MORE PNM: COMMENTING ON THE THEORY OF A PEACEFULLY RISING CHINA

Recently on his blog, Dr. Barnett posted his key observations regarding prospects for a ” Peacefully Rising China “that he delivered to Chinese academics in Beijing. His original points are in bold, my observations follow each of his points:

“o The biggest fear I have about China is a collapse of its internal banking system. In fact, that is the biggest fear I have right now for globalization as a whole.”

No argument here. If you look at the economic problems nearby Japan has had since the collapse of their ” bubble ” you will see as one cause the cozy relationship that Japanese banks had with Keiretsu partners and the bureaucratic administrators at the Ministry of Finance. Decisions regarding investment too frequently revolved around personal obligation and loyalty relationships and prestige than the cold-eyed objectivity of the market. As a result, the Japanese economy has been saddled with mountains of bad debt that their political system, with it’s diffused authority by consensus paradigm, cannot muster the will to tackle forthrightly.

China’s still opaque political economy makes that situation worse than in Japan where decision-making is far more transparent by comparison. Networks of CCP cadres, endemic corruption and the overriding and very real political need to transition the dinosaur-like ” Iron Rice Bowl ” industries to the modern world prevent rational liquidation of bankrupt enterprises. Hanging over this mess is the ultimate need to make the Yuan a fully convertible currency on par with the Yen, Dollar and Euro – the only way China will become regarded as a fully fledged world power is when it gives up the advantage of running their economy on fiat ” funny money”. The world economy weathered the market discipline imposed on the Thais and Malays but a drastic devaluation of the Yuan – something that is probably inevitable – will be a tremendous shock.

o It makes sense for China’s 4th generation leadership to focus more on China’s rural poor than the 3rd generation did. It will keep China from destabilizing over the near term far better than any saber-rattling on Taiwan.”

Agreed. My caveat remains that a dip in economic growth and the uncertainty and status anxiety that will be spurred in China’s urban new middle-class might tempt the regime or nationalist elements within the PLA and CCP to use Taiwan as a distraction. That’s not troublesome so long as the hardline elements are only cheerleading the tough but empty rhetoric on the fringes of power; if they gain real inside political leverage over modernizing moderates we could have a very serious problem. Obviously, Taipei’s behavior can also effect this equation – a flagrant provocation, like a snap declaration of independence that embarrasses Beijing will get a response. China doesn’t have the logistical ability to mount an invasion, at least a successful one, but they can inflict catastropic damage on Taiwan.

o “I fear that the 3rd generation leaders still clinging to their last vestiges of power (Jiang Jemin especially) are seeking to push the Taiwan issue in order to record that historical notch on their belts before they leave the stage, and so I hope that this temptation will pass without incident, because I believe that China’s vision for economic and political integration in Asia needs to be so much bigger than simply trying to get Taiwan back in the fold.”

There is a real power struggle going on in China between Jiang and Hu that should not be mistaken for a simple clash of personalities between two men. Jiang’s refusal to leave the scene gracefully is a violation of the retirement policy of former paramount leader Deng Xiaoping. Deng wanted China to avoid repeating the turbulence of his own power struggle with Hua Guofeng and the Gang of Four. Reliving the mad dotage of Mao’s later years or the decrepit public senility of the USSR under Brezhnev and Chernenko was another concern of Deng’s. Jiang is hanging on to power because lots of similarly placed 3rd generation cronies are also loath to leave the perks of power and office to their juniors.

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