The eurozone crisis has captivated audiences around the world, but it is recent economic data from China that should be capturing the attention of policymakers. Despite confident predictions from Wen Jiabao that the economy was heading for more growth, April figures across a range of sectors make for grim reading: industrial production is down, fixed-asset investment and retail spending slowed, home sales plummeted, and export sales growth was only half what it was in March. When China’s economy grew at an abnormally low 8.1 per cent clip in the first quarter of this year, some analysts suggested that it had reached the bottom of the business cycle. Better times were ahead, they reasoned. These latest figures, however, suggest that what we may be seeing in China is the start of a prolonged, and perhaps permanent, deceleration in Chinese growth.Of course, it’s too soon to know for sure whether these data are merely a blip on the radar. But if the Chinese economy is indeed entering a permanent slowdown the political and social consequences will be profound. Decades of rapid economic growth granted legitimacy to the Chinese Communist Party and helped minimize social unrest. As the country prepares for only its second organized transfer of power since 1949 the incoming leadership team must be asking itself whether China’s political system is capable of undertaking the necessary economic reforms to maintain prosperity and stability.As the New York Times notes, serious questions abound as to whether the forces of reform and modernization are strong enough to withstand the inevitable pushback from the web of powerful interests connected to the Party apparatus:
Many economists have been urging the government to loosen controls over the financial system, to support lending to private businesses while reining in state-owned enterprises, to allow more movement in exchange rates and interest rates, and to improve social benefits.Such changes would curb the state’s role, lessen corruption and encourage competition. But making them would involve a titanic power struggle. Executives of Chinese conglomerates, army generals, Politburo members, local officials and the “princeling” children of Communist Party elders have little incentive to refashion a system that fills their coffers.
Will failure to reform unleash waves of social unrest? Cracks are already appearing. Over 30 Tibetans have set themselves on fire in protest against the central government. The revolt in Wukan caught the attention of the world. And China hands are well aware that the Chinese government now spends more on internal security than it does on the military. From the Times:
The surging number of protests arising from this gap is another stress point in the China model. Officials rely heavily on domestic security forces to quell what they call “mass incidents,” which one sociologist, Sun Liping, estimated at 180,000 in 2010. In March, the government announced that it planned to spend $111 billion on domestic security this year, a 12 percent increase over 2011, and $5 billion more than this year’s military budget.
Recent years have seen a bubble in China babble among the global punditocracy’s talking heads. China’s apparent immunity to the 2008 financial crisis led many talking heads and columnists to argue that the Chinese growth model – a cocktail of authoritarian political control and so-called “state capitalism” – represented a new way forward for economies everywhere.As history, this was simply ignorance speaking: authoritarian states and forms of state capitalism have been achieving rapid bursts of growth since the era of Louis XIV. During the Depression, Hitler, Stalin and Mussolini were all widely hailed by clueless western pundits as having found more “modern” and “efficient” methods of promoting growth than the “failed” policies of the liberal capitalist states. It has been well known for centuries that over the short term, concerted state-guided modernization drives can outperform liberal policies; the trouble is — and always has been — that sooner or later the accumulated inefficiencies, distortions, and political shortcomings of non-liberal states lead to prolonged slowdowns at best, revolutions and wars at the worst.However, those who don’t know history are condemned to repeat the mistaken cliches of past generations as if they were shiny new truths; China babble has reigned among exactly the kinds of people who used to marvel at Hitler’s autobahns, Stalin’s steel mills, and Mussolini’s ability to make the trains run on time.Many Chinese leaders also fell for the hype, and an over-estimation of China’s strength led directly to the foreign policy failures that paved the way for the reassertion of US power in the Pacific. The steady increase in spending on internal security suggests that not all of China’s leadership swallowed the Kool Aid; those numbers probably tell us more about Beijing’s true understanding of its prospects than the chest-thumping about a “Beijing consensus.”Authoritarian modernization always works until it quite suddenly doesn’t; many observers hailed Stolypin’s reforms in late Czarist Russia and spoke in awe about Russia’s rapid industrial growth in the years before World War One. At Via Meadia we’re not able to give assign a date to the China correction that lies in store; the current slowdown could be a blip on the screen or the start of something more consequential.Our hope remains that China’s transition to a more sustainable trajectory will be measured, peaceful and as smooth as possible. No sane American can wish China ill. But China is too big, too complex, too diverse and it is changing too rapidly for its future path to be easy and smooth.Napoleon is reported to have said that when China awakens it will shake the world. What that prophecy overlooked, and what the China babblers of today also miss is that the awakening process will first and foremost shake China itself. The transformation of a nation like China cannot long or successfully be led by technocrats however enlightened and skillful anymore than the technocrats of Brussels can manage the far less demanding tasks of building Europe.The ground under Beijing is seismically active; one doesn’t know when the next quake will strike, but come it will. The steady rise in internal security spending tells us that the Chinese understand this, even if starry eyed pundits in the West can’t figure it out.