Restless Empire (62 page)

W
HOEVER WANTS TO UNDERSTAND
China’s options must begin with Singapore, Taiwan, Hong Kong, and Macao, the four Chinese societies that are not directly ruled by the CCP. While the latter two are now parts of China, they retain their own judicial system and governmental arrangements, and these have proven quite resistant to PRC attempts to change them. Singapore is, of course, an independent multiethnic state, located far away from China, but with a majority Chinese-ancestry population. Taiwan is a democratic Chinese republic, located right off the mainland of China, which—by an accident of history—has been independent of the People’s Republic on the mainland for sixty years. All of these are Chinese states, and they are always at the core of Chinese thinking about the PRC’s future, whether your Chinese interlocutors will admit it or not. The PRC is in need of ideas on good governance, and its leading men and women believe that they can get such ideas from other Chinese, as rulers in Beijing have so often done in the past.

The advice given by those who look at the external Chinese world goes in very different directions. Those who stress the need for elite control, usually point to Singapore and its experience under Lee Kwan Yew. Singapore is today a very well-regulated society with authoritarian traits, and many Chinese who go there from the PRC remark—in astonishment, if it is their first visit—on how much better it works as a model for stability and organization than China does. Lee and his men got much right—not least in poverty alleviation and growth economics but also in planning for the future: Singapore’s sovereign wealth funds are the envy of the world. But Singapore is a city state, no easy model for a country that contains a fifth of humanity. Singapore therefore is an ideal for some within the CCP, but not a reality that is easily adhered to. And even if the Lion City today—with its ban on chewing gum and its “managed” democracy—shocks many Westerners with its censoriousness, it is still a big stone throw’s away from the PRC, where people are executed for what in Singapore would lead to a stiff fine, and where debates are utterly suppressed that would not raise a wrinkle in Singapore today.

Hong Kong and Macao are the strange cases, colonial remnants within China itself, though taken over by the PRC with much fanfare in 1997 and 1999 respectively. But takeover did not mean political and juridical subjugation. Beijing was very aware that Hong Kong, especially, was the hen that laid the golden eggs. It connected trade and industry, above all in south China, with international markets, and its British colonial justice and order was conducive to its role as a center for finance that contributed to China’s growth. Beijing is less enamored by the traces of democracy that the British attempted to add to their colony almost as an afterthought in the 1990s, after they had negotiated its return to China. But while the PRC has been eager to avoid a furthering of political pluralism in Hong Kong, the Communists have respected the former colony’s unique position as a city that in essence is ruled by English common law within the borders of a Communist state.
According to the US State Department, as of 2011, “Hong Kong remains a free and open society where human rights are respected, courts are independent, and there is well-established respect for the rule of law.”
¹
Although Shanghai is moving to become the commercial capital of China, Hong Kong is likely to retain much of its position because of its laws, its good administration, and its relative freedom of speech. At the moment of writing, the market capitalization of the two is about equal; their stock exchanges are fifth and sixth in the world, respectively.

The big comparer for China, however, is none of these former colonies, but Taiwan. The rump Republic of China, situated a hundred miles from the mainland coast, has an almost fully Chinese population, high income levels, social stability, and a democratic form of government. As we have seen, the military and political tension across the Taiwan Strait has abated in recent years, and many people—both on the mainland and on the island—are hoping for some form of slow, peaceful integration of the two sides. But it is highly unlikely that the people on Taiwan would be willing to give up their own good institutions—developed through two generations of struggle—in return for some form of reunification with the mainland. On the contrary, more and more people in China are looking to Taiwan for inspiration in how to reform corrupt, unresponsive, and laggard institutions on the mainland. As increasing numbers of people from the PRC get the chance to visit the island, they will be struck by the massive qualitative differences between public administration there and at home, not to mention by the full freedom of speech that exists on Taiwan. Some will still claim that Taiwan is an American colony, or contend that China is too big to take over models that may fit one small island. There are even those who are venturesome (and brave) enough to say that the different traditions Taiwan took up during Japanese colonial rule lay the foundations for a different development today, one that China cannot easily copy. But increasingly these will become small groups compared to the many who will be wondering why China, with all its resources—
human and economic—cannot deliver what the Taiwan government can give its population.

High levels of individual freedom and political pluralism are some of the main aspects of what Chinese today see when they look at how other Chinese live outside the PRC. But—even more importantly—they also see stable, well-organized societies of the sort that they wish for in China, after all the chaos of the past four generations. The PRC government is trying to tell them that if they do not stick with the CCP, the alternative is disorder. But, when they look at Chinese states elsewhere, it is not far-fetched for PRC citizens to conclude that
theirs
is the chaotic state, with a predatory market system, laws that cannot be enforced, and rules of behavior that change on the whim of the government. Listening to some young people in Beijing discussing the arrest and imprisonment of a former Taiwan president on charges of embezzlement and corruption, I heard only a couple viewing Chen Shuibian’s arrest as a sign of things going badly on Taiwan. Most were marveling at a society and a state where such measures were possible against the high and mighty.

T
HE DEVELOPMENT OF
C
HINA’S
economy will be at the center of the country’s international affairs for the next generation, irrespective of the twists and turns in its domestic politics or its diplomacy. The reason for this is not only that China is now the second largest economy in the world, but also the roles it has taken on for this to be possible. China is today the world’s workshop, the zone where things are made, which then end up on the consumer lists of Americans, Europeans, and Asians, and which nearly everyone else aspires to own. This is the country’s current role, and it has achieved it by being willing to play the global market game according to the rules that were set up first by Britain in the nineteenth century and then by the United States in the twentieth. In spite of its government’s nominal Communism, China has in practice become the champion of free market
capitalism, internationally if not always internally. It is working hard to take on the rules of the game and is increasingly concerned that others, be it in Africa or Europe, are themselves not always doing so. Seen from a Western perspective it is hard not to conclude that China is now “playing our game.”
²

But as China emerges as the master player of international capitalism, it is also obvious that the rules of the game are being remade in China. In spite of observations by Sino-skeptics, these Sinified rules so far rarely go in the direction of corporatism or state control, but, at best, toward collective decisions and compromise, and, at worst, corruption and nepotism. It is very unclear how Chinese capitalism is going to influence practices in other countries, especially in cases where there are great cultural differences with China. Because of the massive amount of foreign investment that has flowed into the country over the past decade it is a given that Chinese financial practices over time will influence the foreign companies that do business there. But at the moment the Chinese are busy implementing foreign rules, for instance on managerial and labor relations, in ways that are profoundly changing Chinese society.

The Chinese government today wants to play a strong regulatory role in the development of the country’s economy. Because China is a political dictatorship, all institutions, including private companies, pay generous attention to government instructions. But in reality the state’s ability to influence private decision making is limited, in spite of the repressive means at its disposal. In South Korea or Taiwan, the regimes could set directions because they controlled credit and capital flows, and because they—and only they—facilitated access to foreign markets. The amount of foreign direct investment in their industrialization processes was minuscule, their credit companies were under state control, and their main firms invested nationally for export abroad. In China these crucial aspects of industrialization are turned upside down. Foreign investment has driven significant parts of the process, foreign banks
are operating in China and Chinese banks have plentiful means to resist government pressure, and the biggest Chinese companies have already become multinationals with large investments abroad. The domestic Chinese growth process since 1990 has been governed not by national priorities or five-year plans but by the chaotic interplay of market forces. All of this has happened while the state has kept its investments in profitable industries, owning or part-owning many of China’s biggest companies. But, as one economic planner told me recently, state-owned companies are increasingly behaving like privately owned companies in the market; they recruit their managers from the same pool of talent and they are equally responsible for profits and losses. They may listen to what the government says, but only if it provides a sound bottom line for their company.

At the moment quite a few global investors and corporate executives are agreeing with the general direction of this book: that China will reinvent global capitalism rather than ruin it. In the wake of the crisis of 2008/2009, Chinese officials and businessmen alike began lecturing Western countries on the need for market and currency stability, and for avoiding corporate greed, bad loans, excessive deficits, and extravagant consumption. Some of this sounds laughable, given the amount of bad business practices in China itself. But it does signal that many elite Chinese now see themselves as stakeholders in an international economic system, on the success of which their futures depend. Many people in China (and quite a few outside) dream about a future Sino-capitalism that will be better organized, more balanced, and less destructive than its Western inspirators. So far there is little that tells us that will be the case. But, as has often happened in the world economy before, those who are the generators of global growth innovate as well as imitate. Future Chinese leaderships, public and private, may be stimulated by the crises they have gone through to opt for more regulation and government design than what we have seen in previous versions of world capitalism.

The 2008/2009 global financial crisis showed a China that had arrived as a key player in the world economy. At the World Economic Forum in Davos in 2010, Chinese Premier Wen Jiabao placed the blame for the crisis on the “inappropriate” macroeconomic policies of Western countries . . .

and their unsustainable model of development characterized by prolonged low savings and high consumption; excessive expansion of financial institutions in a blind pursuit of profit; lack of self-discipline among financial institutions and rating agencies and the ensuing distortion of risk information and asset pricing; and the failure of financial supervision and regulation to keep up with financial innovations, which allowed the risks of financial derivatives to build and spread.
³

Quite a handful: The apprentice was taking the past masters to task for their excess. But the medicine the CCP itself prescribed did not imply that there was anything wrong with capitalism as such. Instead it implemented the largest stimulus program of government spending in history, thereby attempting to stave off the worst consequences of the crisis for Chinese companies and for the Chinese population. Post-crisis growth for China will most likely not be of the same scale as before, because of international competition and, eventually, the country’s aging population. But even with
only
six percent annual growth on average, China will probably still become the world’s largest economy sometime in the mid-2030s.

C
HINA’S INTERNATIONAL POSITION
in the twenty-first century will be determined as much by what happens inside China as what happens outside its borders. The country’s biggest domestic problem is that uneven growth has left large regions behind and that the lack of a proper welfare system and protection for workers against exploitation has led to an extremely high level of inequality. While Premier Wen
and others are lambasting the West for its excesses, inequality in China is at least twice as high as in the United States and Britain, with higher ratios to relatively equal societies such as Germany and France. While slowly and uncertainly trying to deal with its worst consequences—for instance by reintroducing some forms of subsidized education and health care—the Chinese government is defending itself by saying, with Deng Xiaoping, that in a developing society “some people have to get rich first.” The problem with this “rising tide lifts all boats” scenario is that there are no signs that Chinese inequality is abating; on the contrary, the situation in the poorer regions is getting worse and worker unrest over low pay and atrocious working conditions in many factories is on the increase.