BEIJING - The biggest factor determining
global stability over the next 20 years, simply
put, is China. For good or bad, it will shape the
world. If everything goes well, China will be
integrated in the developed world and will become
one of its engines, if not the main engine. If
things go bad, there could be a confrontation that
makes the Cold War pale in comparison.
All
other scenarios are in between these two extremes,
including the collapse of China or a war led by
the United States. This latter could sap all US
forces and energies, thus killing with one stone
China and the US and allowing the emergence of a
third power.
Chinese President Hu Jintao,
of course, is planning for the good
scenario, the one where China
and the US would go hand in hand. But this
strategy is fraught with danger.
With
just one year left before the 17th Chinese
Communist Party (CCP) Congress in autumn 2007, Hu
is shaping his grand strategy that will sail him
through the congress, possibly with a new team of
leaders all loyal to him. The moment is crucial
because the party has to appoint one person or a
group of persons to take the lead after Hu's
retirement. The congress could
also initiate new political
mechanisms for the promotion of leaders.
As happened with Jiang Zemin before him,
Hu may move decisively to the "right" (very
reformist) after an initial period of "leftism"
(great political caution). In Chinese politics,
traditionally, power is first consolidated with
moves that are conservative and "leftist", but
then the leader wants to establish his historical
legacy, and for that he needs reforms improving
the life of the people and boosting the
development of the country, material and
spiritual.
This is crucial for the
political survival of the CCP. Chinese people
expect their leaders to improve their lives, that
is, ensure more money and more liberty. People
have come to accept that change must come
gradually, and that nobody should rock the boat.
But they also take for granted not only the money
and liberty they already have should not be taken
away, but that both must be increased. This social
pact holds the country together, and no leader can
shy away from it.
The late leader Deng
Xiaoping recognized that reforms had to be
relaunched after the Tiananmen crackdown of 1989,
which he did on his southern trip in 1992. Jiang
deeply restructured the old system of state-owned
enterprises in 1997, laying off millions of
workers, and opened up the domestic market to
foreign competition with China's accession to the
World Trade Organization. Now it is Hu's turn.
In fact, a close look at Hu reveals that
the president has all along boldly and cleverly
conceived a paradigmatic shift in at least three
politically crucial fields: Taiwan, religion and
the economy.
Taiwan Lin Zhongbin
has noted the shift on Taiwan policy instigated by
Hu [1]. Lin examines the four points of Hu's new
strategy and finds that his is very different from
past approaches. His predecessors, from Mao Zedong
onward, tried to dictate conditions to Taiwan,
which Taiwan would reject or ignore, and Mao and
his successors would be politically cornered and
strategically would lose face. The situation would
be frozen.
But Hu does not dictate
conditions to Taiwan. Instead he has built
channels to influence Taiwanese politics. He has
established solid ties with the pro-unification
Kuomintang (KMT) and possibly also with the
pro-independence Democratic Progressive Party. He
has acquired political mobility, which in
politics, as in military affairs, is crucial for
victory, or at least to avoid defeat. He has done
this by being proactive, and not simply expecting
Taiwan to come to him cap in hand. Rather, he took
a big political risk as Beijing hosted then-KMT
chairman Lian Chan, a visit that turned out to be
a huge success.
Hu's strategy has paid off
beautifully so far. It has shifted the onus of
cross-strait relations from Beijing to Taipei. The
result was that when Taiwanese President Chen
Shui-bian tried to push the envelope, the US
restrained him. And now that Chen is caught up in
a political scandal, with people taking to the
streets chanting for his toppling, Beijing can
simply sit back and enjoy the show. Whatever the
outcome, Beijing has nothing to lose.
Religion This April 12-15, China
hosted an international Buddhist conference in the
city of Hangzhou. With that gesture, Hu
acknowledged that he recognized the common
people's need for religion, and his willingness to
channel that need toward institutional faiths.
This pragmatic move was in sharp contrast
to the naive mistakes of Hu's predecessors, whose
refusal to open up to religion and stubborn
resistance to a freer flow of information led
people into the arms of apocalyptic sects
preaching absurd doctrines about the end of the
world. Hu's approach was a signal of non-hostility
to religion. It also tied into a large Chinese
charm offensive, the opening of Confucius
Institute language centers all over the world,
starting in such cities as Paris and Berlin (see
Beijing's 'soft power'
offensive, May 17).
China, the
country with the largest Buddhist population,
could make Buddhism an instrument of influence in
the world. Without drawing simplistic comparisons,
Buddhism could be to China what Christianity had
been to the West: a way of creating new value sets
in continents and countries distant from the Asian
mindset. In this sense the People's Daily argued
that religion could be a useful tool to help the
world understand China [2].
This new thaw
is not confined to Buddhism. Even when relations
are very complicated and thorny, with a lot of
opposition, Hu has decided not to shut any door,
for example with the Vatican. There have been a
few clashes between Hu's Beijing and the Holy See,
but the situation now is quite different from
2000, when China cut all contacts with the Vatican
after the canonization of 120 Chinese saints.
Beijing keeps in touch with the Holy See and
apparently has even made some progress with its
longtime nemesis Joseph Zen, now cardinal of Hong
Kong.
The economy At a
conference [3] in Beijing this month organized by
the Chinese Academy of Social Sciences, Olivier
Blanchard and Francesco Giavazzi [4] presented a
paper detailing how China should move to boost
domestic demand and public expenditures in the
countryside, increase people's real income and, at
the end of the process, revalue the yuan.
The paper was in line with what all other
Chinese participants were arguing. The point was:
move away from an export-oriented model to one
where the huge potentiality of the Chinese
internal market is tapped. This market would not
be subject to the political and strategic
restrictions of foreign markets, and potentially
would be bigger than all other markets put
together.
One part of this project would
be to make full use of the huge pool of Chinese
savings by moving part of that money from the
banks to the insurance companies, which could
provide better services for individuals. Now large
savings pools are used by individuals as a hedge
against accidents, unemployment and disease as
well as retirement funds and all other services
that could be provided by insurance.
As
well, the conference heard, insurance companies as
well as banks must put their funds to better work
financing prudent and worthy projects. Such
projects so far are mostly state-owned
enterprises, producing about 20% of total gross
domestic product, but sucking in about 70% of all
outstanding bank credit. The SOEs are responsible
from almost all non-performing bank loans. But
pension money has to be put to good use, neither
wasted on risky businesses that could lose the
fund, nor invested with undue caution, thereby
providing returns that are too low.
Non-state companies, if possible, try to
avoid taking money from the banks, even if
interest is relatively low. They do not want to be
exposed to possible financial and tax controls,
and are willing to pay 30% interest or more to
moneylenders, loan sharks and pawnshops, to whom
they can reveal their wealth without fear that the
information will be passed on to some state
officials.
Banks are also unwilling to
lend to private firms: if an SOE doesn't pay up,
the bank official will not be held responsible -
the bank will extend the credit terms. But if a
private company doesn't pay up, then the official
could be go under review to establish if he had
any dealings under the table with the failed
company.
Thus the goal should be to bring
to the banks the non-state companies that are now
able to pay 30% interest and still grow. If their
interest payments could be reduced to 5% they
would grow even faster, more money would used, and
possibly these companies, now largely responsible
for the growth in pollution, would have the extra
cash to pay for better and cleaner processes.
But as just stated, such companies
currently prefer to deal with a loan shark,
despite the exorbitant interest compared with that
of a bank. In the first place, they often they
can't produce for the bank well-documented proof
of their activities and properties; and second, if
they have such proof, they do not want it passed
to the police, who might use their financial
history to show that they bribed, stole, or
tax-avoided their way to wealth.
The ideal
cycle would be the following: (1) An efficient
private company gets a loan at 5%, leaving it more
cash for better, more efficient, energy-saving and
cleaner equipment. (2) The bank has fewer bad
loans and more cash in circulation, hence better
profits. (3) The improved profits will allow
better insurance services to clients for less
cost. (4) With better insurance coverage, people
will have to save less and thus have more to spend
on consumption, thus boosting economic performance
and the profits of the company at Step 1.
Without this path there is no increase of
domestic demand, no better life for the poor
people living in the countryside, no yuan
revaluation and ultimately no economic
development.
Therefore two things are
necessary to improve the quality of credit and the
quality of investment, which in turn can mobilize
savings, moving them from bank accounts and
mattress linings to insurance companies, and in
turn increasing the service provided to low-income
people, who then could have more cash to spend and
improve their quality of life.
The two
conditions are a law on property and some form of
amnesty for past economic crimes. These are
important, sensitive, yet crucial steps for China:
without them, things could grind to a halt and
ultimately make the country burst open, as only
development and change can keep the social balance
holding.
Notes 1. Lin
Zhongbin, "Xin hu sidiande shenceng jiedu",
Zhong guo shibao (Taiwan), May 1.
2.
Zhao Chuandong, "Xinling duihua: Rang shijie
liaojie zhongguo zongjiao", People's Daily,
June 7, Page 4.
3. The Beijing Conference
on China and the Global Economy, June 5-6, was
organized by the Institute of World Economics and
Politics, the Chinese Academy of Social Sciences,
the Banking and Finance Research Institute, and
the People's Bank of China, and sponsored by the
Hong Kong Monetary Authority and the Monetary
Authority of Singapore.
4. "Rebalancing
Growth in China: A Three-Handed Approach", Olivier
Blanchard and Francesco Giavazzi, September 16,
2005.
Part 2: China and private
property
Francesco Sisci is editor
of La Stampa in Beijing.
(Copyright
2006 Asia Times Online Ltd. All rights reserved.
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also initiate new political
mechanisms for the promotion of leaders.
