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The mythology of China overstates its prospects

By Frank Langfitt, Baltimore Sun

11 August 2001

Despite its huge population, it is only the seventh largest economy- and much of the news of growth is suspect.

Beijing -- One of the enduring myths surrounding China is that if a foreign company can sell just one product to the nation's 1.3 billion people, it can make a fortune. Another, more recent corollary holds that China is quickly rising to become the world's largest economy and next superpower.

The truth is that doing business in China - which has neither rule of law nor a genuine, national market - is murder. Many foreign companies have never made a dime here. Many will continue to lose money even after the country joins the World Trade Organization later this year.

Nor is China's rise as a global power assured. Its potential is offset by staggering problems, including widespread corruption, a restless population of 900 million peasants and a political system in which practically no one has faith. Even if China pulls through - and I think it will - its ascent will be much slower and more tortuous than many of its boosters predict.

The Coming Collapse of China (Random House, 344 pages, $26.95) offers a refreshingly skeptical view of the nation's prospects. Attorney Gordon G. Chang, who lived here for nearly two decades, sees an unwieldy system headed for meltdown.

Despite faults, including heavy reliance on secondary sources such as newspaper stories, the book provides a valuable service in dampening some of the hype surrounding China's rise.

Over the past two decades, China has come a long way, developing a hybrid market/state-controlled economy which has lifted millions out of poverty, transformed cities and kept the Communist Party on the shelf long after its due date. What people sometimes miss, though, is how much further the country has to go and how shallow and misleading some of the changes have been.

Some analysts say China could surpass the United States as the world's largest economy as early as 2025, based on an average growth rate of 6 percent, two points below the current, official figure. Unlikely, wrote the late Gerald Segal, who calls Beijing a "seriously overrated power" in his essay, "Does China Matter?" (Foreign Affairs, September 1999).

"It's not that China does not matter at all," wrote Segal, former director of studies at the International Institute for Strategic Studies in London, "but that it matters far less than it and most of the West think."

Today, China is only the world's seventh largest economy, behind Italy, which has 22 times fewer people. And no one really believes the official growth rates here anyway.

Local officials are notorious for inflating figures to curry favor with higher-ups and some of the country's "growth" is economically useless. Included in China's growth rate are millions of unwanted products collecting dust in state-owned warehouses and thousands of empty apartments and offices in new skyscrapers.

In just the past year, various Chinese have approached me looking for work, including one woman who arrived at my door in tears bearing a hand-knit sweater as a gift. She begged me to find her husband a job.

If this is 8 percent growth, I'd hate to see a recession.

Despite great progress, the country's economy remains highly dysfunctional. Take the nation's major banks, which are state-owned and technically insolvent. Earlier this year, the Bank of China acknowledged that in 1999 nearly 40 percent of its loans were nonperforming - lost to failing state-owned enterprises and corrupt cronies. Yet, last year, banks continued to rack up another $48 billion in bad loans - equal to more than 4 percent of China's gross domestic product.

When I mention this to Chinese friends, they are stunned, because the state-controlled media does not focus on how the government is squandering their deposits. Public ignorance and faith that the regime would never allow a major bank failure has staved off a big run.

The Communist Party approaches politics from a position of paranoia, beating Falun Gong practitioners to death, firing overly aggressive journalists and jailing overseas researchers. Facing a growing list of critics, it figures: Why take chances?

As discontent rises, the regime refuses to develop more institutional routes for expression. Laidoff state workers who feel cheated out of jobs the party promised them for life can't form unions. When farmers protest crippling taxes, police sometimes just beat them up.

Those courageous enough to speak out for moderate political reform often find themselves out of a job, in jail or on the run. Chinese President Jiang Zemin claims democracy is impossible now because the nation has too many illiterate peasants, but this is just an excuse.

The party holds elections in villages, where many are poorly educated and many officials have little power. Certainly the citizens of Shanghai, Beijing and Guangzhou, where literacy is very high, could handle limited elections carefully instituted over time. But giving real power to people would mark the beginning of the end of the party's political monopoly and that is what it really cares about.

By strangling debate, the country's Leninist leaders ensure that the nation's most pressing question goes unanswered: How does China become a modern, stable society? As I travel the country, I ask this question often. Most Chinese have no idea. On July 1, the Communist Party marked its 80th birthday. China Daily, the party's English-language newspaper, celebrated by issuing the following threat: "To imagine a China without the Communist Party is nightmarish."

Translation: Without us, there will be chaos.

Weak and unpopular, the party refuses to allow people to form substantive civic groups or offer alternative political visions because both potentially threaten its grip on power. By thwarting the development of a civil society, the party is setting a political booby trap in which chaos could become a self-fulfilling prophecy. "Try to dislodge us and the country will blow," the politburo seems to say.

Chinese people are especially vulnerable to such threats. Who can blame them? In the first half of the last century, China suffered through brutal foreign occupation, dire poverty and years of civil war.

Since then, the party's rule has been - to put it charitably - checkered. Mao Tse-tung deserves much credit for unifying the nation in 1949, but should have retired in the mid-1950s. In 1957, however, he embarked on the Great Leap Forward, a disastrous attempt to spike agricultural and industrial productivity which contributed to one of the largest famines in world history. An estimated 30 million people died. In 1966, Mao ignited the Cultural Revolution, which led to another million deaths and destroyed the lives of many of the nation's most gifted people.

Despite the party's cynicism and poor human rights record, today's China is not Stalin's Russia, notes historian Jeffrey N. Wasserstrom in China Beyond the Headlines (Rowman & Littlefield Publishers, 288 pages, $22), which strives to portray China in its many shades of gray. Beijing is not trying to export ideology. It has none. Nor does China have the military power to challenge the U.S. anytime soon.

China continues to change and therein lies its strength and hope. In the past two decades, it has evolved from a totalitarian state where the party controlled everything to an authoritarian one where many people now enjoy the freedom to travel, live and work where they want. The challenge, Wasserstrom writes, is "making sense of a regime that is not quite like any that has ever existed before."

Despite enormous pressures and a brittle system, the country continues to beat the odds and show remarkable elasticity as families care for their unemployed members and people continue to treat the regime with patience. China may pull through this wrenching transition with a formula that neither its leaders nor the rest of the world has yet imagined.

One can only hope.

Frank Langfitt has spent the last four years as The Sun's correspondent in China, where he covered the handover of Hong Kong, the demonstrations following the bombing of the Chinese Embassy in Belgrade, Yugoslavia and, most recently, the spy plane stand-off. He has also reported from Indonesia, Vietnam, South Korea and Taiwan.