China: Collapsing in 2012?

Probably not? I don’t think that we have enough evidence to make a statement like that, but Gordon Chang, writing in FP, is doing just that- despite having been proved wrong last year:

Many analysts assume this growth streak can continue indefinitely. For instance, Justin Yifu Lin, the World Bank’s chief economist, believes the country can grow for at least two more decades at 8 percent, and the International Monetary Fund predicts China’s economy will surpass America’s in size by 2016.

Don’t believe any of this. China outperformed other countries because it was in a three-decade upward supercycle, principally for three reasons. First, there were Deng Xiaoping’s transformational “reform and opening up” policies, first implemented in the late 1970s. Second, Deng’s era of change coincided with the end of the Cold War, which brought about the elimination of political barriers to international commerce. Third, all of this took place while China was benefiting from its “demographic dividend,” an extraordinary bulge in the workforce.

Today, social change in China is accelerating. The problem for the country’s ruling party is that, although Chinese people generally do not have revolutionary intentions, their acts of social disruption can have revolutionary implications because they are occurring at an extraordinarily sensitive time. In short, China is much too dynamic and volatile for the Communist Party’s leaders to hang on. In some location next year, whether a small village or great city, an incident will get out of control and spread fast. Because people across the country share the same thoughts, we should not be surprised they will act in the same way. We have already seen the Chinese people act in unison: In June 1989, well before the advent of social media, there were protests in roughly 370 cities across China, without national ringleaders.

So will China collapse? Weak governments can remain in place a long time. Political scientists, who like to bring order to the inexplicable, say that a host of factors are required for regime collapse and that China is missing the two most important of them: a divided government and a strong opposition.

At a time when crucial challenges mount, the Communist Party is beginning a multi-year political transition and therefore ill-prepared for the problems it faces. There are already visible splits among Party elites, and the leadership’s sluggish response in recent months — in marked contrast to its lightning-fast reaction in 2008 to economic troubles abroad — indicates that the decision-making process in Beijing is deteriorating. So check the box on divided government.

And as for the existence of an opposition, the Soviet Union fell without much of one. In our substantially more volatile age, the Chinese government could dissolve like the autocracies in Tunisia and Egypt. As evident in this month’s “open revolt” in the village of Wukan in Guangdong province, people can organize themselves quickly — as they have so many times since the end of the 1980s. In any event, a well-oiled machine is no longer needed to bring down a regime in this age of leaderless revolution.

Not long ago, everything was going well for the mandarins in Beijing. Now, nothing is. So, yes, my prediction was wrong. Instead of 2011, the mighty Communist Party of China will fall in 2012. Bet on it.

Do I have to? Because while I’m still sticking with the general belief that the Communist Party won’t live out the decade (at least in its current form), this year seems like a pretty tall order. Fear of a Red Planet has a good response:

I agree that all the indicators look bad at the moment, but the fundamentals that have kept the Chinese economy chugging forward – most notably a cheap, well-educated workforce – are still there. Even the relatively pessimistic forecasts show an average per capita GDP growth rate of 5% year-on-year by 2016 – something that is far from a disaster.

More to the point though, Chang’s prediction of collapse of the Chinese government within the next year has several conceptual problems that need examining:

-Firstly, if China is due for a “a Japanese-style multi-decade decline”, then this does not at all mean that a massive crash of the kind that would shake the government will occur next year.
-Secondly, countries with communist political systems such as mainland China’s have weathered very harsh economic crises without the government falling. Cuba and North Korea in the wake of the collapse of the USSR are stark examples of this, but we also see examples in Central Europe – Poland during the 1970’s being one.
-Thirdly, even if serious unrest does occur, the Chinese state has overcome such movements in the past and would stand every chance of doing so again. In 1989 there was essentially no limit to the willingness of the Chinese leadership to use force to suppress opposition, even if great bloodshed resulted, and there is every reason to believe that the leaders due to take power next year are of the same temperament.

Put simply, whilst I do think pessimists like Chang may have a point and that at some point their predictions may come true (hence the title) I don’t think it will be any time soon, at least not in the next year.

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