The Long View: The Coming Collapse of China

Gordon Chang keeps being wrong about China, he predicted in 2001 there would be a revolution by 2006, but I can see how his story is compelling, attractive even. There are lots of things the Chinese do that it seems like you just cannot keep doing, but they keep on doing it anyway.

Unlike with Eamonn Fingleton's work, I don't really have a good sense for what is going on in China. Thus, I cannot really comment on this book other than to say: this collapse Chang predicted keeps not happening. What little I do know suggests to me that traditional Chinese culture is slowly, slowly reasserting itself after Chairman Mao's attempts to stamp it out. I think of Mao as roughly analogous to Qin Shi Huang, the first Chinese Emperor, who is both widely influential and widely despised for his paranoia and tyranny.


The Coming Collapse of China
Gordon G. Chang
Random House, 2001
344 Pages, $26.95
ISBN: 0-375-50477

Shanghai is the most awesome city on earth. Twice the size of New York, and maybe already with more skyscrapers, it is the glittering pinnacle of the commercial transformation of China in the last quarter century. The author's father left China during the Second World War to live in the United States and is no friend of the Communist regime. Still, he remarked on viewing the city from its greatest skyscraper, "Foreigners must feel jealous when they see this." The emigrant's son, Gordon Chang, has worked in China for an American law firm since the 1980s, and he, too, is impressed. Nonetheless, in The Coming Collapse of China he makes this prediction:

"The leaders speak so loudly of what they have accomplished, and now, believing all that they have told us, have opted for membership in the World Trade Organization. They're unprepared for unforgiving globalization, that's for sure, but they press ahead anyway. It will be just like the Great Leap Forward – disaster brought on by self-deception."

The author gives the current regime five years, say about 2006, before it is overthrown. The proximate causes will be economic, as the residual command-and-control economic system crumples under the transparent trading rules required by the WTO. (China joined in December 2001. Most of the transitional rules expire in three years.) The book is particularly valuable for its witty case studies of two private-sector success stories, an Internet entrepreneur and a bowling-equipment manufacturer, and their travails in the not-quite-post-communist China of the late 1990s. Beneath economics are the irreversible corruption and irrelevance of the Communist Party of China. Beneath politics, though, are deep structures of Chinese culture that may distinguish the process from what happened in Eastern Europe in 1989.

To some extent, the biggest problem of reform that faced China after the turn from Maoist economics in the late 1970s was the same the post-communist European states faced in the 1990s: what to do with the State-Owned Enterprises (SOEs), which constituted almost all the industrialized economy. In classical Marxist states, SOEs were never just industrial concerns. Social services were functions of the SOEs, from schooling for worker's children to health care to old-age pensions. In China in particular, SOEs and local groups of SOEs were all encompassing and largely self-sufficient; only in the last few years has there been the beginning of a nationwide market. Chang says that, in a sealed world without much pressure to upgrade technology, Mao's world of SOEs and comparably self-sufficient peasant collectives might have gone on forever.

The Ming Dynasty had tried to do just that in the fifteen century by, among other measures, closing down China's oceanic merchant marine. The country ossified and the dynasty was overthrown by the Manchu invasion of 1644. This time around the rulers of China took a more flexible approach. Led by Deng Xiaoping (whom Chang greatly admires), on one hand they encouraged limited development of private enterprise. On the other, they began trying to make the SOEs act more like real businesses. Success has been mixed, particularly on the latter front.

First the government lent the SOEs money to subsidize modernization. Then the government directed the commercial banks it had created to lend them money. These loans are rarely repaid in more than token amounts. Usually, they are just rolled over and new loans are issued. The money pays workers' salaries, and the SOEs buy spanking new equipment, but often not to much purpose. The managers haven't a clue about the cost of capital, or even about the real demand for their products. The SOEs continue to make stuff, most of it unwanted and unsellable to any enterprise that is not ordered to accept it. There are SOEs that have modernized and that can compete with foreign producers. Success is penalized, however. Competent SOEs are promptly saddled with more social-service duties by the authorities in the localities where they operate. Ayn Rand used to write cautionary stories about situations like this.

China has not only a sick industrial sector, which it dare not downsize for fear of exacerbating the already difficult unemployment problem. It also has an insolvent banking system. How insolvent no one knows. The accounting system is worse than Enron's, and beyond that there are systemic problems. At least in America, creative accounting eventually catches up with you. In China there is no effective bankruptcy system to clarify the situation. Indeed, modern China as a whole seems to have a "culture of non-payment." A third of all home mortgages are in arrears.

Energy without clarity characterizes China in the early 21st century. I find it mysterious that a country can experience rampant deflation, the falling of prices from year to year, at the same time that the government is pumping liquidity into the economy fast enough to drain the South China Sea. How can there be massive unemployment in a country with a 7% economic growth and birthrate that is not far above replacement level? In any case, surely even the dimmest apparatchik must recognize that you cannot simultaneously run an economy on Five Year Plans and answer for non-tariff trade barriers to the WTO.

This brings us to the state of the private sector, which is perhaps half the economy these days. If you think that property is theft, The Coming Collapse of China will disabuse you. Theft is theft, and the lack of secure property laws just means that there is more of it. It is possible to do business in China, but you must do it without enforceable contracts or predictable regulation. Chinese businessmen are astounded at the small amount of time that American businessmen spend smoozing. In China, businessmen can function because of their personal contacts with Party cadres. They involve Party members in their enterprises as partners, or simply pay protection money. Chinese companies, including SOEs, issue "stock," but no one knows quite what this equity represents. The SOEs are not responsible to their shareholders, and private companies often find that their assets, acquired with the help of friendly local authorities, are never really private property in any final sense. Thus, business success is more a matter of patronage than of economic performance.

Most Chinese still live in the countryside, far from the lawyers and venture capitalists with whom Chang is chiefly familiar. Nonetheless, he does suggest that something bad is happening there. In the 1980s, immediately after the end of the Maoist era, people in the countryside benefited enormously when they were permitted to farm private plots and run small businesses. More recently, though, farming has become uneconomic, and the cities of the east now host over 100 million refugees from the countryside looking for work. There are several reasons for this flight from rural areas. Part of the problem is mandatory sales of commodities to the government at artificially low prices. A bigger problem, though, seems to be the staggering corruption.

After Mao, local officials were given far more autonomy, including responsibility for funding local government. Latterly, they have used this power to impose taxes and fees arbitrarily, and even to print their own money. They run public institutions as private businesses. In one appalling case, children at an elementary school were required to made fireworks for sale; many children were killed in an explosion. According to Chang, little uprisings are always happening throughout rural China. Sometimes they are put down by force, sometimes by negotiation. Sometimes, the Party cadres just withdraw until things calm down. In any case, the Party is profoundly unpopular in the countryside these days. It is just tolerated in the cities.

It's a paradox. Under Mao, China was a totalitarian state. Some representative of the Party was everywhere, on your block, in your work unit, in every government office. The Party was intrusive and it often enforced policies that were lethally unwise, but at least it was integrated into everyday life. Under Deng and his successors, however, the Party retreated. People could again have largely unobserved private lives. A measure of civil society returned, and not just in the economic sector. The Party has become unpopular because its relationship to this new China is entirely parasitic. People know the Party did not create the new prosperity. Furthermore, despite its continuing efforts to instill communist orthodoxy in the people, the Party does not believe what it says, and neither does anyone else. The Chinese people are not, at the moment, angry enough at the Party to overthrow it. However, if the Party is threatened, the people will not defend it.

What should the Party do in this situation? Chang has this suggestion:

"If only Beijing's bureaucrats had studied Chinese philosophy. Before laissez-faire there was wu wei. 'Practice not doing and everything will fall into place,' says the Tao Te Ching, Taoism's primer."

There is indeed a "free market" tradition in China, but here is another paradox: traditionally, the officials and scholars who opposed government interference in the economy were the party who opposed economic growth, which they thought was socially disruptive. The pro-growth faction were dirigists of the Legalist tradition. They were the ones who wanted to dig the canals and establish the government salt and iron enterprises. If growth were to occur, everyone assumed, it would have to be through official will.

Of course, even when Chinese governments act, they sometimes seem to rely as much on mimesis as on ordinary administration. Consider this description of how China began its last major bout of real reform:

"When residents of Kunming in southwestern Yunnan Province heard that Deng Xiaoping was talking economic reform during his Southern Tour of early 1992, the effect was immediate. Like a 'swarm of bees' the people took matters into their own hands. Overnight, private vendors put up strings of white lights along roadsides and began selling trinkets from card tables."

While this might seem like an odd way to run a country, it does chime with traditional Chinese notions about how societies work. The people are like a force field, or perhaps better, like a fluid in motion. China itself is like a great whirlpool, with the ruler in the still center. The people adapt by shaping their behavior to fit the circumstances, but in the end they sweep all before them. Philosophers can speculate about the causes of the tidal shifts of history and historians can describe them, but they have a dumb inevitability that cannot be resisted. Going with the flow of history has always been the acme of Chinese political theory.

When a season of deluge approaches, signs appear. The old rulers cease to promote morality. Corruption spreads at all levels. Public order declines. The people no longer support their leaders spontaneously, so the rulers maintain themselves by force and trickery. Wizards and holy men appear in the countryside, working miracles and denouncing the corruption of the times. Often they form cults and mount rebellions, sometimes with success. While of course deploring the suppression of the Falun Gong cult, Chang points out that the current regime is right to be afraid. Master Li Hongzhi "preaches ideas that are even zanier than those of the Party, but at least he appears genuine when he claims to be the incarnation of the supreme divinity." Delusional sincerity has put people on the throne of China before.

Chang rehearses scenarios that could end the People's Republic. The Chinese military talks about a war to acquire Taiwan as "certain" within the next few years. Chang assumes they will lose. This is probable, but not inevitable. Even if China cannot storm the beaches of Taiwan successfully, the military might be able to close down the island's economy enough to make it come to terms. However, if the war does prove an embarrassment, demonstrations much larger and more broadly based than that at Tiananmen Square in 1989 could occur. The Party probably no longer has the prestige to persuade the army to disgrace itself again by coming to the rescue of the leadership. Lesser disasters could call out a similar response, including even a general run on the state banks. (Runs on local branches occur from time to time already.) So could some particularly egregious piece of official oppression that miscarries. Another industrial accident at a school might do.

Always Chang returns to that image of the crowd at Tiananmen, like water in a reservoir. Sometimes he suggests that a leader will arise to set the people in motion, perhaps a Party leader who promises no more than to call a constitutional convention. Still, he speaks of the coming change as essentially spontaneous, unplanned, with no organization or theory. He even closes the book saying:

"'Thinkers prepare the revolution; bandits carry it out,' wrote Mariano Azuela. That may have been true in the author's Mexico of a hundred years ago but not in the China of today. The Chinese need no thinkers for their next revolution."

This is unsettling if true. Chinese dynasties do sometimes just evaporate. The generals desert and the officials out in the countryside stop answering their mail. In the final act, the old leaders may flee before trivial forces, or kill themselves. The easiest collapse of all was that of the Qing Dynasty in 1911, which ended with little more than a declaration and the storming of a few police stations. That coup, however, was brought off by nationalist forces, who had long prepared for that day. Dr. Sun Yatsen had a thought-out program for a transitional government, though he was frustrated by the reactionary general Yuan Shikai. For that matter, even the zaniest millenarian insurgent who achieved the throne of China came there with some sort of a plan. (If he lasted, the plan he eventually adopted was to restore Confucian orthodoxy.)

Chang talks about the burgeoning suicide rate in China. Apparently, the phenomenon is called “the death of the spirit.” While the Chinese people, egged on by their government, have never been more nationalistic, he says they are not inspired by their past, but haunted by it. Their frame of reference has shrunk to the humiliations by the West of the 19th and 20th centuries. Surely, somewhere, there must be some positive force to channel the deluge. If there isn't, the world is in greater trouble than it knows.

A book on this subject was published in 2011.
Here is a review of Red Capitalism.

Copyright © 2002 by John J. Reilly

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