Sunday, 1 September 2019

China - Boom or Bust?

The general consensus is that China's rise is inexorable. Inevitable.

And that the 21st Century would be China's Century.

And certainly, China's growth, development and emergence over the last 30 years or so makes the case for China's inevitable assumption of the dominant power and economy on the global stage, rather obvious.

In this first video, Kishore Mahbubani points out the obvious - China by sheer din of population just needs to achieve a per capita income of just 25% of the US, and it would be the number 1 economy, dwarfing the US (currently, as at Aug 2019, #1).

China's manifest destiny seems certain. Inevitable.

Ordained, even.

Except for the cracks in the facade.

And some false modesty:

But first, let us understand China.

From Jan 2011, a Ted Talk by Martin Jacques on the Rise of China and Understanding China. At abbot 6:00 mark he mentions Hong Kong and how as a "civilisation-state", China was able to make the "One Country, Two System" arrangement work.

And how the West was sceptical about Chinese commitment to the preservation of HK's special semi-autonomy. Because the West was used to thinking in terms of Nation-states and cannot comprehend how a "civilisation-state" like China could make the "One Country, Two System" arrangement work and work for 14 years.

Of course, he may have been a little premature in congratulating the Chinese for the success of "One Country, Two System". Three years later (2014) there would be the Umbrella movement, and 8 years later (Summer of 2019) there would be the protests and demonstration for greater Democracy for HK, because Hong Kongers felt that China was eroding the democratic principles promised to HK under the Basic Law. (At the time of this writing, the civil unrest has been going on for 3 months, and China has not committed to forceful suppression of the "rebellion" - i.e. the use of the PLA. But it may simply be a matter of time.)

Regardless of whether his concept of the "civilisation-state" that is China and how that makes China fundamentally different from the rest of the "nation-states" is an apropos description and adequately explains the China-HK conflict, his other observations are worth considering.

The Second way China is fundamentally different, he argues, is that the Chinese is one homogeneous people. Or at least 90% of Chinese consider themselves "Han" and that they have a sense of cultural superiority.

Or chauvinism.

The Third characteristic is the role of the State in the Chinese civilisation-state. In the West, in democracies, the State is generally seen as a necessary evil which should be contained, restrained, and its powers and authority limited. However, in the Chinese civilisation-state the State is not an intruder, but a member of the family, the head of the family, the patriarch. Thus the State is accorded wide latitude in its actions and authority.

And this "clash of civilisation" is what is happening in HK in the summer of 2019. Hong Kongers are not used to a State with wide latitude.

Then in July 2019, he talks about HK's success. And her relevance to China.

He argues that HK got wealthy because it was lucky. From 1978 to 2001, China slowly opened up to the global economy, but it still had restriction, and HK found itself as the gateway to China. If you wanted to do business in China or with China, you went to HK, set up your office or shopfront in HK and traded with China from HK.

And HK got very rich because it was in the right place at the right time to take advantage of this great market that was opening up.

So HK got rich not because the people were cleverer than others or that they were special. They were just lucky. They were lucky because China was opening up and they were in the right location location location to leverage on that. Not because the British did anything to make HK special or rich or able to generate wealth.

He is critical of British hypocrisy for championing universal suffrage and democracy for HK when for 155 years while HK was their colony, they said not one word about either. But only raised the matter when handover was imminent.

He goes onto to cite two weaknesses of HK - its Administration, which is a colonial government administration and so there was no political leadership or channels to engage politically, or sense of political direction; and its Economy, which is an exploitative colonial economy where the property tycoons were empowered to run HK as an oligopolistic and monopolistic economy. And they got rich doing so.

Both these weaknesses need to be addressed, but the Basic Law ties the hands of the Beijing Government. And that has contributed (somewhat, in part, indirectly) to the HK protests in the Summer of 2019 (and beyond).

(The protests began as opposition to a proposed extradition bill, drifted to cover greater democracy, and now encompasses all manner of demands.)

He does not see the problem being resolved quickly. There is a gulf of values and a lack of trust between the HKers and China that is not going to be settled quickly or amicably in the near future.

But, what is not said is that  HK has very little to bargain with (for greater democracy, universal suffrage). About the only thing that China might consider or be concerned about is how a heavy-handed approach (i.e. the military option) will drive the Taiwanese away from a peaceful reunification. China does not want to have to forcefully re-unite with Taiwan. It may not even succeed, if it has to try.

China would like Taiwan to re-unite peacefully.

China is not the same politically and socially repressed state that it was 40 years ago. Kishore Mahbubani makes the case that things have changed in China and there are more freedoms in China today than say, 50 years ago. Or even 30 years ago.

Which while pertinent, may be irrelevant, at least to HK, Taiwan, and to the West.

While China has opened up, and while there are more personal freedom, there is still a lot of restrictions and constraints that would be considered intolerable to democrats in the West, and certainly to the HKers. There is a gap in expectations, and experience. HKers have experienced greater freedoms than PRC Chinese. It is unreasonable to expect them to settle for less.

Conversely, the Chinese (PRC) having experienced greater personal freedom and better living standards over the last 30 years or so, and seeing the gleaming city of HK cannot understand HKers dissatisfaction.

And this challenge (from HKers) to the Chinese authority and, consequently, Xi Jinping's leadership comes at an inconvenient time.

From 2017, VisualPolitik asks, "Why is the Chinese Economy Addicted to Debt?"

This is because in May 2017, Moody's downgraded China's debt rating for the first time in 27 years. In the preceding few years, China has had less growth and much more debt. Since 2007, debt has risen to 260% of GDP, while growth has fallen. China has goosed their economy by building "ghost cities" - cities with everything - high-rise residences, public spaces, and facilities. Everything. Except people.

This was all to try to keep the economy growing as there was a political imperative: for as long as the economy was growing and the government (the Chinese Communist Party) could deliver prosperity to the people, the government was "safe".

But since 2007, growth has fallen, and the tide seems to be turning against China.

In 2012, Al Jazeera English put out a video: "China: Broken Dreams" which presented the problems and pressures facing young Chinese and in particular graduates. In that year alone, there were 6.8 million university graduates. They graduated into an economy that is slowing, housing prices are increasing, and employment/vacancies for graduates are fewer. Moreover, they are finding that their skills and qualifications are not what employers are looking for.

In Mar 2016, the Financial Times asked if it were "The End of the Chinese Miracle"? Their hypothesis was as China's population ages, as the supply of cheap labour dries up, as orders to the factory slows and even stops coming in, as factory closes, as wages rises and businesses move their production to cheaper countries in Southeast Asia, can China continue with the strategy that pulled them out of poverty for the first 20 years? The signs are that as China moves up the value chain, as their workers wages rises, as their expectations rises, as they are more educated, as their aspirations and hopes are greater, as they reach for better jobs, China will cease to be the factory and workshop to the world.

In Sept 2016, Al Jazeera English asks, is this "The End of China, Inc?" The video (below) covered the development of Ghost Cities (also covered by VisualPolitik's video, above), the proliferation of loan sharks, the unspoken social contract between the communist part (government), and the people, the plight of coal miners (low wages, no pension, can't retire), and a little known protest in 2015.
"China is roughly 16% of global population and it has been consuming 50% of global resource... that's going to stop and that will impact Australia, Canada, Brazil, Indonesia... and there is a huge chain of consequences..."

The signs are incontrovertible.

Chian's growth is slowing.

Their local governments have resorted to goosing their growth figures by building ghost cities, financed with debt. The central govt has tacitly supported these extravagance by providing cheap loans to keep the economy humming, even when it obviously doesn't know the words. There are zombie enterprises and unemployed graduates.

[Dec 2019 edit: And even their GDP figures for the last 10 years or so may have been... "creatively" reported:

Does this have any real impact on the world? Maybe not. So China lies about their GDP or inflates their GDP, what does that mean for the rest of the world? Maybe nothing.]

It is not simply that the Chinese Govt has failed to anticipate or address the problems. China is very large, and the problems are multifaceted and development is not always even. So there are brilliant successes and stunning cities, and then there are villages left behind, and in between there are missteps and bad luck, and bad timing.

And there are Ghost Cities. And huge debts. And slowing growth. And an ageing population. And a mismatch between jobs available, and job seekers. And factories are moving out.

Part of the problem is technological changes. Automation, computerisation, and the hollowing out of the middle class. There will be brilliant Chinese engineers who will build drones and autonomous cars and trucks and delivery vehicles and some will become very rich.

But they will be few in numbers. Most Chinese will not grow rich.

China may have gotten old before it got rich.

This means it may never be number 1.

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