Lack of an understanding of China’s history, institutions and leadership style coupled with ideological arrogance explain why the US media, some analysts and some scholars are wrong about the country’s economy, polity and civil society.
The world has indeed lost count on how many times Western pundits have incorrectly predicted China’s economic and political collapse since Deng Xiaoping took the country on to a reform path. Their wrong if not ridiculous assessments are largely based on wild speculations derived from the forecasters’ own values or ideological biases. Attempts to provide a positive picture on China are dismissed as propaganda or worse.
Wrong about China’s economy and polity
Since China’s opening up to the world and reforming its economy and polity in 1978, China critics have predicted the country’s demise. They were certain that China would implode like the Soviet Union because of the violent crackdown on the 1989 Tiananmen Square “pro-democracy” protests and the implosion of the Soviet Union.
Mainstream Western media, respected analysts and scholars were equally sure that the Chinese economy would collapse because “communists” know nothing about economics and it was “drowning in a sea of debt,” propagating the same message for more than 30 years.
However, history and evidence point to the contrary, in that China is getting wealthier, stronger and more united than ever before. Judging from economic reports and continuous reforms, the country may be on track of attaining the “China Dream,” making it a prosperous, strong country by 2050.
According to the International Monetary Fund and other reputable supranational organizations, the Chinese economy is poised to grow at an average annual rate of above 6% over the next five years if not longer. Since China has already lifted more than 800 million out of poverty and has more than 400 million in the middle class, it is on track to eradicate poverty and put more than 5o0 million in the middle class by 2020.
On the geopolitical and military fronts, China’s influence on the global stage and ability to deter foreign (read US) aggression are already a “fact of life” and growing.
So why have so many journalists, analysts and scholars been wrong on China?
The simple answer is that they had little or no clue about China, instead assessing the country’s economic and political outlooks based on misinformation, debatable assumptions and ideological biases.
Authoritarianism and innovation
China’s more than 5,000-year history was largely influenced by feudalism, a platform in which democracy and individual rights were not only frowned upon, but those who harbored such views were harshly punished. Yet the country was an innovation powerhouse during much of its history, inventing paper, gunpowder, the compass and other technologies.
Innovation in China might not necessarily be related to individual rights; it might have more to do with encouragement and funding, as during the Han and Tang dynasties. The same might be true today, raising funding for research and development from 1% to almost 2.5% of gross domestic product over the last 10 years has produced positive results.
The fact of the matter is that few Chinese technology researchers are political activists. They will produce and become creative if given an opportunity, explaining why China is fast narrowing the technological gap with the West.
Chinese economic and financial systems
Deng Xiaoping’s “Socialism with Chinese Characteristics” is a hybrid development model composed of both market-economy and central-planning methods. Its success is beyond doubt, for the following reasons.
First, state control of economic development is designed to prevent the kinds of wide business-cycle fluctuations seen in the West. It is also meant to avoid the kind of economic stagnation seen in the former Soviet Union and its Eastern European satellite countries. The “happy medium” is the result of Communist Party adviser Chen Yun‘s “birdcage” model.
The “bird” or economy is allowed to grow within the plan, or “cage,” set by the state. Gradual implementation of market forces to determine demand and supply in the “non-strategic” industries (clothing, non-defense manufacturing, etc) has increased productivity without triggering inflation. Maintaining state ownership of and price controls on “strategic” industries (food, energy, etc) has sustained economic, political and social stability.
That is, state-owned enterprises (SOEs) and state-owned banks (SOBs) exist first to “serve the people” and then make profits. That stance is interpreted in the West as misallocation of resources, which its China critics say could lead to economic collapse at worst and a financial bubble at best.
But what the critics fail to appreciate is that while banks and enterprises make less profit or even incur losses, they fulfill a social responsibility and create economic and political stability.
State-owned banks not at risk
Contrary to what China critics have predicted, Chinese SOBs are profitable, showing no sign of a bubble or systematic risk. Their average ratio of non-performing to total loans of 1.7% is comparable to that of the West and Japan. Chinese banks had more than 155.5 trillion yuan (US$23 trillion) in deposits in 2016 according to US-based consultancy Statista, more than any other banking system in the world, including the United States, with $12 trillion as of March 7 this year, as reported by the Federal Reserve Bank of St Louis. With deposits accounting for almost 50% of GDP, the 2017-18 Chinese bank deposits should be higher than the $23 trillion.
Now US critics are pointing the finger at China’s shadow banking system, which includes loans made by non-banks such insurance companies and wealth fund management and trust products. Depending on whose numbers one believes, shadow banking accounted for between 40% (China Banking Regulatory Commission) and 80% (Moody’s) of the country’s GDP. Even the highest estimate pales in compared to that of the US at $45 trillion or 250% GDP in 2016 (Bloomberg). By the critics’ own logic, the US banks will collapse before China’s do.
Most if not all of China’s shadow banks are subsidiaries of large SOBs, which use their insurance, wealth management and trust businesses to bypass rigid banking regulatory regimes. They have sufficient internal mechanisms (such as adequate loan collateral) to control risk. What’s more, the 2018 “Two Sessions” approved a new financial-system commission to regulate both commercial and shadow banking businesses as a way to curb over leveraging.
China’s four big banks are in fact become the world’s four biggest in terms of assets, suggesting China’s banking system is just as stable, if not more so, as those in the West.
China’s governance platform
The Chinese government routinely polls the population in formulating and implementing economic, political and social policies. The polls consistently show that poverty eradication, environmental improvement, national defense and eliminating corruption are the top issues to be addressed. The government is listening to the people, in light of its policy platforms.
The Chinese government may lack transparency (because it debates policies behind closed doors) but is more responsible and accountable than that of the US or any other government. No government in human history has been as successful in pulling people out of misery or poverty and bolstering the middle class within just four decades. Barring any unexpected adverse developments, China may be on track to eradicating poverty entirely by 2025 if not earlier.
In contrast, poverty has worsened and the middle class is dwindling in the US. A CNBC report this month indicated that 42% of Americans were at risk of retiring bankrupt.
Moreover, US politicians appear more interested in promoting and protecting their own interests and those who financed their election campaigns than the nation’s. Priority is given to defense spending, risking economic and social stability. In spite of the huge numbers of shootings, the Donald Trump administration, the US Congress and some states refuse or are reluctant to toughen gun laws.
In any event, the anti-China US media, analysts and scholars are leading America down a dangerous “garden path.”
This succinct and lucid analysis of pervasive and persistent western folly is refreshing and enlightening!
The US is on a downward spiral. Their mainstream media is too busy criticizing other countries’ governments but is failing to inform its people that their own government’s policy is not any better but is in fact wrong. You do not spend a lot of money you are already strong at. You spend on where you are weak. Why spend so much on defense and spend less on infrastructure and education?
great
Brilliant piece of analysis
Mixture of fact and fictionm as usual from Ken.
The US and its media would have liked nothing more than a China worthy of praise and support, which had been the case. That is no longer the sentiment, and not just from the US, but from more and more countries, unfortunately. The reasons are many and are based upon CPC actions; and have merit. With that said, I truly feel that there is reason for concern. I have met quite a few Chinese who have emigrated from China, and read accounts of many others who moved their families and money to the "west". I just met two of my colleagues from China in Europe for an annual team offsite meeting. They expressed to me concerns about life there, of course the often mentioned air quality, the water too, and even concerns about the health of foods and good medical care. One mentioned the shenanigans and rampant corruption that remains so prevalent. She had purchased a home in Shanghai last year and debt is suffocating, but she explained that more and more young people are doing such, which jives with recent articles about the increasing Chinese consumer debt as of late. Still somewhat relatively low, it’s growing very fast. The exodus of Chinese people and money had been happening for years and CPC of course has more recently been trying to limit such. As an ascending power in Asia and on the global state too, the second largest economy in the world, it’s unheard to have so many people leaving such a country. I feel that it speaks volumes. Back to my Chinese colleagues, while in Europe, their first time outside China, what they saw and read on the news was very eye-opening. That was before searching the internet, using Google. They generally understood that they were being spoon-fed the CPC line, but the blocking of information, to the degree they found, disturbing. The control of its people, and increasing at that, I feel cannot end well for the CPC. I don’t just mean in certain provinces and areas like Xinjiang (the Uighur Muslims), HK, Tibet or even Taiwan, but even the Han population. The rapid increase in domestic security is explained and apparently now outpaces national defense spending. And debt is a huge issue for sure, in raw numbers alone, various ratios, but even more so in its acceleration in recent years. It is a very bad sign to take-on more and more debt and see the economy not spike, but actually decelerate. The off-book banking or shadow banks, that debt, many believe is noteworthy to significant and not captured when speaking of debt to GDP figures. Those are quite likely worse than the reported 250+ ratio.
Continued… Also, China’s actual GDP figures are long believed to be bogus and inflated, just like those reported as fabricated in various provinces. While shadow banking exists in many countries, by definition, it does so outside the government’s safeguards, and to a much lesser extent found in China. Importantly, in China, the CPC is part of this unregulated activity, at a minimum mediating it and even serving as the guarantor. China’s true debt to GDP is quite likely much higher. Not helping matters will be the predictable rate increases in the US. Who knows what will actually happen with tariffs when it’s all said and done. Another serious factor is China’s working population has been steadily decreasing, I believe five years straight now. As studies have highlighted, it will only get worse over the next couple of decades, fewer in the workforce as the population gets older. While the one child policy ended a year or so back, and there was expected bump in births, it was not as much as hoped. Fertility, likely due to added stress of being in a modern workforce, increasing debt and also pollution, which has been noted for causing 1/3 the deaths in China. One of my colleagues in China sees no way they can financially afford a child now, and the realization is crushing her. From China’s control challenges from within of its own people, to its actions abroad and its debt situation, I don’t see this ending well for the CPC. Debt alone, especially the acceleration of which being the biggest concern as it grew 60% compared to GDP over a five year period, the highest the world has ever seen for a major economy. While of course that is not good, research reveals that in thirty instances of economies experiencing at least 40% debt growth, all of them went through major corrections. Morgan Stanley provided such research about a year back. Such corrections happened within the subsequent five year period. For perspective, from that same Morgan Stanley research it was noted that at the peak of the US housing crisis, its economy needed three dollars of debt to generate one dollar of GDP. China, as of last year was at 4:1. With China’s unique controls, I imagine the inevitable can be staved off, but not forever. World history is littered with failed authoritarian rule and communist regimes. One morning not so long ago we all woke-up and the USSR was no longer. While doing my thesis research abroad in Asia decades ago I postulated that one day China and Taiwan would unify, but it would be because China moved across the spectrum to be more like Taiwan. The "experiments" of HK and Taiwan would be too compelling to not attempt some form of emulation. While not giving-up mercantilism, and that remains a growing issue for much of the world in the WTO, China has clearly benefitted from the market and capitalism. The bastardized approach is missing some key elements though, and is truly an experiment unfolding right in front of us. The Chinese people, not just those in the West, deserve so much more.
My Chinese friend says you are speculating. My Chinese friend also says that American policy makers are becoming paranoid at the fast rate of China’s rise. My Chinese friend says your post is no different from western negative propaganda of the last 10 to 15 years.????
Ralph Jason Regudo My Chinese friends, colleagues and wife respectfully disagree – very much. China, under the CPC has allegiance to the Party. Nice, for them; not to the central country itself, or it’s wonderful people…. Unlike China, we in the US and west can be critical of our own governments, and other ones in the world. Again, if all is so wonderful in China, why have so many left to live in the US, Canada, Australia, the UK and other western nations, and taken their money too? The CPC’s allegiance is to itself, and as history shows, that can turn very bad: http://www.ninecommentaries.com/english-7 And to think that Xi is now being compared Chairman Mao… Keeping the people ignorant is viable, until it is no longer feasible or possible. The debt situation, and it is massive, sooner or later must resolve itself. Another perspective or approach… We are often told that a people can be judged by the company or friends they keep around them. For China, it has working relationships, provides support and trades with nations that much of the world agrees are bad actors. Some include the likes of North Korea (less so now of course, finally), Russia, Pakistan, Iran and Syria. Not the finest of countries to associate with and conduct ethical business dealings. China pushing the status quo with neighbors regarding borders and disputed rock formations in the seas the last few years has not gone unnoticed in the region. The rock-throwing incident with the Indians last Summer was not a high point for sure.
Ralph Jason Regudo
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Arrogance, hypocrisy and refusal to understand other countries’ polity, cultures, social structure, economy, philosophy are the DNA of the US/Anglo world. It has caused so mush destruction, and killings down the centuries. Arrogance makes them believe they can impose their will on the rest of the world through military force.
Even " human rights ” have been used by the Brits to justify the wars against China to force China to import opium. Now this term is used to attack other countries that are are acting independently, eg Duterte of the Philippines.
This is a MUST-READ article about the reality of China that has always been covered in the smokescreen of vicious Western geopolitical greed and self-serving propaganda.
With the aid of its puppet traitor political leaders installed methodically in
foreign sovereign countries such as the Philippines, massive disinformation, degradation of the educational systems and information media, corruption of family values, spread of poverty, drugs and criminality, etc. this Western bully has managed to create a generation of virtual zombies, humanoids, automatons devoid of such human attributes as discernment, common sense, analytical skills, i.e. the power of human reason to search the truth. These are the local US lapdogs eager to do their antics to please their master. China in bad light is used as a mock-up object or image to be attacked at every turn, presenting the master as a generous, caring entity.
Where is the fiction?
quote: "In spite of the huge numbers of shootings, the Donald Trump administration, the US Congress and some states refuse or are reluctant to toughen gun laws."
Questionable logic and argument here.
The number of shootings is "huge"? Compared to what?
Were guns the culprits? Not the people who used the guns? Why?
The logic used seems to be: If X is used to kill innocent people, then X is the problem and we must toughen X laws.
That’s fallacious argument.
More people have died in the US from getting beat by a baseball bat, or getting stabbed by a knife, or getting hit by a car, … (the list of weapons used is LONG.)
Some parents have drowned their kids in bathtubs. Some have made bombs out of fertilizers.
Shall we ban baseball, knives, cars, bathtubs, water, and fertilizers?
quote: "The US and its media would have liked nothing more than a China worthy of praise and support, which had been the case."
That’s simply false.
So when China does not collapse as required by US/western pundits/ " intellectuals "/ politicians, they resort to military threats, political threats and threats on trade. Every thing China does is a threat to them. As Xi
said " Those who are accustomed to threatening others, always see others as threats."
No first prize for guessing which countries have been using threats right back to the 19th century.
What a load of horse shit. China is in for a rude awakening. She places a 25% corporate tax, tariffs of up to 25% and V.A.T.’s of 17% on imported goods. This mercantilism is about to be precluded with the United States simply using tariffs. This economist should know about the money multiplier effect and how it also crushes economies, once the GDP output is reversed. All those moronic projects of building metropolises that currently set empty is going to bite China in the ass. This propagandist claims China listens to the concerns of her citizens, yet China refuses to allow her rural citizens to utilize schools and medical facilities for their children. There are literally millions of Chinese children left in the countryside, as their parents try to make a living in the disgusting, super-polluted cities. So China cares about her people? Explain that to the Falun Gong, who are incarcerated and kept ready for organ harvesting. And to say that China has lifted millions out of poverty is also a farce… the Chinese government lowered the standard of what constitutes poverty and deem the still destitute as middle class. This article and the author are a joke and an affront to anyone with a brain.
I see you are pleased with your President’s choice to genuflect before the Chinese. What you fail to realize is, when there is war, pinoys will still have to fight; only they will be conscripted into the losing sides’ uniforms. Its better to die with pride and defending one’s own nation… than to die a coward, forced to fight for the tyrant you bowed down to.
Of course you agree with your fellow propagandist. That is what you flunky’s are paid to do.
It was a very eloquent composition of falsehoods.
Gil Peralta, the entire diatribe of nonsense.
Poll By Harvard on Chinese Citizen. Chinese Citizen has over 80% Trust on their government in the last ten years.
https://ash.harvard.edu/files/ash/files/quality_of_governance.pdf
Another report by another United State agency. Chinese Citizen has over 84% trust their government in 2017 which is the highest among all other countries.
http://cms.edelman.com/sites/default/files/2018-02/2018_Edelman_Trust_Barometer_Global_Report_FEB.pdf