Author: Orville Schell
Publication: www.redherring.com
Date: November 7, 2002
URL: http://www.redherring.com/insider/2002/11/coming-china-collapse-110702.html
Technology companies better watch
out--China's economic miracle is just another Internet bubble.
"Somewhere in that country today
there is a person who will end the Chinese state as it now exists. He or
she will dare to give a voice to thoughts that for most are unspoken or
only half formed . . . China is a lake of gasoline, and that individual,
in some small town or city, will only have to throw a match."
--Gordon G. Chang, The Coming Collapse
of China (Random House, 2001)
No society of global consequence
today is more in a state of irreconcilable contradiction than the People's
Republic of China. A vast and overpopulated nation in the midst of a fevered
but precarious transition, its leaders have failed to articulate a coherent
development model as a guide for reform.
In the most concrete terms, China's
ballooning population of 1.3 billion, which every year generates 12 million
to 15 million new mouths to feed and workers to employ, presents a challenge
so daunting that it is difficult even to imagine a solution. And its natural
resources and environment have been so degraded by the high-speed development
necessary to keep people quiescent that nine of the world's ten most-polluted
cities are in China.
In the political sphere, China is
governed by an autocratic Marxist-Leninist regime that is beholden to an
obsolete ideology, has no durable system for leadership succession, is
riven by endemic corruption, and is deeply wary of political reform (lest
it reform itself out of power). At the same time, it has unleashed a market-driven
economy that is creating such social contradictions that tectonic upheaval
is almost as plausible as peaceful evolution.
On the economic and financial front,
from which the government derives its limited legitimacy, China's nascent
financial markets are little better than government- sponsored gambling
casinos in which speculators and inside traders grow wealthy. Its banks
are little more than giant cash registers that have long been dispensing
subsidies to money-losing state-owned enterprises (SOEs)--as much as 50
percent of their loans (currently estimated at almost $500 billion) are
considered nonperforming. What's more, the absence of sufficient locally
generated investment capital for sound new projects is responsible, in
part, for excluding millions of workers and peasants from the economic
boom of coastal China, making them a disenfranchised and politically unstable
class. As if this were not enough, China's accession to the World Trade
Organization in 2001 means that SOEs will soon have to compete with foreign
companies and banks, creating the specter of even more unemployment and
disaffection. Indeed, for the fifth year straight, desperate leaders have
had to continue an expensive fiscal stimulus program of massive public
spending that no one knows how to end.
And it is far from certain that
technology alone will save China. With the country's reputation for exploiting
technology transfer through copycat theft and for pirating intellectual
property, it's unlikely that IT will be China's salvation. Instead, it's
just as possible that China will remain a low-end manufacturer exporting
to an increasingly depressed world market and never moving to the next
level of the food chain.
Victimized by decades of extreme
revolution that ruined traditional value systems and culture, the Chinese
have been plunged into a state of ruthless market competition that has
left them socially and spiritually lost. And, should central authority
ever be challenged in a concerted way, tensions between Beijing and the
far-flung minority- Buddhist areas of Tibet, Muslim areas of Xinjiang Uygur,
and all of Inner Mongolia could conspire with economic regionalization
to fracture China. Meanwhile, China's relations with its two most important
trading partners, Japan and the United States, remain compromised by complex
feelings of ambivalence that often erupt in expressions of muscular nationalism
and outright xenophobia, which could easily be directed in a most destructive
fashion against newly arrived foreign companies, as has happened so often
in the past (see "Defeated and Retreated").
Despite efforts to isolate the Chinese
people from contagious foreign ideas and political "isms," the "Great Wall"
erected by the Communist Party increasingly is being breached by the Internet,
radio, television, and globalization, making it more difficult for the
party to remain politically supreme. But since it is also unlikely that
the party will allow itself to be voted out of office, or otherwise swept
aside, a destructive collision between it and these centrifugal forces
seems almost inevitable.
China's economic miracle is comparable
in many ways to the Internet bubble. Such bubbles keep inflating and fulfilling
expectations of extravagant growth--as long as investors believe in a pyramid
of dreams. But, as in the boom of the late '90s, economic fundamentals
in China simply are not solid enough to assure long-term, sustained growth.
And should investors ever lose that giddy but unrealistic sense of the
inevitability of China as a great and profitable market, the collapse of
confidence and the flight of capital could be frighteningly rapid and devastatingly
destructive.
Orville Schell is a long-time observer
of China, most recently the author of Mandate of Heaven (Touchstone Books,
1995) and Virtual Tibet (Henry Holt & Company, 2001), and current dean
of the Graduate School of Journalism at the University of California at
Berkeley.
