Observer Review: The China Dream And The Coming Collapse Of China Essay, Research Paper

Red sales vanish in the sunsetThe China DreamJoe StudwellProfile Books ?15, pp356The Coming Collapse of ChinaGordon G ChangCentury ?14.99, pp355The decades since 1979 have been good ones for the People’s Republic of China. The communist state has somehow managed to weather its crises, most notably the Tiananmen spring of 1989, and emerged into the twenty-first century on a blaze of international glory: gaining entry to the World Trade Organisation, winning the 2008 Olympic Games bid, even qualifying for the World Cup. Chinese self-confidence seems strong, as China demands international recognition of progress made since the end of the Cultural Revolution in 1976.The West has wasted no time in acclaiming China’s economic potential. Since Deng Ziaoping began opening China to the world in 1979, Western businesses have poured money into China – $300 billion in the 1990s alone – in the hope of reaching the country’s 1.3 billion potential consumers.Yet, as Joe Studwell argues convincingly in The China Dream, for the majority of investors, the China market remains little more than a chimera. He finds Western businessmen guilty of swallowing too much of the Communist Party’s propaganda. His book provides an invaluable guide to the money-sink that is the contemporary Chinese economy and a chastening exposé of Western business folly.Economic reform in post-Mao China began at the grass roots, when farming plots were returned to individual families after 1979. This was followed by a dramatic proliferation of family businesses and the introduction of profit-oriented reforms within state-owned enterprises (SOEs).Disposable incomes grew rapidly as nascent Chinese consumers went mad for wristwatches, TVs and other goods. Meanwhile, Deng busied himself integrating China into the international economy, encouraging export and investment. The turmoil of 1989 ultimately did little to slow economic change: in 1992, Deng set off on a now famous tour of southern China, calling for faster, better, deeper economic growth. Foreign businesses responded to his global media offensive with a frenzy of investment.Studwell cites a long and glittering list of investors. Overseas Chinese were the first to rush in, each promising to invest billions to build his own personal mainland Shangri-la. Next came the multinationals, convinced they must commit now or lose a share in the miracle market predicted to become the world’s biggest economy by 2004. General Motors, Goldman Sachs, Morgan Stanley and others all hurried to cut deals – the bigger, the better. Then came the trade missions from Western governments – the US, Germany, Britain – signing business deals worth up to $6bn on single visits.For various reasons, few of the prodigious profits anticipated have materialised. First, a large Chinese middle class eager to consume pricey foreign cars, beer and other commodities failed to emerge in the mid-Nineties. China’s mythical billion-odd consumers were worth only $330 each at the start of that decade. Building on such a tiny base, even 13.4 per cent annual growth (achieved in 1993, sinking back to 5-6 per cent by 2001) will produce relatively small rises in disposable income.Second, China has a weak grasp of intellectual property rights, making it difficult for big-name business to establish a hold on markets. By the time the makers of Viagra had cut through all the red tape necessary to enter China, its market share had been usurped by Chinese rip-offs who had persuasively translated Viagra into Chinese as ‘big penis’.The greatest obstacle to multinational capitalism in China is still, logically enough, communism. Studwell relates how investors arrived in China expecting to find a deregulated market overpopulated with ravening consumers. What they got was a planned socialist economy deeply ambivalent about encouraging China’s profitable private sector and determined to prop up a Jurassic Park of unprofitable SOEs. Business in China is rife with corruption and inefficient delays: a deal that takes a 15-minute phone call in Hong Kong can take a year in China, where time is certainly not money.In The Coming Collapse of China, Gordon Chang reaches similarly pessimistic conclusions about China’s current condition, concurring with Studwell that the communist system lies at the root of the country’s problems. Chang’s passionately polemical tone lacks Studwell’s cool analytical gravitas, but he argues engagingly for impending catastrophe within the Chinese economy and state.China’s accounts simply do not balance: the state banks lend freely to the SOEs, which mount up debts that will most likely never be honoured. By 2001, outstanding loans within the system amounted to 120 per cent of China’s GDP. And it is the uninsured savings of ordinary, thrifty Chinese, along with money badly needed to finance education and the welfare state, that are being recklessly poured into this bottomless pit of socialist debt.Chang’s apocalyptic chapters diagnose and forecast the far-reaching, destabilising effects of ongoing economic crisis on Chinese society and politics. The spiritual movement Falun Gong, viewed by the government as the greatest challenge to the Communist Party, thrives partly because it offers to fill the ideological vacuum at the centre of the party’s capitalist ’socialism with Chinese characteristics’.What Chang omits to mention are the brute economic reasons for the movement’s popularity. Falun Gong’s adherents assert that its exercises are valid, cost-free substitutes for Western medicine, an appealing proposition to people in China’s post-welfare state who cannot afford medical costs. In the fiscal sector, once the confidence of ordinary savers in China’s four largest (insolvent) banks fails, Chang predicts a rioting population could bring the whole political edifice down.Although Western investors are anticipating with glee the new opportunities that China’s entry to the WTO will afford, Studwell and Chang have marshalled ample evidence to dampen such expectations. Chang’s prophecy that adjustment to global trading conditions could trigger collapse within the Chinese state is just possible. Studwell’s prediction that China will continue to make more money out of the West than vice versa is highly probable.