corruption and other flaws evident in the Chinese economy.
It is her contention that much of China's economic growth is the outcome of the "marketization of power" whereby those who wield power along with their sycophants are engaged in the plunder of public wealth. This embezzlement or squandering of very large sums of public funds involved acts by rural cadres that skimmed off billions of yuan since the household responsibility system began 20 years ago. During the 1980s officials siphoned off nearly five trillion yuan by demanding commissions or altering cash receipts or by reselling commodities purchased at fixed state prices to be sold for higher prices on the open market. Public funds were also used to speculate in real estate and stocks during the boom of the 1990s.
She fears China's economy will collapse under the enormous weight of its accumulated debts. Her best-selling book, Pitfalls of Modernization, describes how officials falsified accounts of state enterprises to transfer money raised through stock markets or loans from banks into personal bank accounts. She estimated that state assets amounting to 50 billion yuan (US$$7.2 billion) were diverted each year by Communist Party officials by issuing shares in enterprises. It turns out that China's financial reforms from 1992 to present have provided new opportunities for theft of state assets through manipulating bonds, shares, loans, and real estate. In total, He calculates that officials may have diverted 30 trillion yuan over the past 20 years.
Beijing has finally begun to acknowledge these illicit transfers of public property by its cadres have occurred. With Communist Party's legitimacy and credibility already compromised, these improprieties put the strategy of economic reform at serious risk of failure.
Most of the capital raised on the domestic stock markets and abroad during the last decade to finance the renovation of state-owned enterprises has been similarly squandered. Shares issued to the public were for partial ownership in SOE factories managed by the same people with the same bad habits.
It appears that the weight of the internal contradictions arising from 50 years of economic mismanagement is finally coming home to roost in China. Unfortunately that burden will be borne mostly by the peasants and workers, especially those who have had their savings squandered by the state-owned banks or lost in the recent stock market bubble engineered by Beijing.
A weaker economy will certainly exacerbate the sort of severe social tensions that communism was meant to resolve but could not. The question is how Beijing will react to ongoing public displays of contempt for the Communist Party and whether a breakdown can be averted.
Christopher Lingle is global strategist for eConoLytics.com and author of The Rise and Decline of the Asian Century.
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