Monday, June 15, 2009

Where Is China Heading?

Mark Leonard's book “What Does China Think?” presents a number of China's modern beliefs and challenges.  Mr. Leonard discusses China's current struggles and the new priorities the Chinese State has determined are essential to address contemporary problems.

It is interesting, for the first time in China’s history, the State's 11th five-year plan does not list economic growth as the top focus. The plan includes mantras, such as: “put people first”…“respecting the natural environment”… and introduces a model which resembles some Scandinavian attempts in Social Welfare to address existing concerns.

The Book suggests China’s most pressing problems are:
1. The rise in protests,
2. The gap between rich and poor,
3. The near bankruptcy of the rural economy,
4. The lack of domestic consumption,
5. The pervasive corruption of the political elite,
6. The environment.
Official records cite 87,000 protest demonstrations in 2005, which is a ten times the amount of such displays since 1993.  It is most likely, the actual number of organized public protestations is much higher.

Mr. Leonard maintains the theory, modern China hopes to develop into an “Asymmetric Superpower”.  This conception believes the USA has an unhealthy obsession with military production, and this is the United States' greatest weakness, blinding policy-makers to the wider picture of military strategy.  Mr. Leonard's offering suggests the current Leadership of China, must include the use of economic, legal, and political tools as well, which is referenced: “non-military warfare”.  This modern version of China's “Economic Warfare” includes investing billions of dollars in “Special Economic Zones” within foreign Nations.

However, today China invests billions to improve it's military might, as Chinese Leaders correctly believe economic power without a strong Military, in context to the rest of the World, will reduce China as an overall power.  They prefer to obtain a Military Force which will become equal to the United States.
“China is attractive to other nations because of its economic power but this attractiveness will not last. It will need to change its political system to become a ‘Hyper-Power’ equal to the USA”.
But for China to achieve this status, the State will need to eliminate its incongruous and obsessive policy on a number of issues, it has mistakenly elevated to threats to its survival: Taiwanese and Tibetan freedom, the relationship with the Dalai Lama, the rise of Falun Gong, and various radical Muslim Enclaves.

China “will never be supportive of multi-party elections and human rights.”  This is perhaps the most significant problem China will face in the drive to become this 'Hyper-Power'.  Basic human freedoms desired by the Chinese Public, will prove to be a major obstacle.  And the Chinese Leadership will not allow China to become a true democracy, it will become a “deliberative dictatorship”.

Today China is governed by “rule by man”.  One has to wonder, if it will become a “rule of law”?  The State controlling China, is convinced a democracy will increase the potential for embarrassing Public displays critical of the Government, and thus poses a threat to Communist Party control.  However, this will lesson the Global Trust needed to consider China as a secure investment in the long run.
“It is possible that Beijing’s formula of state capitalism, open markets and a closed political system will not last the course. However, it is worth noting that it took three generations for a Soviet economic model that did not work in theory to actually fail in practice. Those who argued that the People’s Republic would become more Western with its growing wealth have been proven wrong.”
China's greatest risk, is the failure of the State Government to maintain control, in such an oppressive environment. The Chinese population is becoming increasingly assertive, after years of experiencing some basic freedoms, provided by the growth of the Free Market in the former Communist Dictatorship.

Will China unseat the USA as the world’s largest economy? 
Not in the twenty-first century.

During the 1980's, conventional wisdom expected Japan to dominate the Global Economy, surpassing the USA. Japan was a successful, wealthy, powerful, first-world Country in the 1980's after years of hard work. But for many reasons, the Japanese economy experienced a fifteen-year slump often referenced as "The Lost Decade". Few predicted Japan's struggles, which is similar to the conventional wisdom often encountered now in terms of a growing China.

Ironically, the expectations for Japan's inevitable success after the 1980's, match today's conviction China will eventually rise to become the premier economic Superpower in the World. However, there are far too many obstacles remaining, for contemporary China to reach this goal at this time. China is facing many challenges which will probably prevent this ultimate rise. For example, even though China is not a third-world country today, China remains far poorer and less developed than Japan was even during the 1970's. The Chinese Mainland lacks significant infrastructure. Also, due to the lack of focus to effectual strategy and acceptance of some essential free societal norms, the Chinese State is increasing problems which are counter productive to maintaining current levels of growth.

The primary issue remains, the State of China continues to fail to adapt many essential principles of a Free Democracy, which will naturally encourage a healthy economic environment. This will ultimately prove a sincere detriment to strong growth, and the achievement of the desired 'Hyper Power' status.

The author of “What Does China Think?”, Mark Leonard, is Executive Director of the European Council on Foreign Relations. He spent three years studying China.

UPDATE: The recent news regarding "Google May Pull Out Of China After Web Attacks" illustrates quite vividly, the inherit weakness of the Chinese State in comparison to the Free Democratic competition. Investment will always be uncertain, in dealing with this form of Government.