China's Flawed Ascent

China's Flawed Ascent


China produces an astonishing number of astonishing numbers, including this: In the 20th century, America made automobiles mass-consumption items, requiring prodigious road building. China, however, poured more concrete for roads and other construction between 2011 and 2013 than America did in the 20th century. This fact is emblematic of China’s remarkable success. And is related to its current difficulties, including its 2015 growth rate (6.9 percent), its slowest in 25 years.

The regime’s contract with its 1.4 billion subjects is that it will deliver prosperity and they will be obedient. Now the bill is coming due for the measures taken to produce prosperity.

In 1978, when Deng Xiaoping began the regime’s attempt to leaven Leninism with market reforms, half of the Chinese lived on less than $1 a day. In just six years, collective agriculture almost disappeared and grain production increased 34 percent, freeing people to move from the countryside to more productive urban employment.

No Westerner knows more about China’s regime and political economy than Henry Paulson who, as CEO of Goldman Sachs, then U.S. treasury secretary and subsequently, has made more than 100 trips to China. In his book “Dealing With China,” he writes:

China consumes almost half the world’s cement, coal, iron ore and steel, and 40 percent of the aluminum and copper. Beijing has six ring roads and the seventh, under construction, will be almost 600 miles long, encompassing an area as large as Indiana. (Washington, D.C.’s beltway is 64 miles long.) Demand for roads so exceeds supply that a 2010 traffic jam extended 62 miles and lasted 12 days. China has six of the world’s 15 tallest buildings (America has three) and eight of the 10 tallest under construction. In four years, beginning in 2011, the government built enough housing to shelter the population of the 12th most populous nation, the Philippines. Two months after the September 2014 $25 billion IPO for the Chinese internet company Alibaba, the world’s biggest IPO, the company had a $280 billion market capitalization, bigger than Amazon and eBay combined.

China’s prosperity has been fueled by the traditional modernization trek of people from the countryside to cities — 300 million so far, with another 300 million by 2030. But China has also relied perilously on exports and excessive, grossly inefficient infrastructure spending to employ the former peasants and make burgeoning metropolises habitable. Just between 2010 and June 2013, local government debt alone surged 70 percent to $2.9 trillion.

What the regime calls “socialism with Chinese characteristics” is, like sauerkraut ice cream, a combination of incompatible ingredients. A senior Chinese reformer propounded the “birdcage” theory of the “socialist market economy”: The market sector should be as free to fly as a bird in a cage — the cage of a state-commanded economy. Private enterprise, however, creates 90 percent of new jobs. By itself, the private sector, which accounts for perhaps 60 percent of China’s $10 trillion GDP, would be the world’s second biggest economy, trailing only America’s.

Although state-owned enterprises (SOEs) are often corrupt and always inefficient, the regime resists privatizing SOEs, which would mean worker layoffs of up to 80 percent. More than 100,000 local SOEs have been closed but, Paulson says, “perhaps another 100,000 or more remain.” The fact that Paulson says “no one seems to know the exact number” speaks volumes about the disorderly nature of things bubbling beneath China’s still-nasty authoritarianism.

China’s 87 million party members, Paulson says, “work first and foremost for the party,” which remains “the alpha and omega of political, economic and social life.” But as Paulson says, “corruption breeds where power meets opportunity.” Because opportunity festers everywhere that the party continues to insinuate itself, inefficient allocation of resources will depress growth.

The regime is wagering that it can achieve its second-highest goal, prosperity and the geopolitical weight that can come with it, while preserving its highest priority — a Leninist one-party state acting as the vanguard of an accepting population. But China’s per capita GDP, one-eighth that of the United States, ranks 80th in the world, barely ahead of war-ravaged Iraq’s.

After the U.S. opening to China, Daniel Patrick Moynihan acerbically said that many travelers to China returned more impressed by the absence of flies than by the absence of freedom. The continuing absence of the latter, illustrated by the apparent kidnapping of five Hong Kong booksellers, is not noticed by foreigners mesmerized by bullet trains. The next stage of China’s ascent will test the continuing compatibility of Leninism and dynamism.

George Will 

Pro Deo et Constitutione – Libertas aut Mors
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