Fri, Oct 12, 2001 page12

• China's shallow economic strength

  • By Chang Ching-hsi 張清溪
  • • 
    • 
    • 

  Today, with the world economy facing a slowdown, the Chinese economy appears almost alone in its outstanding performance. In reality China -- which is economically characterized by a political dictatorship, judicial backwardness and a market economy -- is neither communist nor capitalist. Even though a small minority of very efficient local governments do exist, universal abuse of power -- such as special privileges and personal enrichment at public expense -- make the overall economy outwardly strong but internally weak.

  In fact, many people have already drawn attention to the crisis in the Chinese economy, for example He Qinglian (何清漣) in China's Trap (中國的陷阱) in 1992, and Zhang Jiadun (章家敦) in The Coming Collapse of China (中國面臨的崩解) in 2000. Beginning with national opportunism, government finances, and both natural and man-made disasters, let us analyze the reasons why it will be difficult for the transformation of the Chinese system to succeed.

  Opportunism

  So-called "national opportunism" implies a market-oriented economic system combined with institutionalized personal enrichment at the public's expense on the part of the ruling leadership. It involves rampant corruption and a lack of constitutional order.

  Thanks to the implementation of reforms begun in 1978, China has enjoyed rapid economic growth since the mid-1980s. Following this growth, however, everyone with a hold on power has been cashing in on that power, something that has been called the "marketization of power."

  The privatization of state-owned land during this reform period has become an "enclosure movement," and the reform of state-owned enterprises has led to a great loss of financial assets, something that has been called "spontaneous privatization" (自發私有化). The level of corruption becomes more serious the further down the system one goes. Since power has moved down the system since the times of Mao Zedong (毛澤東) and Deng Xiaoping (鄧小平) in an attempt to maintain political control, a so-called Chinese feudal system has been created.

  Due to the pressure on local finances to be self-supporting and self-sufficient -- and a household registration system that is prejudiced against, and even enslaves, farmers -- together with the urban system of state-owned real estate, the nature of China's communist feudal system results in low labor mobility.

  Local officials have a local power monopoly, including power over local land administration, the judiciary, law enforcement, approval of company start-ups, fund collection and municipal company control -- and they can even control the local militias. Government interference in economic matters is total, including the design and implementation of systems and regulations as well as participation in operations and the resolution of disputes.

  This is the reason why the call for reform allows local officials to line their own pockets with public assets, be it through the privatization of real estate, the transformation of state-owned enterprises into a share holding system, or through state-owned or private or foreign-invested joint ventures.

  It is also because of this environment of independent financial policy-making that some local governments can be very efficient, with officials always responding to the demands of Taiwanese businessmen, thereby creating a business paradise. But, more often, local governments bully, deceive, cheat and steal -- using both force and legislation. They excel in stealing as much as possible: water and electricity is taxed and even entertainment costs more than it should. Irregular taxes are levied, and officials and managers at state-owned enterprises all eat, drink and enjoy themselves at the public's expense.

  Chinese government finances are in the red, though the deficit is not very large, and these days the budget can also be maintained through foreign investment and private savings. This, however, does not take into account the losses of state-owned enterprises, or the accumulated employee pensions, medical expenses or even salaries owed by them.

  There is also another great financial crisis, namely the bad debts of state-owned financial institutions (a large number of loans were extended to government-run enterprises by the Chinese financial system in the past, as well as the previously-mentioned embezzled funds). It is estimated that expired loans in the financial system make up over 20 percent of total loans, and a financial crisis could break out at any moment.

  Natural and man-made disasters

  Disasters have struck China continuously in recent years. This year, there has been flooding in the south and drought in the north, as well as plagues of locusts and dust storms over large areas. According to reports, the desertified land area in China has reached 1,689,000 km2, covering almost a thousand counties, endangering the livelihood and development of 100 million people.

  As for man-made disasters, the Chinese government has been suppressing the Falun Gong (法輪功) movement over the past two years, using extremely unethical methods, especially toward female members (even exceeding the horrifying methods used by the Japanese army toward women). Falun Gong members only want to cultivate their minds and bodies, and without having engaged in any criminal behavior, they are treated barbarically by their own government. If one day we must answer to them, how will they treat the Taiwanese people?

  To implement smooth, gradual reform, the Chinese theory says that the corruption must be allowed and that it is a price that has to be paid. (According to the policy, people who have enjoyed special privileges over a long period of time are bought by allowing them to enter the market economy to eliminate their opposition to reform). This, however, is a dead-end, because it leads to the following problems.

  First, the middle class does not become a force for reform. The rise of the middle class cannot become the power behind political reform that it is in other countries, since its economic power comes from special privileges instead of from the normal principle that economic power is the result of from economic strength.

  Second, capital flows outward. Whether it is to launder money, to avoid the bubble economy, or to escape foreign currency controls, a lot of capital is leaving the country or is being invested in the stock market, bonds or foreign currency savings accounts.

  Third, raising the salaries of public officials will not "promote [moral] cleanliness," since this will still be disproportionate to the money earned through "national opportunism."

  Fourth, distribution becomes uneven and ethics are corrupted. The use of the household registration system ties a billion farmers to their villages, where life is extremely difficult. This transformation process has made the holders of power the new capitalists, but the process also includes a lot of rent-seeking, which uses up an enormous amount of social resources. As a result, ethics are corrupted and "everyone is a thief."

  The economic transformation is only part of a large-scale constitutional transformation. If only the economy, and not the Constitution, is transformed, there will be a huge price to pay in the future when the need to change the Constitution becomes critical. This by far exceeds the short-term benefits of the smooth transformation gained through the buying of officials. The reason for this is that successful economic development not only requires a market, it also requires constitutional order and rule of law to protect the rights of the individual and to function as an effective balance to government power. The basic conditions needed for the creation of constitutional order are appropriate ethical principles, standardized behavior and the breaking of the ruling party's political monopoly, but this is something that cannot be created under the dictatorship of the Chinese Communist Party. In this lies the destiny of the Communist Party.

  Chang Ching-hsi is a professor in the Department of Economics at National Taiwan University.

  Translated by Perry Svensson
• Most Popular

  • 1

    First person arrested as Danjiang Bridge opens

  • 2

    TSMC shares stumble on report, but losses minor

  • 3

    Navy needs 12 subs for modern fleet: CSBC head

  • 4

    Snake on a train spooks riders on Taipei MRT line

  • 5

    HIMARS to be deployed to islands