China on Life Support

Does China know it?

Foreign policy pundits echo The Atlantic, SEPTEMBER 7, 2023 opinion of today’s China — “The nation’s problems run so deep, and the necessary repairs would be so costly, that the time for a turnaround may already have passed.” A small coterie of political commentators claims, “The China Model Is Dead,” and China, like the Soviet Union, is headed to the ash heap of history. Foreign Affairs magazine, a known China Critic, states:

Sensible though it is, consumption-led growth in Xi’s China is doomed to fail. As Xi has done so often in the past, he will back away from the policy once the inevitable backlash from powerful constituencies, including state-owned enterprises, local governments, and the national security bureaucracy, takes hold. The Chinese people, knowing that the leader will bury the initiative at the first signs of worry from the party, will be reluctant to embrace it. Instead, they will hunker down, saving—in a country with the highest savings rate on earth—yet more of their meager earnings for the expected hard times ahead.

A big difference between China’s excursion into the Capitalist world is that Chinese economists meticulously analyze and correlate data on their Capitalism, avoiding recessions, and planning ahead for its lapses. Western economists bask in Capitalism’s achievements and burn in its lapses, rarely able to predict or prepare for the constant recessions.

Opinions predicting a disastrous future for China are interesting polemics until we read Nobel Prize-winning economist, Paul Krugman, writing, “But you don’t have to study much history to be aware that autocratic regimes sometimes respond to domestic difficulties by trying to distract the population with foreign adventurism. I’m not saying that will happen. But realistically, China’s domestic problems make it more, not less, of a danger to global security.”

Turning China’s debatable economic collapse into a threat to global security is alarming, an unnecessary call for the United States to prepare its military for potential war. This narrow perspective of a history where many nations — autocratic and democratic — during economic crises, in search of new markets and resources, have attacked other nations is disturbing and the disturbance becomes magnified when the accused China has never been one of the warrior nations.

American economists, trained in U.S. universities that prefer education directed at understanding the democratic capitalist system and misunderstanding the more autocratic socialist system, and writing and researching for organizations that depend upon eulogizing the American system and damning the contemporary Chinese system, are prone to issuing commentaries that want China perceived as an adversary that deliberately threatens U.S. interests. Analyses of China’s economy are more wish fulfillment than credible analysis, pushing confrontation and sidetracking cooperation. From where does this policy originate and where will it go?  

(1)    Viewing China as a mixed economic system and an autocratic political system, rather than accepting Chinese leaders’ description of their system as an integrated Marxist-Leninist system, corrupts thought and misdirects action. What does that mean?

The often-vilified Karl Marx formed an economic interpretation of history ─ Historical Materialism, in which a society organizes economic activity around the best of available modes of production, lets them determine the social institutions, develops them to the limit, and replaces them when newer and preferred modes of production are developed. Marx regarded capitalism as a vital and necessary stage in history for economic advancement — increasing capital formation, developing industrial prowess, and creating institutions that guide development and generate the science and technology useful for controlling nature and leading to health and prosperity. In 1979, Deng Xiaoping reorganized the Chinese economy, applied Karl Marx’s concept of historical stages of growth, accepted capitalism with Chinese characteristics as an economic impetus, and propelled the redesigned China to become a leading industrial power.  

Contradicting the relation between the rise of liberal democratic governments and the industrial revolution, the Chinese have opted for a democracy by consensus rather than a democracy by majority for governing its socio-economic system and for guiding its capitalist developments. Democracy is just another word, and a good start for understanding China’s political system is available from The Asia Society Policy Institute, How does the Chinese political system function? and, after skipping the ads, a YouTube podcast debate on Would Western liberal democracy be wrong for China?

Chinese leaders have defined their economic-political system as Marxist-Leninist and The Harvard Business School agrees with the definition.

Many Chinese believe that the country’s recent economic achievements have actually come about because of, not despite, China’s authoritarian form of government.

The truth, then, is that China is not an authoritarian state seeking to become more liberal but an authoritarian state seeking to become more successful—politically as well as economically.

The critical distinction is that the Chinese system is not only Marxist, it’s Marxist-Leninist. In our experience, many Westerners don’t understand what that means or why it matters. A Marxist system is concerned primarily with economic outcomes. That has political implications, of course—for example, that the public ownership of assets is necessary to ensure an equal distribution of wealth—but the economic outcomes are the focus. Leninism, however, is essentially a political doctrine; its primary aim is control. So a Marxist-Leninist system is concerned not only with economic outcomes but also with gaining and maintaining control over the system itself.

A Leninist approach to selecting future leaders is also a way the CCP has maintained its legitimacy, because to many ordinary Chinese, this approach produces relatively competent leaders: They are chosen by the CCP and progress through the system by successfully running first a town and then a province; only after that do they serve on the Politburo. You can’t become a senior leader in China without having proved your worth as a manager

Knowing the prescription that Chinese society follows enables other societies to predict China’s movements and improve the planning of their movements in the midst of changing forces. Beijing has told the world that when capitalist production no longer supports further progress, China will gradually move on to the next stage of Karl Marx’s Historical Materialism, a socialist stage that “may still maintain the concepts of property, money, and commodity production.”

(2) The U.S. claims economic superiority by using a spurious Gross Domestic Product (GDP) to compare the two systems. GDP is not the real story. The real story approaches the economy by examining several economic factors, such as those shown in the following table.

Not all factors that drive an economy can be conveniently examined; the relative importance of a factor cannot be accurately assigned; and each nation has specific reasons for emphasizing a factor. Unless, a nation has conclusive economic superiority, which the United States had for several decades, it is difficult to assign the title of “world’s greatest” economy to any nation. The table shows that China deserves consideration for being awarded the title of the world’s greatest economy. Start with the Gross Domestic Product (GDP), a favorite statistic for those who boast of America’s prominence.

The GDP is an important factor but it is not the overriding important factor. Due to its skewing of prices for goods and wages to laborers, GDP is a simplified and unreliable factor for comparing economies. A Buick automobile, produced in the USA and sold for $30,000, may be identical to an automobile produced in China, which is sold for $20,000, but they add differently to the GDP. More accurate is the GDP/PPP, where purchasing power is introduced to correct the limitations of the GDP in evaluating economic progress. By use of this factor, China demonstrates a much larger economy than that of the US.

Another consideration is the value given to components of the GDP. Capital, hard goods, and agriculture supply the most needed wants to a community, and their purchases play a more significant role in the economy. Buyers of hard goods are able to receive credit for purchases of these goods much more easily than those who purchase services. Credit creates money, and additions to the money supply buy the added goods and pay the added wages.

The service economy exaggerates the GDP. One dollar of purchase in the goods economy requires time for feedback to the manufacturer before other goods are replenished and additional purchases augment the GDP. Purchases in the service economy quickly pass the same money from one service provider to another — go to a doctor who the next day goes to a lawyer, who the next day hires a plumber, who the next day goes to a restaurant. The next day the waiter buys a pair of shoes. The GDP has greatly increased due to the rapid transactions of several services and has delayed the use of the dollar for additional production.

The US service industry has become the prominent factor in the U.S. economy, which indicates that worker wants for many material goods have been fulfilled. Industrial output, whether for domestic or foreign use, more appropriately demonstrates the robustness of an economy. China greatly leads the United States in industrial output and has demonstrated this robustness by becoming the leading producer of advanced electric vehicles. 

American economists estimate economic power by defining the factors that govern economic reach and arbitrarily fitting selected statistics to arrive at their preconceived convictions. Lack of concern for all the facts substitutes public relations for honest appraisal, going from what needs to be done to overcome an economic gap to how to deceive the public into believing spurious representations of events.  

(3)    Turning positive actions that guarantee China’s dynamic future into spurious negatives that predict it will soon be on life support is insensible, contradictory, and self-defeating

• Belt and Road
   Xi Jinping catches other nations in debt traps, makes them dependent on China, subverts Western interests, and uses Belt and Road as “a Trojan horse for China-led regional development and military expansion.”
  
  Belt and Road enables trade between far distant nations and establishes the most convenient communication and transportation routes for nations that previously had no routes or were shackled with undesirable routes. Restrained communications and transportation benefitted those who owned the communications and restricted market access. Extending and extending and extending markets extends China’s and the world’s growth for generations. Adam Smith would love Belt and Road. The Conversation explains the project.

Through this venture, China is providing over 100 countries with funding they have long sought for roads, railways, power plants, ports and other infrastructure projects. This mammoth effort could generate broad economic growth for the countries involved and the global economy. The World Bank estimates that recipient countries’ gross domestic product could rise by up to 3.4% thanks to Belt and Road financing.

Low Inflation
China’s -.01 inflation indicates it is having a pricing problem and is headed for deflation. Japan’s slow economic growth during its period of low prices suggests China is entering an era of stagnant consumer prices and wages. China needs to increase consumer spending to prevent a downfall.

Chinese consumers purchase mostly “made in China” goods and few imported goods. Rather than consume, they save a large part of their wages. An economic identity has Savings = Investment.  Using the identity together with the formula for GDP,
GDP = Consumption + Investment + Government Spending + Net Exports.
and we find that purchasing more consumer goods uses Savings and shifts Investment to  Consumption; GDP stays the same. By having citizens purchase few imports and mostly “made in China” goods, China runs a highly positive balance of trade, which brings money into the country. The PRC Central Bank buys most of the exporters’ foreign currency with Yuan, which lowers the need for increasing debt to increase the money supply. China’s low inflation and high positive balance of trade contrasts with present-day United States, which has high inflation, highly negative balance of trade, low investment, and the world’s largest government debt. This is partly due to America’s consumer-driven economy.

• Loans
  China loans Third World countries for infrastructure projects, which pushes these nations into “debt traps,” promotes defaults, and tries to have the infrastructure forfeited to Chinese companies.
  
  The implication is that China’s survival depends upon Third World wreckage. According to Chatham House, as of April 2023, “Africa’s private and public external debt is about $700 billion and Chinese lenders account for 12 percent of that total. The major creditors to all African nations are private financial firms and international agencies.” Why and how could China, which controls a minor part of Africa’s debt, arrange a “debt trap?”
  
  The most proclaimed, if only given example of China’s possible and diabolical “debt trap” and seizure of infrastructure after default is Sri Lanka’s controversial Hambantota port. After the Sri Lankan government could not service its loans, a Chinese state-owned firm acquired a ninety-nine-year lease in 2017 for operation of the port.

  
  Media intentionally misconstrued the facts and portrayed Sri Lanka’s problems as a result of “debt trap” diplomacy in order to convince its audiences that China exists on the misery of others and that existence will soon run its course. Sri Lanka never defaulted and China never seized anything. How could it? Sri Lanka owed more to each one of these —Japan, the World Bank, and the Asian Development Bank — than to China. The Atlantic, The Chinese ‘Debt Trap’ Is a Myth, by Deborah Brautigam and Meg Rithmire, February 6, 2021, set the record straight.

  Colombo arranged a bailout from the International Monetary Fund and decided to raise much-needed dollars by leasing out the underperforming Hambantota Port to an experienced company—just as the Canadians had recommended. There was not an open tender, and the only two bids came from China Merchants and China Harbor; Sri Lanka chose China Merchants, making it the majority shareholder with a 99-year lease, and used the $1.12 billion cash infusion to bolster its foreign reserves, not to pay off China Eximbank.

• Zambia is also cited as falling into a Chinese “debt trap.” Amnesty International contradicts that charge.

  The country began to accumulate new debt from 2012 onwards, following the advice of the IMF, World Bank, and regional financial institutions, and a forecasted increase in the price of copper. Zambia borrowed short-term loans to finance infrastructure projects such as building bridges, highways, and hospitals. These projects, however, took longer than the repayment timeframe to return revenue and socioeconomic value. Copper prices failing to reach estimated highs; and COVID-19 emergence in 2020, along with an ongoing climate crisis, meant Zambia faced severe challenges in paying back its loans.

  Seems the IMF is a culprit for many nations’ economic problems. Is there a conspiracy to transfer IMF perfidy to China and shield IMF from attack?
  
  Argentina borrowed $57 billion from the International Monetary Fund (IMF) in 2018; the loan failed and a new $44 billion loan program replaced the previous loan deal. The serial loan defaulter is again at risk of missing debt repayments to the IMF. From Reuters, June 18, 2023, “On the streets of Buenos Aires pressure is rising. Inflation has hit 114%, hurting salaries and spending power, reserves have tumbled and one-in-four people is in poverty, with many blaming ─ not for the first time ─ austerity linked to the IMF.”

Conclusion
The United States is determined to halt China’s progress to economic dominance and to no avail. China will continue to do what China wants to do. With an industrious, capable, and educated population, four times the size of the U.S., arable land 75 percent of that of the U.S. (295,220,748 arable acres compared to 389,767,633 arable acres), and a multiple of resources that the world needs, China, by default will eventually emerge; if it has not now, as the world’s economic superpower.

An important advantage in China’s progress is its understanding of the true nature of Capitalism and Capitalism’s role in human development. While liberal democracies suffered periodic recessions and financial failures that temporarily halted economic progress, China had monolithic growth. The 2007-2008 real estate problems in the United States — subprime mortgage crisis — caused a major financial calamity in the Western world. A trade war, pandemic, real estate collapse in 2021, and the end of “Zero-COVID” in 2022 sputtered China’s growth and never stopped it. China’s economists know how to plan for and respond to the challenges that their Capitalism inflicts. What does the U.S. expect from its STOP China policy? Where can its rhetoric and aggressive actions lead?

Paul Krugman’s intimation that a study of history shows that “autocratic regimes sometimes respond to domestic difficulties by trying to distract the population with foreign adventurism” is frightening. Carelessness has often characterized U.S. foreign policy — Vietnam, Iraq, Afghanistan, Somalia, Yemen, and Panama. Beliefs that a nation is harmful to U.S. interests and threatening U.S. dominance are followed by demeaning the adversary’s leader — egomaniac, psychoneurotic, dictator, tyrant, evil. Then, the "grieved" United States accuses its adversary of severe human rights violations, intended crimes of aggression, and unwillingness to compromise. The adversary is powerless to respond and becomes marked with the adjective "rogue state." Since the "rogue state" cannot ameliorate the crimes of which it is accused, being that they may not exist, and because these states are usually proud and will not compromise with their national sovereignty further action must be taken against them. Let’s hope sound thinking will prevail before….

Courtesy of Library of Congress