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"I believe that to meet the challenges of our times, human beings will have to develop a greater sense of universal responsibility. It is the foundation for world peace."

China's weakness the greater danger

May 16, 2008

By Samuel A Bleicher
Asia Times (Hong Kong)
May 13, 2008

China as an "emerging superpower" makes for a compelling story line
in the media. It is reinforced by the propaganda image that the
current Chinese leadership would like us to accept. But the reality
is quite different.

Although recent events in Tibet and western China, and the central
government's response, appear to be generating pro-government
patriotic feelings, they dramatically display the practical limits of
the government's power. Other sources of unhappiness with the regime,
including income disparities and the inevitable collapse of
unsustainable price controls on fuel and food, could breed both urban
and rural discontent that has no ready outlet besides unlawful
opposition to the government.

Meanwhile, the West, in its fixation on its own economic difficulties
in comparison to the Chinese "juggernaut", is neglecting to prepare
for equally likely "weak China" contingencies. Just as we failed to
predict and prepare for the implosion of the Japanese economy and the
collapse of the Soviet Union, we appear unready for a dramatic
economic and political reversal in China that would be a defining
event of the 21st century.

China is in every sense a world under construction, with the
physical, social, economic, legal and institutional blueprints being
drawn and revised daily as the construction proceeds. The depth and
scale of the transformation taking place in every dimension of
Chinese social, economic, and political life is difficult even for
the most knowledgeable observers to comprehend. With luck, this great
experiment can be one of the most successful developments in human
history. If it fails, the consequences for China and for the rest of
us could be tragic, and possibly catastrophic.


As the US economy slips into recession, the American media are filled
with impressive-sounding statistics about Chinese economic, social,
and military progress. The implicit or explicit tag line is: "Wow!"

For example: Beijing has 3 million vehicles and is adding 1,000 cars
a day to its already gridlocked streets - Wow! In fact, the Beijing
metro area of 16,000 square kilometers, with a permanent population
of almost 13 million (plus another 4 million "transient" residents),
has about 3 million vehicles. The Los Angeles metro area, with a
similar population but one-quarter the area, has over 7 million
vehicles. Nationally, China has 22 vehicles per 1,000 people, while
the United States has 764 vehicles per 1,000.

The Beijing gridlock reflects the serious lack of transportation
infrastructure, not a large number of vehicles, and the three new
subway lines opening this summer will hardly make a dent in this deficiency.

China is the world's third-largest economy and has been growing
consistently at 10% per year for more than a decade - Wow! In fact,
China's gross domestic product (GDP) of $3.8 trillion, for 1.5
billion people, is less than one-fourth the $13.2 trillion US
economy, for 300 million people. The European Union has a GDP almost
five times that of China's with one third the population.

Based on energy consumption and other indicators, China's longer-term
growth rate is probably more like 6% per year, according to
Massachusetts Institute of Technology economist Lester Thurow. Or, if
environmental degradation is included in the calculations, China has
essentially no net growth, according to World Bank Reports and
statements the senior officials in the Chinese Ministry of Environment.

Even assuming that the claimed 10% rate could continue uninterrupted
indefinitely from China's small economic base, the country would just
catch up with the US in GDP in about 20 years - but not nearly
approach the US in GDP per capita. The gap between the average
Western citizen and the average Chinese citizen will not close for
the indefinite future.

China's consumption of oil is responsible for about one-third of the
increase in demand in recent years (and the country is also consuming
enormous amounts of iron, aluminum, cement, and so forth) - Wow! In
fact, China consumes about 9% of total global oil consumption, which
compares with US consumption of about 25% of the global total and
over 10 times the Chinese per capita consumption. Unquestionably, the
increase in consumption of oil and other natural resources by China,
India and other developing countries is raising demand more rapidly
than supply, and probably more than the planet can deliver for long
(even with more dramatic price increases). But the world's growing
resource consumption would hardly be sustainable even without China's
growing demand.

Of course, the American media coverage is not all pure "wow!" Longer
articles often embed the dramatic statistics in discussions of
China's fundamental problems, which are legion. The disparity in
income distribution exceeds even that of the US, the government
provides virtually nothing in the way of a social safety net, and
most people have minimal access to health care. Its cities are
choking on air pollution, and water is in short supply and unsafe to
drink. But even the "balanced" articles often leave the impression
that these problems are merely social welfare matters that do not
fundamentally impinge on China's "superpower" status.

More scholarly works have also endorsed the "emerging superpower"
image -- perhaps in the hope that a catchy title will attract the
necessary public attention to sell books and ideas. A valuable book
of mostly economic analysis and statistics produced jointly by the
Center for Strategic and International Studies and the Institute for
International Economics, China: The Balance Sheet, carries a cover
line, "What the WORLD needs to know now about the emerging
SUPERPOWER." An article by G John Ikenberry in the January/February
2008 issue of Foreign Affairs describes China as "on the way to
becoming a formidable global power". Even Sinologist Susan Shirk's
generally very thoughtful book on China and American foreign policy,
China -- Fragile Superpower, assumes that the country is a superpower
and must be dealt with accordingly.


It may not make such interesting reading to say that China is slowly
emerging out of feudalism and desperately hopes to use the fruits of
Western technology to pull its people away from the edge of
starvation, at least for a few decades. And it is extraordinarily
difficult to quantify the real economic limitations imposed by
China's environmental and natural resource deficiencies.

But these concerns are rarely given serious consideration as real
constraints on China's development. Equally important, the
international policy consequences of a faltering China are not being
seriously discussed or explored.

The reality is that the Chinese "communist" central government and
Chinese economic, social, political and legal institutions are quite
weak. China is ineffectually governed. It will be struggling for
decades to get and stay beyond subsistence. It has built an
export-dependent economy ill-suited to meeting its domestic needs,
and it will shortly face insurmountable environmental and natural
resource obstacles to its rapid growth.

The central government has succeeded in unleashing the
entrepreneurial, profit-driven economic engine, but it is unable to
apply any brakes - that is, to address effectively any of the adverse
effects of the single-minded focus on profit. The leadership claims
that it recognizes the corrosive economic and social consequences of
the current situation and is taking remedial actions. Even if it were
seriously committed to these policies as a high priority, the
government lacks the mechanisms to rein in the runaway horse.

China has satisfactory national laws about minimum wages and hours,
child labor, food and other product safety, worker safety,
intellectual property and air and water pollution. But the central
government has not effectively empowered judges and prosecutors to
enforce these laws, because they are controlled by provincial and
local party leaders. These officials, who often benefit personally or
professionally from the success of local profit-making enterprises,
are rarely inclined toward enforcement.

China's urban transformation is creating a need for a new
government-managed social welfare system that disburses retirement,
disability, unemployment and child welfare benefits - functions
formerly handled by the now-diluted extended family. This traditional
culture is rapidly collapsing in the newly mobile, urban society.

The supposedly all-powerful central government is unable even to end
its substantial subsidies of gasoline, electricity and water
consumption - for the same reasons the US government is unable to
raise gasoline taxes or end the mortgage interest deduction. Both
fear strong popular opposition. Meanwhile, the dramatic increase in
wealth has created more opportunities and incentives for corruption.
The high visibility of some of this corruption - poorly compensated
expropriations of private property to help developers, for example -
is creating an increasing public backlash.

The current Tibet conflict does not threaten the government
domestically. But it shows how quickly events can get out of control
in a globally linked media world and when there are no opportunities
in China for democratic participation to absorb the energy of the
dissatisfied. More threatening to the regime in this situation is
public unhappiness with internal economic decisions. Though less
publicized internationally, recent events such as the unauthorized
rallies in Shanghai in opposition to a new rail line in a
middle-class residential neighborhood, organized through Internet and
cell-phone messaging, and the demand for public hearings about the PX
chemical plant in Xiamen, show the risks of decision-making without
mechanisms for public participation.

The popular "emerging superpower" picture in our media mostly takes
at face value the central government's assertions about the success
of its governance. The government claims primary credit for the
"economic miracle" and the dramatic transformation of Beijing,
Shanghai, and other major cities. It asserts that all of the
country's environmental, social and economic problems are manageable,
and that it controls everything that happens in China.

The government may indeed be able to lock up or kill off several
thousand dissidents (a comparatively easy task logistically, though
recent events in Tibet have shown that there is still a significant
domestic and international cost). But that is a much easier task than
designing and implementing necessary modern economic, regulatory, and
social welfare institutions and programs in a society that has almost
none. So far it has not demonstrated real success in those arenas.

China is big in almost every dimension, and its international
influence has been increasing, as one would expect of a society
comprising one-quarter of the world's people. But does that make it a
"superpower"? Or even a "power"? What exactly is the "power" of 500
million near-subsistence farmers who mostly lack substantial
electricity, safe drinking water and indoor plumbing, and whose
education consists largely of the ability to write and read a few
prescribed texts? How much "power" is gained by adding in another 500
million educated city-dwellers with Western consumer aspirations who
may well be living in economically and ecologically unsustainable
Potemkin Villages? Balanced against its very real difficulties,
China's capabilities are certainly not as great as they are often portrayed.


China is expanding its military spending and technical capabilities,
but it is hardly a global threat in any rational context. The
Pentagon estimates 2006 Chinese military spending at less than $90
billion; most other estimates are lower. Compare that amount to the
$440 billion fiscal year 2007 appropriation for US military spending,
not counting $50 billion for Iraq and Afghanistan. The growth in the
Chinese military budget more likely reflects the Communist Party's
need to buy the army's loyalty, rather than any imperialist military ambitions.

Chinese civilian worker productivity is about 4% of American worker
productivity, and a roughly similar productivity ratio probably
applies to its military machine as well. Against the combined US,
Japanese and Taiwanese military forces, any military venture would be
nothing less than a catastrophe for China.

This military balance against China severely limits any rational
military ambitions. China's only active military focus grows out of
its adamant opposition to Taiwan's independence, an issue that
appears likely to recede as a result of this year's elections in
Taiwan. China certainly wants enough military capability to make its
threat of military action credible to Taiwan, the US and Japan. The
Chinese tradition of military strategy is built around outwitting and
outmaneuvering the enemy, not applying overwhelming brute force.

For that purpose, the appearance of strength is important, but the
actual use of force would reflect a strategic failure. Worse, any
serious, long-term military engagement could easily create just the
kind of domestic economic dislocations and shortages that, after the
initial burst of patriotic enthusiasm, would feed social and
political dissatisfaction, which the regime rightly fears most. The
months-long adverse consequences of last winter's blizzard show the
true vulnerability of China's economic structure.


China's economic "power" is significantly less than the often-quoted
statistics suggest. US industrial imports from China amounted to less
than 3% of the US GDP in 2006 (up from less than 0.5% of GDP in
1993). The standard statistics on US-China trade volume vastly
overstate China's economic benefit. Only about one-third of the
nominal value of China's exports reflects goods actually manufactured
in China. China is still largely an assembler, and most of the
components come from abroad. China's manufacturing is heavily
dependent on imports of components, raw materials, energy supplies,
intellectual property, and financial and other management skills,
which all result in economic outflows.

Moreover, a significant part of China's current price competitiveness
has grown out of its postponement of the costs of safe and
sustainable management of its natural and human resources. Recent
indications are that some of these postponed costs are coming due.
The government is already spending billions of yuan (directly and by
ordered closures) to dismantle environmentally unredeemable
manufacturing facilities. More billions are being invested to divert
water from agricultural uses to supply the growing cities of dry
northern China.

Thus the much-discussed financial reserves China has accumulated are
mostly offset by real-world social welfare and environmental debits
to repair and maintain human and natural resources. And the value of
China's international reserves, mostly invested in declining US
dollar paper assets, depends almost entirely on the economic
viability of the United States, the European Union, and Japan. China
was apparently a significant loser in the US subprime mortgage
collapse, though the actual amounts have not been revealed. This
dependency deprives China of the kind of independent economic power
of Saudi Arabia or Russia, which control substantial physical resources.

International political power is largely derived from the world's
perception of a nation's independent military and economic resources,
and its willingness to invest them - and risk them - in order to
change the behavior of other nations. Thus China's international
political influence depends in significant part on what the Chinese
government says, and what we believe, about its capabilities and
intentions. Though it would like the West to believe otherwise, China
cannot afford to risk significant military or economic resources in
international political competition.


In light of these realities, the West is overly focused on the
Chinese "emerging superpower" threat and giving far too little
attention to the real risks and foreign policy challenges that would
flow from a serious breakdown in Chinese economic, political, or
social structures.

A crisis might be triggered by any number of factors. A dramatic
slowdown in the Chinese or world economy could disrupt the lives of
millions of factory workers. Serious rationing of water, food or
energy, whether by dramatic price increases or some other mechanism,
could be unacceptably painful for a large part of the population. The
loss of individual savings from a stock market or banking collapse
could fuel popular discontent among the new urban elite. Even with
continuing economic progress, widening income disparities could
generate increasingly serious opposition in rural areas. A widespread
farmers' strike might cut off food to the urban centers, leaving them
in a state of chaos.

Systemic crisis could then lead to an open challenge to the regime.
Here are two scenarios to consider. In one, students, factory workers
and peasants gather again in Tiananmen Square to protest against
economic conditions and perceived political non-responsiveness. When
urban professionals start to join them, the central government calls
in the army. It begins a brutal campaign of violently repressing
demonstrators, arresting domestic and foreign media representatives,
and purging uncooperative members of the party and civilian
government, entirely disregarding the legal system. The
demonstrations do not stop, and various groups ask for outside help
to protect foreign residents and foreign investment and to end the
wholesale disregard of human rights. Overseas Chinese and major US
banks and corporations with investments and supply lines at stake
argue that the situation is too dangerous to ignore.

In the second scenario, the central government's inability to control
the economy or cure the country's problems becomes increasingly
obvious. The educated, urbanized residents of Shanghai and the
urbanized areas around Hong Kong increase control over their regional
governing systems, perhaps through more democratized party elections,
and disregard Beijing's directives. Taiwan offers economic and
technical assistance to these areas, with the aim of creating more of
a "one China, many systems" environment.

In response, the Chinese military threatens to impose military rule
on Shanghai and Hong Kong, and to recapture Taiwan. The new local
leaders ask for help from Taiwan and other nations to avoid the
bloodbath, economic disruption, danger to US and other foreign
citizens, and destruction of foreign investment property that will
inevitably result if no one comes to their aid.


Some American hardliners may believe that the US should encourage
crisis and regime collapse in China. However, nothing in Chinese
history, or in the history of revolutions and coups almost anywhere,
gives any reason to believe that a collapse or violent change in
Chinese leadership would be followed by a more stable, more reliable,
more democratic or more cooperative international actor than the
current central government. The tragedies of the French revolution,
the Russian revolution, the post-World War II coups in Eastern Europe
and the Chinese Cultural Revolution are far better indicators of what
might come next if faltering economic progress or other stresses of
transformation become unmanageable.

In our globalized economic world, the West could not simply sit back
and smile as China disintegrates. Chaos in China is far more
threatening, economically, politically and militarily, to the United
States and the world than China's current "peaceful rise". Both for
China's sake and our own, we must help the Chinese succeed in their
transition to a 21st-century economy and society.

Being better prepared for possible failures along the way is an
essential component of planning for and realizing that goal. Western
leadership needs to think now about how it would rank and balance
various potentially conflicting objectives, including protecting
diplomats and foreign citizens, salvaging Western investments,
ensuring the stability of the global economy, protecting human
rights, avoiding unpredictable military action and reaction, and
maintaining civil relations with those who claim to be in power in Beijing.

The West needs to act immediately and more vigorously to help
strengthen Chinese civil institutions, recognizing the continuing
imperative of the Chinese government to show improvements in its
domestic economic and social structures.

The 2007 Party Congress was filled with rhetoric about "democracy".
But real democracy - the broad diffusion of power beyond the party
and its attendant government bureaucracies, to independent legal
institutions, media and non-governmental organizations - will only be
implemented if it is seen as a means of promoting social harmony and
strengthening the authority of national laws over local corruption
and opportunism.

Arguments that China should expand individual human rights as an
independent moral objective are unlikely to motivate the central
government. Rather, the central government should be persuaded to
decentralize power and create a diverse civil society to create the
social resilience, adaptability and sense of participation that will
enable it to survive through the coming storms. The current Tibet
controversy, because it is perceived by most Chinese as an ungrateful
challenge to territorial integrity, is only a shadow of what may lie ahead.

Finally, we must also prepare for the worst. First, our foreign
policy and military planners must develop and publicly discuss
contingency plans for the consequences of a dramatic setback in
Chinese economic growth and resulting breakdowns in domestic order.
Second, we need stronger mechanisms to avoid miscommunication of
military movements, lest we lurch into a World War I-like disaster as
hardline propaganda and sensationalist media lock both China and
other governments into inflexible postures. Third, if the physical
entry of national or multilateral military forces into any part of
China is unthinkable under all circumstances, we must identify other
steps that might be taken to minimize and mitigate the destruction of
life, property, social order, and global economic activity.

What leverage, if any, can the outside world bring to bear on the
central government or the military, without military intervention?
Can the threat, or imposition, of economic sanctions, embargoes,
blockades, or other tools have a significant impact in time to avoid
disaster? Can the United Nations make any difference at all in this
context? Timely, coordinated response by the outside world might make
a difference; slow reactions and uncoordinated US, European Union,
and Japanese positions will almost certainly accomplish nothing.

The Chinese propaganda machine is doing its best to make us (and the
Chinese people) believe the government has everything under control
and on track. We must not take its claims of economic and military
strength at face value. We need a more realistic understanding and
perspective on the nature and scope of China's growing capacity and
hidden weaknesses, learning more about its limits as well as its
strengths. And we must think seriously about how the West might
proceed to address the global interest in conditions in China if a
real breakdown occurs.

Samuel Bleicher is principal in his consulting firm, The Strategic
Path LLC. From 2001 to 2007, he served as chief strategist for new
initiatives in the Overseas Buildings Operations Bureau of the US
State Department. From August through December 2007 he taught
American law in Beijing to Chinese prosecutors, judges, lawyers and
administrative officials in a joint Tsinghua University/Temple
University LLM program funded primarily by the Chinese and US
governments. He can be reached at:

(Posted with permission from Foreign Policy in Focus)
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