China’s cloudy future – II

First Published: 2015-12-11

The Communist Party’s rule in China is increasingly under pressure, and so its neighbours must be prepared for nationalist aggression

In my last column ("China’s cloudy future – I", October 2015) I had outlined how Deng Xiaoping’s gamble of opening up China (for the third time in its history), in order to generate the popular prosperity which would provide the Chinese Communist Party (CCP) continuing legitimacy, might be failing.

Noting the deficiencies of Chinese official statistics, the late Angus Maddison had produced the most careful analysis and reworking of Chinese statistics in his Chinese Economic Performance in the Long Run (OECD, 2007). His collaborator Harry Hu has revised and updated these ("China’s Growth and Productivity Performance Debate Revisited", EPWP#14-01, The Conference Board). He compares China’s growth during its high growth catch-up phase from 1994, with others who have followed the East Asian model – Japan (1950-68), South Korea (1969-89), Taiwan (1966-87) – and finds that "the pace of China’s growth is similar to or even slightly slower rather than faster than the East Asian economies". His estimate of Chinese growth in Q2 of 2015 is 3.9 per cent compared to the official figure of seven per cent ("China Data: Making the numbers add up", FT, 26 October 2015). On the Li Keqiang index favoured by the Chinese premier it is only 2.8 per cent ("Goldman vs China’s statisticians", FT Alphaville, 18 November 2015).

What does this slowdown mean for the future of the CCP? Many Sinologists who had hitherto applauded the Party for adapting to the changing circumstances it faced, particularly after the international outcry over the Tiananmen Square massacre, are now prophesying its end. David Shambaugh, one of the doyens of this group, has recently written an essay in the Wall Street Journal titled "The Coming Chinese Crackup" (WSJ, 6 March 2015). He argues that the CCP was traumatised by the demise of its sister party in the Soviet Union, and they came to blame Mikhail Gorbachev’s policies of glasnost and perestroika for its collapse. Xi Jinping knows China’s political system is badly broken and is determined to avoid being another Mr Gorbachev. "But instead of being the antithesis of Mr Gorbachev, Mr Xi may well wind up having the same effect. His despotism is severely stressing China’s system and society – and bringing it closer to a breaking point."

Though it is difficult to say when this will happen, he sees five telltale signs that "the end game of Chinese communist rule has now begun". The first is that the economic elites have made arrangements to flee if the system begins to crumble. In 2014, 64 per cent of the high-net-worth individuals polled by Shanghai’s Hurun Research Institute "were either emigrating or planning to do so". The rich Chinese are sending their children to study abroad in record numbers. Thousands of Chinese women are engaged in birth-tourism to bring home "infants born as US citizens". Wealthy Chinese are buying property abroad in record numbers and moving their assets to foreign tax havens. "When a country’s elites – many of them party members – flee in such large numbers, it is a telling sign of lack of confidence in the regime and the country’s future."

Second, Mr Xi has greatly increased political repression, with the party ordering all its units "to ferret out any seeming endorsement of the West’s ‘universal values’ – including constitutional democracy, civil society, a free press and neoliberal economics". This is a sign of the leadership’s deep insecurity and paranoia, and reminiscent of Putinism.

Third, he cites recent instances of attending official conferences where regime loyalists were going through the motions of feigned compliance of the latest mantra. "But it was evident that the propaganda had lost its power, and the emperor had no clothes."

Fourth, the corruption pervading the party and the military also is extensive in Chinese society, being "stubbornly rooted in the single-party system, patron-client networks, an economy utterly lacking in transparency, a state controlled media and the absence of the rule of law." Mr Xi’s anti-corruption campaign is a selective purging of Jiang Zemin’s allies and political clients. This is highly dangerous as Mr Jiang is still the godfather of Chinese politics and Mr Xi has not brought along his own coterie. Moreover, being a princeling he is "widely reviled in Chinese society at large".

Finally, the ambitious program for economic reform unveiled at the Third Plenum is stillborn, as it "challenges powerful, deeply entrenched interest groups – such as state-owned enterprises and local party cadres – and they are plainly blocking its implementation". This darkens the prospects for Chinese growth, and threatens to break the implicit compact the party made with its citizens, to accept authoritarianism in exchange for continuing prosperity.

But this fragility of the party and impending threat to its survival also raises the dire prospect that it will turn, as Vladimir Putin did after his disputed election in 2011, to playing the nationalist card – through aggression, for example, to seize claimed or disputed territory in its neighbourhood. There are many such flashpoints for Chinese aggression. With 40 million "bare branches", Martin Walker argues that "understanding the effect of testosterone overload may be most important for China. A Beijing power struggle between cautious old technocrats and aggressive young nationalists may be decided by mobs of rootless young men, demanding uniforms, rifles and a chance to liberate Taiwan" (Martin Walker: "The Geopolitics of Sexual Frustration", Foreign Policy, March-April, 2006). Then there are the confrontations in the East and South China Seas, and on the Sino-Indian border, as potent flashpoints with China’s neighbours.

This Chinese assertiveness is leading to a grand alliance of littoral balancers led by the United States forming, and including Japan, the Philippines, Australia, Vietnam and India. With some Asian powers, like India, hesitant to directly join an alliance with the US, they are forming bilateral partnerships with each other and separate bilateral partnerships with the US. This replacement of the old "hub-and-spoke" system of the US alliance system is in many ways stronger and also cheaper for the US, as it does not require basing US troops in the alliance countries. (See "In the Pacific, a new military agreement for a new alliance structure", Stratfor, Geopolitical Diary, 9 June 2015).

China’s desire to replace US hegemony in Asia remains the most serious flashpoint for war. It cannot succeed given the coalition already emerging against it, but it could end the 70-year peace the world has enjoyed. Not appeasement, as many commentators are recommending for dealing with a rising China, but robust deterrence and containment is needed, and for this it is vital that the US regains its will to fight for the liberal democratic international order it has maintained since the Second World War.

First published at the Business Standard and posted here with the kind permission of the author.


Deepak Lal is the James S. Coleman Professor Emeritus of International Development Studies at the University of California at Los Angeles, professor emeritus of political economy at University College London, and a senior fellow at the Cato Institute. He was a member of the Indian Foreign Service (1963-66) and has served as a consultant to the Indian Planning Commission, the World Bank, the Organization for Economic Cooperation and Development, various UN agencies, South Korea, and Sri Lanka. From 1984 to 1987 he was research administrator at the World Bank. Lal is the author of a number of books, including The Poverty of Development Economics; The Hindu Equilibrium; Against Dirigisme; The Political Economy of Poverty, Equity and Growth; Unintended Consequences: The Impact of Factor Endowments, Culture, and Politics on Long-Run Economic Performance; and Reviving the Invisible Hand: The Case for Classical Liberalism in the 21st Century.

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