WHAT IS WRONG WITH CHINA?
"First the good news about the new role of China: it lies—at least up to now—in the economic side of the case. Alongside better monetary policy and more flexible exchange rates between the big industrial blocs, the response of China along with other big emerging market economies to the world financial crisis is the central explanation why the financial turbulence that emanated from the U.S. subprime crisis did not completely destroy the world economy and lead to a repeat of the 1930s Great Depression...How different the twenty-first century looks from the Depression story! It is as if the Chinese leadership were 'A' students in one of Kindleberger's courses. Throughout the crisis, the Chinese economy continued to grow at an amazing pace, in part as a consequence of large state countercyclical strategies. When anyone wants an example of how a Keynesian strategy can be highly effective in the short term, internationally as well as domestically, they should look at China's 4 trillion renmibi stimulus."Harold James, "International order after the financial crisis". International Affairs. (May 2011), pp. 530-531.
August in China has been anything but the quiet month of myth. Developments in the equity and foreign exchange markets and even the appalling industrial accident in Tianjin might seem mere bad luck when considered individually. Together, however, they symbolise a slow-motion denouement of China’s economic and political model. The country is now going through a crisis of transition, unparalleled since Deng Xiaoping set out to put clear water between China’s future and the Mao era. The signs are that it is not going so well. Rebooting the authority and primacy of the Communist party, the pursuit of often contentious reforms, financial liberalisation and rebalancing the economy while trying to sustain an unrealistic rate of growth are complex and mutually incompatible goals....China’s economic transition was always going to be difficult, but developments this year suggest that things are not going according to plan. The centralisation of power is proving to be a double-edged sword for reform, the anti-corruption campaign is choking off initiative and growth and the economy cannot be kept on an unrealistic expansionary path by unending stimulus. The time for accepting a permanently lower growth rate is drawing closer. It will test the legitimacy and reform appetite of China’s leaders in ways that will determine the country’s prospects for years to come.George Magnus, "The Chinese model is nearing its end". The Financial Times. 21 August 2015, in www.ft.com. As someone who was extremely skeptical of Professor James original thesis at the very time that he first presented the very same four years ago (in this very journal in fact), I would not be human if I did not show a little bit of Schadenfreude at the recent economical turbulence in China. Obviously, notwithstanding the 'hurrahs' of praise for the technocratic skills and decision making ethos of the new Mandarins of the PRC, all is not well in the Chinese capital these days 1. Given the endemic corruption and harsh authoritarian nature of the political regime in the PRC (infinitely worse than say in Putin's Russia), it is a wonder (at least to me) why or how anyone could have even the minimal sympathy for the regime in Peking. Not to speak of the fact that in the regime still pays lip service to the 'heroic' doings of that monster in human form, called Mao Tse-tung. Accordingly, it is not surprising, but indeed refreshing that the hollow nature of the so-called expertise of the technocrats who rule in China has clearly been shown to be hollow 2. Something that the ever-wise, George Magnus has been reminding people for quite awhile now. One can only hope that with the recent events, the legitimacy and sympathy that the regime in Peking has garnered since 2008, both at home and abroad, will quickly evaporate in short order. As Dr. Jonathan Eyal of the Royal United Services Institute cogently commented yesterday:
"The way the Chinese leaders handled the crisis also tells us a great deal about the country’s political vulnerabilities.... The bottom line is that although there are plenty of officials in China who understand financial markets, the top leaders who approve decisions in time of emergency speak no foreign languages, talk to nobody outside their small circle of acolytes and have no idea of what makes markets and people tick. That has always been China’s Achilles heel, as it is for any authoritarian state: the idea that the Chinese have invented a miraculous system which preserves absolute power in the hands of a tiny self-selecting elite but somehow still allows for ‘technocrats’ to make sensible ‘meritocratic’ decisions was always nonsense, and remains nonsense, as the handling of the current crisis indicates" 3.In short, while the BRIC countries of the world will also feel the after shocks of the economic turbulence that is contemporary China, it is far better for the future of the world, that the PRC be taken down a peg or two in every way possible, unless and until its system of governance changes. Nay indeed changes almost completely. 1. See in particular: David A. Bell. The China Model: Political Meritocracy and the Limits of Democracy. (2015). As well as: Martin Jacques. When China Rules the World: The End of the Western World and the Birth of a New Global Order (2009). 2. Jamil Anderlini, "China: Credibility on the line". The Financial Times. 28 August 2015, in www.ft.com 3. Jonathan Eyal, "China’s Stock Market Crash Threatens Her Global Power Ambitions". The Royal United Services Institute. 27 August 2015, in www.rusi.org