Tag: China

By Michael Garson

At present, China is a fascinating country to study. The average extemper is hard-pressed to explain how an authoritarian, “communist” country is presiding over unprecedented economic growth. How a country that was left alone for decades has been thrust into the global economy in a matter of a few years requires a complicated back-story. The reconciliation of stability, growth, and political repression necessitates a herculean effort on behalf of the Chinese government. As the country undergoes major changes, it is crucial for international extempers to not lose sight of the Chinese perspective. This brief intends to offer deeper understanding by seeing China from the inside out.

This brief will:

–          Look at China’s internal political structure

o   Determine the extent to which China is communist

o   Focus on the role of the Communist party

o   Decipher Taiwan’s role for China and the United States

o   Examine regional autonomy and differences

§  Analyze the causes of the urban/rural & rich/poor gaps

§  Look for solutions to keep China stable and thriving

–          Look at China’s Economy history

o   Use WTO accession as a turning point

o   Describe China’s economic structure

o   Explore the possibility of economic sustainability

Politics

China is Communist?

When addressing China, extempers often hold on to the concept of communism for dear life. They feel that using the broad stroke of communism can be used to derive China’s domestic policies. Unfortunately, China is not communist in the same way that the Soviet Union was. In fact, the Soviet Union was not even communist in the way that Karl Marx would have wanted. The concept of communism is rather simple: all citizens work for the good of society, giving their labors to the state, which equally redistributes wealth. The key advantage of this system is that allows society to eliminate the problems of capitalism: inequality and poverty. No one would go hungry in a communist system, but no one would be fabulously wealthy. Economically, communism relies on a state-driven model, since producers and consumers cannot be trusted to create equality. The state collectivizes small business, taking advantage of economies of scale. With large production levels, costs can be kept low, production can be monitored, and distribution can be equitable.

In totality, modern China does not look like this dream state. The markets are opening up, allowing for competition on the open market both in China and abroad. Some smaller elections have been liberated, giving the people power. However, the state is also somewhat authoritarian. A revolution that was originally designed to serve the people, has repressed the people for decades. Political dissidents are jailed and/or executed. The internet is closely monitored to ensure citizens do not visit any pro-democracy websites. All in all, China is communist in name only. A more apt description would be an authoritarian state with an increasingly open economy.

Role of Party

The Chinese Communist Party originally arose as a Marxist movement. Led by Mao Zedong, the party sought to bring equality and prosperity to the disenfranchised masses. In the same way that the Soviet Union fell to corrupt leaders, China no longer represented the change it claimed to advocate. Communism became authoritarianism and “first among equal” leaders became despots. The party, under Zedong, inextricably linked a socialist political body with a state-owned economy. It argued that the “people” (read: government elite) need to be in control of the entire country, politics and economics included.

In the 1990s, the party changed its course under Deng Xioaping. Deng claimed that the state need not be socialist and eschew the free market. Indeed, the country can stick to socialist principles while simultaneously opening up the economy. He believed that China’s large population and relatively abysmal standard of living could be bettered through international trade. The country teased with this concept and found early success. Over the past two decades, China has found a direct correlation between economic freedom and growth. Decades of underutilization are being made up at a record pace. Oppressive politics no longer rule over China’s economic destiny.

Currently, the party still keeps strong control over the people. As the only real political party in the country, the communists pick national leaders. The General Secretary of the communist party, Hu Jintao, is also president of China. As a historical parallel, the Chinese communist party is a more violent version of Mexico’s PRI. The party brings the citizens under a common banner and is the beginning and end of national politics. By focusing on using leaders within a system, China has resisted dictatorships. Power is spread out over party leaders just enough to keep political consistency while making sure no single person is too powerful.

The most recent challenge to the party comes not from the people, but from within. As economic growth continues to define China’s 21^st century, some local leaders are pursuing growth at any cost. Completely ignoring the national government’s stated objectives and limitations, local chapters of the party have gotten into hot water. This theme truly began last year and has been quietly bubbling just underneath the surface. To be sure, the communist party will inevitably fail, as political institutions do. What remains to be seen is if its demise will be internal or external in nature.

Taiwan

Nearly every “international hotspots” round has a question on Taiwan. As the middle ground between the United States and China, this small island is a lightning rod for analysis. Taiwan existed as a haven for Chinese nationalists who sought to overthrow Chairman Mao and his communist regime. The United States acknowledged the Taiwanese government as the actual representative of all of China for decades. It would become almost comical as Taiwanese delegates would sit at the United Nations supposedly speaking for a swath of land it did not control. At present, nearly all of the countries in the world reluctantly have acknowledged mainland China as the rightful government in China. The “One China” policy is the brilliant move that has provided the legitimacy. It holds that in order to engage with China (i.e. trade), the other party must acknowledge that there is only one China, and it is led by the communist party. Though little more than rhetorical lip service, the world has been forced to distance itself from Taiwan.

Taiwan currently is a democratic pseudo-state that is under Chinese supervision. There has been a cessation of hostilities, giving Taiwan increased independence. However, whenever Taiwanese leaders become too brazen and discuss national sovereignty, China will be sure to enforce order. The mainland also has this tendency to shoot missiles over Taiwan into the Pacific Ocean as part of “routine tests”. In truth, China wants Taiwan to know that it could destroy its nationalist neighbor in a matter of seconds if it so desired.

For whatever reason, question writers seem to periodically wonder how the United States figures into this equation. With all due respect, America simply does not have a place. It would be absolutely ridiculous for America to take the moral high ground and officially recognize Taiwan as a soverign state. Doing so would only inflame Sino-Taiwanese and Sino-American relations. If Taiwan accepted the American assertion, China could stage a full-scale invasion, claiming insubordination and an attempt at secession. I would love to get involved in a detailed manner of freeing Taiwan, but one just does not exist. The current détente works for all parties involved, and there is no reason to change it until the situation is altered.

Regional Problems

Rural/Urban gap

One of the most underreported problems in China is the plight of the rural poor. As China’s double-digit economic growth rate keeps it at the forefront of international affairs, most of its population is suffering. Given the population exceeds one billion people, the power of the suburban and urban should come as no surprise. Roughly one-third of Chinese citizens live in the high-growth, modernizing southeast portion of the country. Meanwhile, the overwhelming geographic majority of the country is left to subsistence farmers. The sparse population and inability to inhabit throughout the northwest creates two Chinas. The government currently faces growing problems from both parts of the country. The rising middle-class in modern China may soon grow wiser and start to demand political, as well as economic, freedoms. Additionally, if the rural poor become aware of what life in the cities is like, they may increase demand for government services and money. This demand will challenge the well-being, and superiority, of the urban population that has grown accustomed to the attention and funds that come with growth.

Causes

The main cause of this problem is rather obvious: economics. Cities are more likely to experience economic growth than small farm towns. With a large labor force to draw from, businesses arrive in the cities. As industry increases, it brings in more people and money, creating a cycle of wealth. In more democratic and benevolent governments, rural areas are offered lower tax rates and government services. In China, the government has continued to milk its cash cow, spurring increased growth in the region. While agrarian towns in China are not necessarily worse off now than they were decades before, they are being denied the gains realized in other parts of the country. Greed and a democracy deficit are the primary causes of this gap. If the government was directly responsible to the people, then the 70% of the population which is rural would vote for politicians that ensured equality. Without the authorization of the people, the government is free to pursue growth at any cost.

Solutions

Solving for the rich-poor gap in theory is rather easy. Having the national government offer tax cuts and increase services would go a long way. With all of the tax revenue that the southeastern part of the country is generating, it would be “fair” to siphon some off to less-fortunate citizens. Also, the farmers would surely appreciate greater access to education, healthcare, and other towns. Building infrastructure in all parts of the country would be costly, but improve the quality of life in the region.

While serving the people is a noble governmental goal, it is not necessarily high on the priority list of an authoritarian government. Hearkening back to the mantra of government, it is a government’s primary goal to stay in power. If the status quo, or a prolonged existence of it, can be deemed an existential threat, then the Communist Party will have to reevaluate the situation. The reason for inaction is that the government does not see the 700 million disenfranchised citizens as dangerous. Sparsely populated and seemingly accepting of their situation, the government does not see why it should be afraid. However, history suggests otherwise. As the country continues to grow, it will be impossible to keep the entire country in the dark. Knowledge and money, on some scale, will trickle out to everyone. With knowledge and money comes power and understanding. Discourse and analysis will ultimately make the poor realize how manipulated and ignored they have been. Surely the flowery prose of John Locke and/or brilliance of Adam Smith will make the Chinese government appear in a different light. Indeed, a revolution may start to brew among the people who feel taken advantage of for generations. As money, not guns, become the new currency of power, the Chinese government will soon face the existential threat that they have convinced themselves does not, and will not, exist.

Economy

WTO Accession

Prior to the 1990s, China was an economic disappointment. With such a large population, the economy could not get past subsistence farming and weak industries. The communist party’s strict control over the national economy restricted growth since it limited exports. With only enough goods to satiate domestic demand, the Chinese economy was little more than a super-sized commune. In 2001, China joined the World Trade Organization. The move was an attempt to improve the economy through expanded trade and to enter the international community as part of the “peaceful rise” program.

Significance

China joining the WTO is arguably the single greatest catalyst to China’s arrival on the international scene in earnest. There is no doubt that China derives its power from its great economy. Without access to global markets , China would struggle to compete internationally. The artificial (as opposed to natural) advantages of cheap labor and low environmental standards allowed China to undercut other producers and saturate the market. The love affair that countries have with cheap Chinese manufactured goods has spurred China’s rise.

What it symbolizes

Since China gains so much power from economics, it has set a precedent for other countries to follow. Granted, India is the only other country with so many underemployed, but the system works. Joining the WTO appears to be a prerequisite for global economic growth. Once the world accepts a country as a viable economic ally, suddenly political issues seem less relevant. For example, the United States famously ignores human rights abuses and alleged state-sponsored terrorism from its oil-exporting “allies”.  Indeed, the Chinese blueprint exists for other countries. Vietnam, for example has not compromised politics, but currently is trying to crack the global market and find a niche. Small and large countries alike can legitimize themselves through economics.

Structure

Role of Labor

Again, economic advantages can be natural or artificial. A natural advantage is one that exists without the benefits of society or infrastructure, like the prevalence of natural resources. An artificial advantage is the result of societal interaction. Transportation systems and access to larger markets are artificial means of dropping prices. Labor is an example of an artificial advantage. As globalization makes communications cheaper and faster, it is becoming more efficient to pay transactions costs and increase production in China. One of the primary reasons that Chinese goods are so attractive is that the labor required for production is significantly cheaper than that of the United States. Without hundreds of millions of potential workers, China would not experience double-digit growth annually.

Reliance on resources

An introduction economics course will constantly stress that all decisions are made at the margin. This means that each economic decision is made at each possible production level. The decision to create 3 widgets is not one decision, but three: the decision to make the first widget, the decision to make the second, and the decision to make the third. Producers seek to maximize profit by determining the perfect amount of production. Production is largely based on how much resources cost. If companies see the price of commodities fall, they will invariably create more goods to take advantage of the heightened profit margin.

Due to the delicate balance between resource prices and economic growth, China’s recent spike in resource consumption has caused a great disturbance. With so much production relocating to China, resources have been forced to follow. Precious metals, coal, and oil have been redirected to China in order to maximize profit. As China continues to undercut the market, it can afford to pay a higher price for prices since labor is relatively cheap. One of the most important parts of natural resources is that they are not creatable. There is a fixed amount of coal in the world and different companies and countries must bid for it. Once the supply runs out, there is no turning back. The increased demand for natural resources has caused a price surge, making production more expensive for the rest of the world. This reliance on resources poses two dangers to China. First, exporters of energy could raise the price to astronomical levels in order to hold the economy hostage. China lacks the strong ties and domestic production necessary to be secure economically. Also, China has been forced to look farther for resources than the industrialized states have. Therefore, alliances with unsavory characters have arose out of necessity.

Sustainability of growth

Necessary preconditions

Whether or not they are perceptible, there are certain factors and institutions that have made China’s dramatic economic rise possible. The most obvious example is a desire for Chinese goods abroad. Economic growth has been fueled by two concurrent factors: direct foreign investment and exports. Direct foreign investment is the economic term for people from different countries investing in a company in a foreign country. The influx of foreign currency has allowed for increased production. Creating more goods is only helpful if the goods can be sold to a consumer. China lacks the necessary strong middle class to consume as much as created, so it looks overseas. Much of what is produced is shipped out to other countries in exchange for more foreign currency. The dollars, Euros, and Yen can be then used to buy foreign products, improving the economy and the standard of living.

Given the recent economic collapse, foreign direct investment and China’s exporting ability have both come into question. Foreign direct investment is almost guaranteed to plummet because of a risk-aversion. One of the causes of America’s recent problems is that bad investments were made in other countries in hopes of getting a high growth rate. The general principle of risk outpacing reward is on the mind of international investors. When it comes time to find a safe place for an investment, few are likely to look at the economic newcomer with growth rates that may be too high to be true.

Somewhat counter-intuitively, exports may end up increasing in China. With the stock market struggling, western consumers have seen the value of their assets fall. Therefore, their perceived income and net worth have dropped. With less money, consumers need to be smarter and more efficient with their purchases. Chinese goods have the distinct advantage of being significantly cheaper than most domestic counterparts. Many consumers will likely overlook economic nationalism in favor of saving a few Euros or rubles. Many Chinese products are inferior goods, meaning that a drop in income does not correlate to a drop in consumption. Happy meal toys and t-shirts are hardly luxury items, shielding China from economic shocks.

With these divergent trends, China may face a currency shortage. Selling goods is not the problem, creating them is. Without a steady inflow of money, some Chinese ventures may go unfunded, hampering economic growth. In all likelihood, the economy is likely to slow down as the world struggles to work its way through a potential recession.

Ramifications of sustained growth

If China is somehow able to keep up high growth rates for the next few years, the world will be forced to react. In a matter of a few decades, the United States will no longer hold claim as the largest global economy. The political ramifications will be addressed elsewhere, but cannot be understated. The economic ramifications are closely linked to economic feasibility since the free market is hard to stop, whereas political theory is constantly subject to criticism and acceptance of the international community.

Is it even possible?

Given China’s current growth pattern given its size and duration of expansion, there really is no telling if it is sustainable. Surely it will be impossible to experience high growth rates for decades to come. Whether or not China has built an economic bubble that is going to burst soon is a hot question for policymakers. Advanced statistical analyses of the viability of increased production is a great asset for those with doctorate degrees in economics. For high school extemp, it would be sufficient to look holistically at the situation. The fact of the matter is that every year growing gets harder. Since growth rates are annual, the expectation is growth upon growth. In order to keep up the percentage, China must grow, in terms of yuan, by more annually. At some point, resources will be exhausted. When this maximization occurs, it likely will continue a slight contraction as investors and consumers blindly believe China can continue to grow. As capital floods the market, inflation is a likely result. All in all, China likely is headed for a wall because there simply will no longer be enough resources to go around.

“China Plans Rail Link to Central Asia for Oil.” 29 Jan. 2008. Times of India. <http://timesofindia.indiatimes.com/Business/India_Business/China_plans_rail_link_to_Central_Asia_for_oil/articleshow/2739036.cms>.

Though anecdotal, this article shows how desperate China really is for oil. Building a railroad into central Asia is China’s best chance at securing oil contracts with former Soviet satellite states. Again, with only so much oil to go around, China has put some fear into the United States.

“Chinese Official Gets Life for Bribery.” 6 Feb. 2008. Guardian. <http://www.guardian.co.uk/worldlatest/story/0,,-7286757,00.html>.

This article focuses in on two important themes in Chinese governance. First, corruption has been on the rise as economic growth has increased opportunity for officials to steal. Also, the national government has been forced to crackdown on renegade leaders. The stiff punishment is proof that China is out to stop both corruption and insubordination.

“No Cooling China’s Economic Engine.” 8 Feb. 2008. Asia Times. <http://www.atimes.com/atimes/China_Business/JB08Cb01.html>.

This article suggests that China’s economy is strong enough to withstand a sluggish global economy. Recent snow storms are only temporary hurdles. SARS barely registered as an economic threat despite international concerns and domestic panic. Defeating mother nature and disease surely are more difficult tasks than a market correction due to too much risk, right?

“Whether At Home or Abroad, China is Silent on Matters of Democracy.” 7 Feb. 2008. International Herald Tribune. <http://www.iht.com/articles/2008/02/07/asia/letter.php>. The Olympics were left out of the topic brief because they simply are not terribly relevant. Any questions on them will simply be a reflection of pre-standing knowledge of the country’s problems and possibilities. This article addresses China’s inability to address democracy as a national shortcoming.