John Lee: Why China's 60th birthday is nothing to celebrate





[John Lee is a foreign-policy fellow at the Centre for Independent Studies in the Sydney area and a visiting fellow at the Hudson Institute in Washington. He is the author of Will China Fail?]

On Sept. 16, the blockbuster film The Founding of a Republic was released to commemorate the 60th anniversary of the founding of the People's Republic of China, which occurs Thursday, Oct. 1. Featuring more than 100 big-name mainland and Hong Kong actors including Jackie Chan and Jet Li, one of the more poignant moments occurs when the actor playing Mao Zedong holds back tears and emotionally proclaims on the eve of the rise of a new and independent country, "The Chinese people have stood up." The film then awkwardly hurries forward to December 1978, when Deng Xiaoping heralds the era of "opening and reform" in the Middle Kingdom.

It is undoubtedly a propaganda film, as would be expected of anything conceived by the Beijing Municipal People's Political Consultative Conference. But the ambitious sweep of events over six decades is a reminder of something else: The reform period since Deng took power will be nearing the completion of its 31st year -- more than half the age of modern China.

This is significant because China's leaders since Deng have been telling the world that the Chinese Communist Party (CCP) will soon relinquish its dominance over the Chinese economy and society, and is assiduously laying the groundwork for fundamental economic and political reform, and eventually democracy -- but only after it recovers from the chaos and destruction of the Mao years. After all, Deng famously declared that democracy was "a major condition that emancipated the mind." But the reform period of 31 years has exceeded Mao's 27 years of terrible rule. The excuse that the party will "let go" its economic and political power but for the ghost of Mao and his terrible legacy is wearing thin.

So, first things first. Why should the party "let go" more power and instead work toward building institutions that will aid political reform and eventually democracy in China? Because in one important respect, authoritarian China is failing: While the Chinese state is rich and the party powerful, civil society is weak and the vast majority of people remain poor.

But aren't China's leaders doing a magnificent job of at least leading the country toward prosperity? After all, since Deng's reforms, Chinese GDP has grown 16-fold. And isn't this ultimately for the benefit of most of the country's people? Not in China's model of investment-led state corporatism hatched after the 1989 Tiananmen protests to preserve the economic power and relevance of the party.

Surprisingly, the greatest contributor to Chinese growth since the 1990s is not net exports but domestically funded fixed investment used to buy machinery or construct buildings and infrastructure such as roads and bridges. For example, this constituted more than half of GDP in 2008 and more than 45 percent of GDP growth in that year. Due to this year's massive $586 billion stimulus, about 75 percent of growth this year -- now touching 8 percent -- has been achieved through state-led fixed investment.

But not just the high reliance on fixed investment is striking. Where the capital goes is also all important. China is unusual in that bank loans -- drawn from its citizens' deposits funneled into state-controlled banks -- constitute about 80 percent of all investment activity in the country. Although state-controlled enterprises produce between one-quarter and one-third of the country's output, they receive more than three-quarters of the country's capital, and the figure is rising. Revealingly, state-controlled enterprises received more than 95 percent of the 2009 stimulus money. The Chinese state sector currently owns at least two-thirds of all fixed assets in the country.

Economic growth in poor countries is meaningful if it manages to raise the standard of living of the majority of citizens. But predominantly state-led models for growth, as in China, usually lead to profound structural inequalities that are difficult to resolve.

Tellingly, China's 50 million to 200 million-person middle class (depending on how we define the term) is the strongest supporter of the party, which is about 75 million strong. These elites comprise the fastest-growing groups wanting to become party members, almost a quarter of whom are professionals and skilled workers, a third students, and another third successful businesspeople. Joining the party has become a lucrative career move. By controlling the most important industries and the bulk of the country's capital (through state-owned banks), as well as by overseeing an extensive system of awards, promotions, and regulation, the CCP continues to control and dispense a dominant share of the country's most valued economic, professional, and intellectual opportunities.

Meanwhile, about 1 billion people are missing out on the fruits of prosperity. The country's "bottom billion" are outsiders to China's state-led model of development. They have little prospect of rising up and suffer under the yoke of frequently corrupt and incompetent rule by China's 45 million local officials. For example, according to a 2005 Chinese Academy of Social Sciences report, more than 40 million households have had their lands illegally seized by corrupt and unaccountable local officials over the past decade. In the 1990s, poverty alleviation slowed dramatically, and since 2000, the numbers of those still in poverty actually doubled in absolute terms. In one generation, China has gone from being the most equal to the most unequal country in all Asia.

It was not always like this...



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Arnold Shcherban - 9/30/2009

<In one generation, China has gone from being the most equal to the most unequal country in all Asia.
It was not always like this...>

This ending seemingly defeats the entire idea of the article.
Does Mr. Lee regret that such an evolution occurred or he wants to show his great sense of irony?
If he does regret it, does it mean that to him Mao's dictatorship was better for Chinese people than today's economic and political realities? If he ironizes, shouldn't economic and social inequalities existing in Australian or American democratic capitalist society become targets of his irony, as well?
Or, perhaps, he claims that private
inequalities are somehow more "democratic" than the
ones created by a state power?
I'm lost here...
Aren't you, readers?


Arnold Shcherban - 9/30/2009

<While the Chinese state is rich and the party powerful, civil society is weak and the vast majority of people remain poor.>
First, let me give one more example of the country with the huge population and large territory that has never (since 1949) been under totalitarian regime (actually - mostly democratic), but still as poor, if not poorer than China - India...
Secondly, is China "rich"? It is well known that everything is conceived only by comparison with something else; there are no absolute definitions.
Therefore, rich comparing with what other states? May be comparing with the leading world economies: US, Japan, etc...? Then the answer is definite no. The point is that every
country has its own definition of "richness" and therefore any such comparisons are very speculative, controvercial, and, simply, incorrect.
Let's look at this under different angle. As it's well known to the author China has the largest population in the world: about 1.3B, I believe.
Let's distribute all the riches of the richest and the most democratic country in the world - USA - as "evenly" as it is currently
distributed in the US among Chinese folks.
How many of those 1.3B people will still remain poor (and poor not just by American standards, but by the Chinese ones)?
I suggest - hundreds of millions...
Why I think so? Because in that richest and most democratic country in the world with the population 4.5 times less than the Chinese one, several dozens of millions live under poverty threshold (according to American standards of the latter.)
Thus the author's democracy-panacea-to-all-troubles-in-the-world idea is just plain wrong.
Fortunately or unfortunately, there are many other important historical, cultural, demographic, geographical, and other factors that account for (or, at the least, contribute to) success or failure a certain country to reach the status of economic and financial prosperity. Shortly speaking it is a natural process, or should be one.
For the country with such an enormous population as China is one more factor that is crucial: Time.
So let's grant it that one, because, as we well know from ancient and modern when people push-rush history with their ideological and political
efforts (no matter how fair and noble the latter are) the results come out not quite what they expected, modestly speaking.

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