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Domestic threats to China's
rise
By Adam Wolfe
The
general consensus is that China will gradually
emerge as a power in East Asia able to challenge
the United States for regional dominance. In
preparation, every country facing the prospect of
Beijing's wake is reassessing its strategic
options in order to gain the best position
possible after China sails ahead. Japan is looking
for methods to challenge China's rising military
power in the region and may amend its constitution
in order to see this through. The 10 Association
of Southeast Nations states are pursuing a
strategy of interlocking their economies with
China's, while looking to the US and India for
balance and leverage. South Korea is moving closer
to Beijing, though it will continue to rely on its
special relationship with Washington. Washington's
current National Security Strategy sees about a
decade of opportunity for the US to act in order
to achieve permanent security dominance in the
region before China will be able to block such an
effort.
In the meantime, China's foreign
policy has largely been driven by immediate needs
- access to economic markets and energy resources.
Knowing that its geopolitical power is directly
tied to China's economic rise and the perception
that it will continue for the midterm, Beijing has
limited its other geopolitical ambitions for the
moment and has pursued the "waiting game", sensing
that its hand will increase in value as the game
continues, as long as it is able to get its
domestic cards in order. While the US, India,
Russia and Japan may maneuver to limit China's
expanded reach, there are several domestic
liabilities that could potentially limit Beijing's
ability to gain its presumed position in the
region.
The division between the rapid
economic rise of China's east and the slow growth
of the west has left the country divided. The
environmental destruction caused by the centrally
planned economy, and that the market economy has
ignored or made worse, may cap China's economy
before it reaches its full maturation. The social
havoc that centrally planned birth control and an
aging society may produce in the near future could
force huge changes in the government's role in
private life, or worse it could create a backlash
against the government. Generational and
ideological unrest could boil over as new
technologies link disparate groups together.
Perhaps the gravest threat is the rapid
growth of the eastern coast, generated by cheap
loans from poorly managed state banks, which could
potentially undermine the booming economy. Any one
of these liabilities could slow China's growth;
all of them could sink China's rise. How China
deals with these challenges in the near future
will be a better determinate of its future role in
the world than Beijing's current geopolitical
maneuvering as it continues to play the "waiting
game".
Holding China together to
protect its 'peaceful' rise
While China's
coastal cities have experienced meteoric economic
expansion for the past 20 years, the interior's
growth rate has not been enough to maintain a
balance between the agrarian economy of the
interior and the manufacturing economy of the
east. Urban incomes have roughly tripled in the
past decade, while growth in rural incomes has
lagged behind at two-thirds that rate, creating a
widening disparity between the coastal region and
the remainder of China.
This imbalance has
caused one of the largest migrations in the
world's history as peasants from China's western
and central provinces relocate to the booming
economies of Shanghai, Beijing and Guangzhou. More
than 40% of China's population now live in cities
or towns, up from 18% in 1978 - nearly 1% of the
country's population make the move every year,
despite regulations such as household
registrations that discourage migration. Recent
statistics indicating a shortage of skilled labor
in some coastal regions will do little to
alleviate the problem. The interior is largely
unable to fill this void, and the shortage will
only drive up incomes for the coastal workers
facing increased demand, further enlarging the
income gap.
The reason so many are
abandoning the western, rural areas has everything
to do with economic opportunities, but Beijing has
moved to narrow the disparity by increasing the
rate of urbanization in the west. In recent years,
Beijing has begun to ease the restrictions on
switching a rural household registration to an
urban one - a necessity for a migrant worker to
gain access to state services; still, this remains
a burdensome process for many. Beijing is also
pouring huge amounts of investment into
infrastructure projects to the interior. While
hundreds of billions of dollars have been spent to
build the interior into an attractive location for
private firms to invest, there has, so far, been
little movement from the private sector to follow
the lead. However, the environmental costs of
these investments may prove to be too much for the
economy to bear, injecting a potentially
disastrous risk to any private investment in
China's interior.
The Three Gorges Dam
will be the single largest source of hydroelectric
power in the world (the equivalent of 15 nuclear
power plants), and its reservoir will allow
ocean-going ships to access China's interior for
six months of the year, according to engineers
working on the project. It will also displace more
than 1 million people. The 265 billion gallons of
raw sewage and 700 million tons of sediment
deposited in the Yangtze River annually will no
longer be carried out to sea and will back up in
the reservoir. Over 1,000 mines and factories
containing potentially hazardous materials will be
submerged. But the largest risk is the catastrophe
that could occur from an error in construction,
which has been so plagued by corruption that even
the state-controlled media has criticized the
loose financing of the project. This project, on a
colossal scale, highlights the looming
environmental risks to China's rise.
China
continues to struggle with energy efficiency. Its
oil use is currently about double the average of
other Asian countries - approximately
three-quarters of a barrel per US$1,000 of gross
domestic product (GDP). Energy production is
heavily reliant on domestic coal (75% of the
country's energy production comes from
coal-burning plants for which demand still
outstrips supply, even as China has begun moving
to alternative sources) and is subject to frequent
outages - in turn, causing an increase in oil use
as companies turn to generators to keep production
lines running. The problems of energy production
grow progressively worse as one travels west into
China's interior, increasing the social divisions
in the country. While China has clearly put energy
security at the center of its foreign policy, its
progress at tackling domestic inefficiencies is
troubling at best.
Environmental damage
may not be the only legacy of China's centrally
planned economy. China's "one child" policy may
have created a society with far fewer workers than
necessary to care for a population that will be
dramatically weighted toward the elderly in the
coming decades. In order to maintain social
cohesion, Beijing will be forced to spend a
greater percentage on caring for retirees than
ever before. However, the effect of this policy
may not simply be limited to economic costs. Under
the "one child" policy, male children were favored
over females, especially in rural and isolated
provinces. Soon there will be an abundance of
young men in China with no prospects for marriage
in their country.
This could prove to be a
destabilizing factor if these young men direct
their anger toward the state. As mass protests
become more and more common throughout China, it
is possible to imagine disaffected young men
linking up to display their shared outrage -
should this be directed at the government, it
could limit China's ability to maneuver on the
world stage.
The recent string of protests
directed at Japan demonstrated Beijing's ability
to control (and manipulate) mass crowds in China
for foreign-policy goals. However, they have also
exposed some of Beijing's weaknesses on this
front. Short message service messaging and e-mail
were used to organize complicated protests. As
organizers develop their skills, it is possible
they will teach others not so keen to use the
crowds for Beijing's benefit. This threat is more
likely considering the current environment of
wide-scale protests aimed at local officials and
governments.
It is estimated that there
were 60,000 protests in 2003, a number that has
increased 17% annually over the past decade; in
some inland areas, protests are becoming a daily
occurrence. This could be viewed as an opening of
China's political system if it were not for the
harsh measures that Beijing has employed to squash
dissent in recent years. Forty-two of those
partaking in the recent state-sponsored protests
against Japan were arrested; when the cause goes
against the government's political aims, the
numbers are much higher. Even though they risk
arrest and "reeducation" internment, Chinese
citizens are publicly voicing complaints across
vast areas of the country.
These protests
tend to be focused at local officials and stem
from complaints about insufficient compensation
for land confiscation, inadequate welfare payouts
and official corruption at the local level. As
Beijing began to shift state assets to the private
sector, the unprofitable state industries of the
interior were the first to be dumped and were the
last to be granted access to state bank loans.
This led to vast areas plagued with unemployment.
Often, the residents too old to migrate to the
urban centers but too young to draw a state
pension, have little left to do except
protest.
The state banks may have only
added to the woes of China's interior, but they
have become, perhaps, China's biggest liability if
it is to emerge as a great power in the east. Some
estimates have put the amount of "bad" loans in
the system as high as $800 billion (China's GDP is
close to $1.6 trillion). While this number may be
inflated, the actual amount is certainly enough to
cause great damage to China's economy. As a
condition of joining the World Trade Organization,
China must open its banking sector to foreign
competition in 2006. When this happens, it is
likely that accounts in good standing will flee to
the newly introduced banks with better financial
footing. While preparations are being made to
raise cash for the state banks in order to better
absorb this shock, there is little time for
Beijing to finish its reforms.
The current
leaders have focused a great deal of their energy
on resolving the banking issues that could
undermine the coastal economies, if for no other
reason than they know this is where China's
leverage with other states is deposited. For
instance, $200 billion in "bad" loans and other
non-performing assets have been transferred to
other institutions, cleaning up the banks' balance
sheets. It is very unlikely that Beijing will
allow its state banks to collapse or be undermined
by the coming competition; in fact, the threat of
competition has helped to transform the banking
sector controlled by the state into a more
transparent system in line with other developed
countries' financial sectors. However, this has
and will continue to require much of Beijing's
energy, which could have been spent in other
areas.
Conclusion
China has
recently begun to emerge as a great power, but
much of this power is derived from the perception
that its rapidly expanding economy will continue
to raise the boats of its neighbors. Should
China's economy begin to sputter, this newfound
power could rapidly dry up, leaving Beijing's
future ambitions marooned in the East China Sea.
While much has been said about the possibility
that certain sectors of China's economy could
overheat and burden the rest of the country's
economy, Beijing has, so far at least,
demonstrated its ability to contain this problem
with both heavy-handed and market-based
approaches.
Still, there are many other
domestic liabilities that could bring China's
economic expansion to a halt. The vast division
between the booming economies of the coastal cites
and the stagnation of the interior, environmental
and social problems derived from centrally planned
projects and the "bad" loans that continue to
plague China's state-controlled banks could still
sink the tremendous growth of China's economy.
Actions from Beijing demonstrate that it is taking
these problems seriously, enough at least to put
its foreign policy ambitions not linked to energy
security and access to markets on hold. It remains
to be seen if Beijing will be able to do enough to
stave off the domestic threats to its presumed
assumption as regional hegemon.
Published with permission of the Power and Interest News
Report, an analysis-based
publication that seeks to provide insight into
various conflicts, regions and points of interest
around the globe. All comments should be directed
to content@pinr.com |
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