The Coming Collapse of China

Gordon Chang''s book points out some contradictions in China''s economy, but rather overstates his cas.e

Gordon Chang's  The Coming Collapse of China is a well-written and thought-provoking examination of the flaws in China's boom economy, although the story makes little effort to be even-handed, as the title makes clear.  

However, Chang has lived and worked in Shanghai for almost two decades as a lawyer, and his focus on China's economic flaws are worth reading, even though he is not a formal China expert.

The book culminates with  three scenarios in which the population could rise up against their rulers:  a stock market collapse, a failed war against Taiwan, rage at official corruption, or a combination of all three. 

Chang goes behind the scene of China's economic reforms to show they are the product of often clumsy central planning rather than the result of opening the economy to free choice and free competition.

In particular, Chang argues that the reality behind China's recent impressive GDP growth  when the figures are not simply invented  is that the numbers are boosted by the government's gigantic infrastructure projects, which may actually be value-destroying, says Chang, once corruption and inefficiency are taken into account.  

He notes the government is heavily indebted, once pension liabilities and non-performing loans are counted in, and that the government will not be able to finance the deficit spending that has propelled China's growth for much longer. Slower growth will trigger ever-greater social and economic pressures (a run on the banks, a collapsing stock market), which could result in a revolution

Chang's take on WTO is particularly interesting. Rather than being a bracing cold shower for the economy, Chang believes the shock it will administer to China's state-owned enterprizes will cause chaos. 

The five year deadline protecting China's economy before allowing equal foreign competition is simply too short, says Chang.

Discussing economic changes, Chang points out the paradox of having 'reform' organized by the Party, which he says is corrupt, arrogant, cruel and hated by the people, "an organization out of control."  

It would be illogical for the Party to give up its power by withdrawing from the state-run section of the economy, argues Chang.

Consequently, China is "only halfway to somewhere, with no consensus as to the future."  

But Chang ignores the reformist element in the Party, which evidence shows is itself both less monolithic and less sclerotic than Chang believes.

Rather, there is an ongoing power struggle between the reformers and the conservatives, and Jiang Zemin has skilfully kept a balance, allowing the reformers such as Zhu Rongji to plough a sometimes-lonely furrow while placating the old-style leftists. 

Nor does Chang seem interested in the numerous ongoing incremental stock market and social security reforms, and he devotes little time to China's already dynamic private sector and the government's increasing encouragement of it.

As for the admittedly profoundly sick SOEs, after the failure of corporatization   changing SOEs into joint stock companies  the government's focus has changed to consolidating SOEs into a handful of internationally listed giants. The government's plans to reduce its stake to below 50%, appoint independent directors and leave the rest of the economy to the private sector.

 This is not just a paper reform either: it was spelled out in China's WTO agreement with the United States.

And while, like many mainlanders, Chang gets bored and angry with the government's ideological ranting, the fact is the Party recently welcomed capitalists to its bosom. The Party has also recently abolished the millennium-old city registration system, allowing unprecedented mobility of labour.

Chang is right to raise the issue of timing. Reforms take time and there are no guarantees China will use the time it has left effectively.

But while the reforms may seem lumbering to Chang, this is surely because they need to go ahead simultaneously on all fronts.

After all, there is little sense in letting market forces rip into the state sector before the private sector and social security system are sufficiently developed to pick up the slack.  

Chang is also a little contradictory when he both blames the Party for its slow pace of reforms and then says joining WTO will make the pace too fast.

In any case, both 'too fast' and 'too slow' are slippery terms, and any forecast on China's fate depends on gauging whether the majority of the population feels that increasing prosperity and security is a feasible aim, if not for themselves, at least for their children. 

Chang feels this is not the case, but it's also clear that a bloodbath provoked by the people would rule out any prosperity for a very long time. 

Anyway, the aim of China's masses is to get rich, and the current ideology already advocates, however serpentine its reasoning.

Conversely, it would take a very dim party cadre indeed not to realize that with the wilting away of orthodox Marxist ideology, the only justification the party has for being in power is by raising the economic standards of the people, however much the cadres cream off for themselves.

Finally, it would be rather stretching the imagination to accept that China, with all its problems, is in a state similar to the dreadful upheavals preceding the Party's rise to power in 1949. The Japanese Self Defence Force, last time I checked, had not left either its harbours or its airfields, and the Nationalists were still in Taiwan.


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