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Friday, October 10, 2003

China's Coming Collapse?

Here's another book about China, Gordon G Chang's Coming Collapse of China. Again two Amazon reviews give a good flavour of the argument. An remember, I am not endorsing these arguments, I am simply recognising that they exist:

From 1978 through the mid-1990s, China had the fastest-growing economy in the world, and it appeared poised to dominate Asia, and beyond, in the near future. But after focusing on facts rather than theory and looking at the conditions behind the spectacular numbers, Gordon Chang presents the People's Republic as a study in wasted potential: "Peer beneath the surface, and there is a weak China, one that is in long-term decline and even on the verge of collapse. The symptoms of decay are to be seen everywhere." For a nation that has always taken a long view of history, time is quickly running out. Chang believes China has about five years to get its economy in order before it suffers a crippling financial collapse--a timeline he seriously doubts can be met.
By failing to complete its reformation, China has maintained an illusion of progress, Chang explains, but in reality has caused more problems than opportunities for would-be entrepreneurs and foreign investors. Because reform has not been fast enough or comprehensive enough, China is unable to benefit from its modernization or keep up technologically with much of the world. The government's reluctance to get rid of state-owned enterprises has not only rendered China uncompetitive just as it prepares to join the World Trade Organization, but is causing the banks--which were forced to lend money to SOEs--to fail alongside them. Widespread unemployment, corruption within the Communist party, millions of resentful peasants, and a general lack of leadership further threaten stability. The Communist party "knows how to suppress but it no longer has the power to lead," Chang writes, arguing that the party is maintaining control only through the use of brute force and the people's instinct for obedience--popular support that could deteriorate as soon as the economy plunges. Simultaneously, societal ills such as gambling, drugs, and prostitution have become huge problems.

Stuck between Communism and capitalism, "China is drifting, unwilling to go forward as fast as it must and unable to turn back." It is uncertain what will be in the way when the giant finally falls.
Reviewer: Shawn Carkonen

At a time when almost everybody is enthusing about China and its economic prospects, this is a sobering book. Chang argues that the economic and political system of the People's Republic is teetering on the verge of collapse; in 5 to 10 years after China's accession to the World Trade Organization (WTO) the whole house of cards will finally fall, and the Communist Party will be ousted from power in an eruption of violence. In Chang's opinion, neither the economic nor the political system can be reformed; the regime in Beijing will not win time during a slow process of reform ("crossing the river by feeling the stones"), but just make things worse as even more money is squandered by inefficient State Owned Enterprises and the corrupt Communist Party.

It is usually when people get overly optimistic and write books like "Dow 36,000" or "China as No. 1: The New Superpower Takes Center Stage" that things take a turn for the worse. Therefore, we should be glad that someone provides an antidote to the euphoria. After all, China and its 1.3 billion inhabitants produce an annual Gross Domestic Product (GDP) of just about the size of Italy's GDP. Italy has about 58 million inhabitants - and nobody considers Italy a superpower.

Gordon Chang's diagnosis is to the point. His prognosis, however, is debatable. After working for three years in Shanghai, I can only underline what Chang says about the sorry state of China's State Owned Enterprises and its banks. Doing business in China requires a good portion of sarcasm, and a lot of hope that despite the flaws in the system the whole state simply cannot collapse. In the words of a former executive of ING Bank: "The bad news is that the Big Four [banks] are insolvent; the good news is that they're sovereign." Chang's prognosis that China will collapse after 5 years because the country will honour its commitments to the WTO and open its economy to international competition is not very convincing. China will find ways to curb competition where it sees fit. Japan and the EU have been successful in protecting their agricultural interests for decades, and foreign banks have not managed to get a real foothold in the big Japanese market to this very day. In my opinion, the Chinese will be even more inventive in finding means to keep foreign products and services out of their country. No, the WTO is not the nemesis of Communism in China. Will the Communist Party be overthrown in a violent revolution? I would not bet on it. The Communist regimes in Eastern Europe went with a whimper (not a bang). Which will it be in China? I don't know. I don't pretend to know.

"The Coming Collapse of China" is an angry book written by the son of a man who "left China before the end of the Second World War and [the son] grew up hearing him say that Mao Zedong's regime would have to fall." The son returned to China to work as a lawyer in Shanghai. When he wrote this book - his first - it was a polemic in which he pounded away at the evils of Communism and predicted that Jiang Zemin's regime would have to fall. However, he would have written a better book if he had not tried to play the prophet (and defender of his father's faith). The best parts of the book are the stories in which he lets others speak for themselves, or when he pokes fun at the authorities. Unfortunately, he comes across as self-opinionated too many times. But don't let it irritate you: listen to the message even if you find the messenger annoying at times.
Reviewer: Boyse

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