2011-03-08

The China Superpower Hoax

http://www.huffingtonpost.com/steven-hill/the-china-superpower-hoax_b_821136.html
 

 China must have the best public relations maestros in the world. How else would a country with a lower per capita income than Iran, Mexico and Kazakhstan, one of the worst environmental records of any major nation, endemic corruption, jails stuffed with dissenters, and a dictatorship, besides, be hailed by so many as the next global superpower? 

Certainly China is big -- 1.3 billion people big, a fifth of the global population. As Forbes' columnist John Lee has written, China has long been the place for the world's biggest anything: the Great Wall, the 2008 Olympics, Tiananmen Square, the South China Mall in Dongguan, dams, consumption of cement and production of automobiles; most recently, China even had the world's biggest traffic jam -- an incredible 60 miles long -- which lasted a month and during which drivers were stuck in their cars for days at a time.

The world has never see anything like mega-nations the size of China (or India for that matter), and no one even knows if populations of this magnitude ultimately are sustainable. China's voracious need to supply its population and avoid the social explosions that have plagued its history has made it one of the world's largest consumers of natural resources, especially timber and energy, extracted from places like Africa, Southeast Asia and South America. With such large appetites, China has the ability to drive global markets, and, consequently, has become the new frontier where "get rich quick" investors and Western businesses go panning for gold by speculating in some hot Chinese start-up.  

Unfortunately, the hype ignores a starker reality -- that China is barely holding it together. Contrarian voices like Hu Ping, the chief editor of Beijing Spring, a pro-human rights and democracy journal, try to humanize the conventional wisdom of economic statistics and facts that obscure reality. "With China portrayed in the news every day as an economic and political powerhouse, the rest of the world, at least those parts that treasure freedom and peace, should pay attention to the real China," says Hu.

The Paradox of China    

To understand the "real" China, it is necessary to see it through the double lens of its paradoxical condition as both a major economy and a still-developing country. China is filled with contradictions and serious challenges. When I visited China in August and September of 2008, after the Olympics, the country that I saw, whether in Shanghai, Beijing or the rural areas, was a long, long way from being a global leader in any meaningful sense. Two hundred million people out of a working population of nearly 800 million are migrants, chafing at their lowly status and rotten wages.    

Inequality is rampant. Returning from the rural areas -- where the vast majority of Chinese still live -- to cities is like a form of time travel, moving from feudal conditions where plowing is still done by water buffalo to a land of impressively jutting skyscrapers. Corruption is epidemic, whether in banks, the legal system or the political leadership at national, provincial and local levels, causing an estimated annual economic loss of approximately 15 percent of GDP, according to economist Hu Angang.

Even China's much-touted economic power has been misunderstood. Recently it was announced around the world that China had surpassed Japan to become the second-largest national economy. But compared to the United States and Europe, China is still an economic mini-me. Europe's gross domestic product is $17.5 trillion, according to the latest IMF figures, while the U.S. figure is $14.8 trillion and China's is $5.4 trillion (by Europe, I mean the EU 27 plus Norway, Switzerland and Iceland).

Beyond economic output, more than three-fifths of China's overall exports and nearly all its high-tech exports are made by non-Chinese, foreign companies. Foreign companies take advantage of low Chinese wages to reprocess imports of semi-manufactured goods that are then shipped to Europe and the U.S. China remains, in essence, a subcontractor to the West, says Will Hutton, British political analyst and author of an influential book on China, "The Writing on the Wall." Despite China's export success, there are few great Chinese brands or companies. China needs to build them, says Hutton, but doing that in a one-party authoritarian state, where the party second-guesses business strategy for ideological and political ends, is impossible."

Because of China's climate of corruption and authoritarian secrecy, even the volume of industrial output has been questioned. Some doubt China's numbers and official reports. Investment guru James Chanos, who rose to prominence when he predicted the Enron meltdown (and pocketed a billion dollars shorting Enron stock), is shorting China now.    

Says Chanos, "China is cooking its books. State-run companies are buying fleets of cars and storing them in parking lots and warehouses" to pump up state-mandated production figures. As evidence of this, experts point out that while car sales have been rising by a huge 20 percent per month, auto fuel usage seems to be rising by only 3-5 percent per month. Chanos also says China is plagued by an ominously growing real estate bubble in high-rise buildings, offices and condos. Much of China's high growth originally came from decades-long heavy investment in infrastructure, but increasingly it has been coming from construction. Chanos estimates that 50 percent to 60 percent of China's GDP now comes from alarming levels of overbuilding, virtually none of which is affordable to the average Chinese. "This is not affordable housing for the middle class; this is high-end condos in major urban areas and high-end office buildings, which no one is buying," says Chanos.    

China is on this "treadmill to hell," he says, because so much of its GDP growth comes from construction which can't be sustained. If China were to slow down the construction industry, its GDP growth would go negative very quickly.

"That's not going to happen, because in China people are rewarded at almost every level of government for making their economic growth numbers. The easiest way to do that is put up another building. They're really hooked on this sort of heroin of real estate development to keep the numbers going," Chanos says.    

Sino enthusiasts are betting that China's rulers, whom they see as having been competent stewards of a growing economy for decades, have the means to slowly let the air out of the bubble and avert disaster. But with entire building complexes--urban forests of office and condo high-rises--standing empty in China, Chanos and others are predicting a housing market crash like the one that occurred in the United States.

Walking an Environmental Tightrope Without a Net    

The only thing cloudier than China's economic model is the sky over its major cities, so choked with smog that some days you can't see the high-rises a few blocks away. During the run-up to the 2008 Olympics in Beijing, many were concerned that athletes wouldn't be able to breathe the foul air. To try to clear the air, the government instituted an odd-even auto policy, i.e. cars with license plates ending in an even number could drive one day, odd numbers the next. People in Beijing told me that the skies had not been so clear in decades (and they were greatly chagrined when the authorities eventually reverted to the previous laissez-faire policy, resulting in unprecedented traffic jams that make India's look tame by comparison).

Four hundred thousand Chinese die every year of respiratory diseases caused by pollution. About 500 million rural Chinese -- equivalent to the population of the entire European Union -- still do not have access to safe drinking water. Acid rain, caused by sulfur dioxide emissions that belch from smokestacks of power plants, is endemic, with the state-run   China Daily   reporting that in Guangdong province -- China's most prosperous region, and also its most industrialized -- 53 percent of total rainfall in 2008 was acid rain.

Food scares, such as industrial toxins mixed into milk powder, pet food and cough syrup, have been frequent, and there have been instances of exported toys bearing lead paint and drywall containing highly toxic sulfur compounds that made brand-new homes in the U.S. and elsewhere unlivable.    

These consumer dangers are additional manifestations of the amoral, corrupt, robber-baron business practices that have been unleashed in China. The 2008 earthquakes in western Sichuan province, which resulted in the collapse of more than 7,000 schoolrooms and thousands of deaths among schoolchildren, disproportionately impacted the poor who lived in areas where corruption had resulted in shoddy construction practices. The suicide rate among the elderly in rural areas is four to five times higher than the world average because 90 percent of the elderly have no retirement pension, even as there is a growing shortage of nursing home services, and so many elderly choose to quietly end their lives on a barren hillside or in a forest to avoid being a burden to their children. For all these reasons and more, China is plagued by 70,000 protests per year, many of them more like riots and quite violent (including occasional bombings), and had 300,000 labor disputes in 2006 alone, nearly double the number reported in 2001.

Young men and women I met in the cities had fled the Third World conditions in their farming villages only to accept the yoke of working in sweatshop factories or as bar waitresses, earning just enough to afford a bedroom shared with three others, four to a tiny room, two to a bed. Disposable income was practically nil and life was hard. Education is not a way out for most, since it is not free at any level and university is much too expensive for most young people to afford. The only hope they nurtured was that their country would one day be more affluent and some of that wealth would trickle down their way, as according to the Confucian virtues of "sacrifice" drilled into them by the ruling Communist Party. Recent strikes at factories producing products for Western corporations like Apple, Honda and others have managed to exact sizable wage increases of about 20 percent. But for most Chinese, life is a grim struggle and will remain so for years to come. Walking around China, even with all its tourist charms and ancient curiosities, it is hard to envision a superpower taking shape, no matter how far one peers into the future.    

There's Gold in Them China Hills

Welcome to China Inc., this ancient land where the entire country is run like a giant corporation. Certainly the land of "capitalist communism" -- an oddball combination, to be sure -- has made some impressive gains with its roaring economic growth rates and in lifting several hundred million people out of the abject poverty of the Mao years. Over the past 30 years, China has sustained nearly double-digit growth, a remarkable run which has produced a growing middle class of perhaps 200 million to 300 million people. But an important qualifier is that China started from a very low level of GDP. By 2009, China's per capita GDP still was only $3,600, compared with $46,000 in the United States. China's metrics indicate significant challenges for years to come, and considering all its other economic and environmental ills, its past record is no guarantee of future success. Prophecies of its global leadership are premature at best.  

 

Beyond economic and ecological indicators, the hallmark of a great power is when other nations want to emulate you. What made the United States the great power of the post-World War II era was not just its military might but its promise of economic betterment and freedoms -- glamorized by Hollywood, the best public relations machine ever -- which caused people from all over the world to want to flock to our shores. The City on the Hill inspired people toward an ideal, however much America itself didn't always live up to that ideal. But no one is banging down doors to get into China, and only the poorest countries aim to be like the People's Republic.

China inspires curiosity with its ancient history and huge population, but not envy or emulation. That will not change anytime soon, and perhaps never unless China at some point opens up its political and economic system. The absolute unwillingness of Communist Party authorities to tolerate any public reflection, let alone protest, during the 20-year anniversary in June 2009 of the Tiananmen Square crackdown exposed their great fear of their own people, as well as the lack of confidence among China's rulers in either their system or themselves. It remains to be seen how much of a "new China" will continue to emerge, but all these horizons certainly provide a different view of China from the one typically given by the Sino enthusiasts.    

Given this reality, why does China receive so many rave reviews while Japan and Europe--which actually do a far better job of providing for their people--are treated with scorn and derision? The answer seems to boil down to the fact that China's high-growth economy has become the place where corporations can realize the quickest return for their quarterly profit sheets. To many awestruck pundits, China represents the future, or at least the future of business success.    

But it is also the case that China's über-growth has become an ideological weapon in the hands of free market fundamentalists and pro-growth zealots.The Chinese economy and its high growth engine is used to browbeat other countries viewed as growing insufficiently. Europe and Japan are proof that high growth is not necessary to create the highest living standards in the world, yet in an ideological battle between free market fundamentalists and everyone else, China is a useful propaganda tool.

But once you peel back the curtain, as Toto did in "The Wizard of Oz," the China reality doesn't live up to Wall Street's hype. In fact, the hype actually is damaging to China, as it causes members of the U.S. Congress to propose foolish ideas such as protectionist measures, when in reality China needs different forms of assistance -- especially technical assistance -- from Europe, the U.S. and other developed powers. The entire world has a stake in China succeeding, both economically and in greening its economy and reducing its carbon emissions. The prospect of China as a "failed state" is too terrible to contemplate.    

China has come a long way, but it has a long, long way to go. It's anyone's bet whether China will sink or swim. So much for superpower status.

 HUFFPOST COMMUNITY MODERATOR

GravitonX    10:06 AM on 2/10/2011

654 Fans

The bottomline is that America "needs" an enemy, and it helps if "they" are not white. George Carlin said it best.

http://www­.youtube.c­om/watch?v­=sDkhzHQO7­jY

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Jose 58    21 hours ago (1:38 PM)

64 Fans

Carlin's always been a hoot. Do you think Europe has room for another repeat.    

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Sequoia Hughes    19 hours ago (3:15 PM)

167 Fans

I love George Carlin, and I believe this too, although i consider the Russians white. The Soviet Union was the perfect enemy because they matched us in many ways but believed in a vastly different philosophy­. We need our polar opposite to see what we *don't* want to be and to keep our skills sharp.

I find it reassuring to see more reasonable perspectiv­es on China. They are not the threat the USSR was and likely will not become one anytime soon.

So if we can't motivate ourselves through fear, how else are we going to evolve?
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HUFFPOST SUPER USER

glpur1    24 hours ago (10:39 AM)

24 Fans

There have been a few military super powers in history but only two true super powers, i.e., a power that is dominenent over all other nations militarily­, economical­ly and culturally­. The Roman Empire and the American Empire. China has very, very far to go to dominate in any of these areas  

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panasian    18 hours ago (4:26 PM)

0 Fans

It is obvious you don't know much about China. The Han Dynasty was much more technologi­cally advanced and it's economy was bigger than Roman Empire which only ruled the Mediterran­ean area and some part of Near East, not the whole world.. In terms of population and area, both Han Dynasty and Roman Empire were roughly the same. China stayed as the most technologi­cally-adva­nced and biggest economy in the world until the end of the 18th century. China only fell behind Europe in the 19th century.be­cause it missed the Indusial Revolution­. Why don't you read books like SCIENCE AND CIVILIZATI­ON IN CHINA by JOSEPH NEEDHAM, THE GENIOUS OF CHINA by ROBERT TEMPLE, THE EASTERN ORIGINS OF WESTERN CIVILIZATI­ON by JOHN M. HOBSON before you talk about China again?

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spiralskydancer    23 hours ago (11:59 AM)

74 Fans

very informativ­e piece...th­ank you Steven....­in some ways it could be applied to the whole human species living on this beautiful planet....

bluescat47    22 hours ago (12:36 PM)

36 Fans

A great article although I think you have to acknowledg­e how far China has come, and from where – Maoist induced famine in the 1950's, the Great Leap forward and its absurd attempt to decentrali­ze production­, even to the point of having backyard steel mills, and the toxic Cultural Revolution that destroyed a generation of educated Chinese. More people have been lifted out of poverty in China, and quicker, than anytime in recorded history. And much of this is due to its opening to the global economy, trade, and investment­.
Yet the problems are still monumental as you note, excess manufactur­ing capacity, inefficien­t state run enterprise­s (that cannot compete in the global economy and hence, the reason the Chinese wont allow their currency to rise), and a sclerotic communist party trying to create a knowledge economy in the digital age yet unwilling to forfeit its control of informatio­n, capital, and investment­, something the local party cadres love. Consumer choice and economic freedoms would disrupt this cozy arrangemen­t that enriches a corrupt party leadership at the expense of the Chinese people.
and a sclerotic communist party trying to create a knowledge economy in the digital age yet unwilling to forfeit its control of informatio­n, capital, and investment­, something the local party cadres love. Consumer choice and economic freedoms would disrupt this cozy arrangemen­t that enriches a corrupt party leadership at the expense of the Chinese people.

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DAE    20 hours ago (2:53 PM)

196 Fans

Your comment is full of half truths.   

aosborneh2o    20 hours ago (2:01 PM)

66 Fans

The sad truth is that we do not evaluate a country as "great" because of their environmen­tal record, human rights, or standard of living. Sadly, we base whether a country is a superpower on its brute force in aggregate economic and military arenas. Sure, most Chinese people live in conditions we wouldn't wish on our neighbors dog and they produce roughly what we do with about 5 times the people. But, overall, we care that they produce roughly what we do and have a significan­t trade imbalance due to their monetary manipulati­on and horrific human rights. Educationa­lly the children they report on do well academical­ly; on the other hand, that doesn't include the other 90% who are making our shoes. Sure, their military possesses solid technology (far inferior to ours) and they have nukes, but it is again a numbers game where they could easily absorb 5 to 1 losses and win a convention­al conflict with anyone else.

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DAE    20 hours ago (2:52 PM)

196 Fans

To say, "most Chinese people live in conditions we wouldn't wish on our neighbors dog" and "education­a­lly the children they report on do well academical­­ly; on the other hand, that doesn't include the other 90% who are making our shoes" demonstrat­es a level of ignorance about actual conditions in China that would is really inexcusabl­e.

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aosborneh2o    14 hours ago (8:58 PM)

66 Fans

I'm sorry, have they eliminated their policy of state enforced abortions for child number 2, resulting in the frequent killing of first girl children?  
http://geo­graphy.abo­ut.com/od/­population­geography/­a/onechild­.htm

Nope, I guess not.


Have they eliminated child labor?

http://www­.china-lab­our.org.hk­/en/node/1­5889

Nope, it's still running strong. Do you suppose all those 15 year olds making your iPod, IPad or iWhatever were in some sort of work-study program while prepping for Calculus class?
 
I gave two of many, many articles related to the conditions in China; and I haven't touched on the environmen­tal catastroph­ies they continue to pile up. Sure, I am probably exaggerati­ng the 90% making our shoes part a bit, shame on me for being the first to ever do so in making a point online. 

Nonetheles­s, to call China a great society is absurd. They are a giant Third World nation that has gained prominence due to sheer mass of numbers; on a per capita basis they rank very low in all areas. To my economic and military points, they equal the US only in regards to having 5 times our population­, not due to any dominant methods, technology­, or prowess whatsoever­.
 
Don't get me wrong, I have plenty to criticize my own country for. But, then when I do, they don't run over me with a tank...
 
I assume they have eliminated child labor from their society and ensured education for all through

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