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The Newest Superpower

In the midst of the worst economic crisis since the Great Depression, a new world order is emerging—with its center gravitating towards China.

| Mon May. 4, 2009 9:47 AM PDT

Introduction by Tom Engelhardt

What will China become in this century? There can hardly be a more important question to ask. TomDispatch regular Dilip Hiro, who has followed shifting global power balances as the planet's former "sole superpower" edged into decline, offers a vivid picture below of a potential rising superpower weathering bad times as we head toward a multipolar planet.

There is, however, a more negative take on where China might be headed. Consider, for instance, Peter Kwong's recent article, "No Reform or Relief in China," which suggests a far more dismal view of that country's circumstances, or James Fallows's fascinating recent essay in the Atlantic, "Interesting Times," which presents a China capable of using this harsh economic moment (as the U.S. may not) to launch a new Great Economic Leap Forward, but offers a striking summary of the bad news in store for China right now. I find Hiro persuasive largely because I've long been convinced that American power is in decline, but I have my own caveats when it comes to China's future success. For one thing, I'm old enough to remember the period in the 1980s when Japan was being pre-anointed as the new economic superpower of Planet Earth. (There was even a much-touted book then entitled, "Japan as Number One: Lessons for America.")

Perhaps China really will be the future number one with plenty of "lessons for America," but its export-heavy economy is, at the moment, deeply dependent on the fate of a staggering U.S. economy (and the health of the dollar). Meanwhile, China's Communist Party, having thrown its revolutionary ideology to the dogs long ago, now rests its rule on a foundation which can be summed up in an old post-Maoist phrase, "to get rich is glorious"—and, of course, on the repressive power of the state. It's a one-party government tightly bound to "success." Who knows what the impact of full-scale failure, thanks to a prolonged global or American crash, might mean?

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With that in mind, let me raise an overlooked subject. There are many ways in which China, as a civilization, is impressively unique. (After all, how many places on the planet had antique stores in the fourteenth century?) But in one way it is surely unmatched: its 2,000-year-old tradition in bad times of vast millenarian peasant rebellions sweeping out of the hinterlands and threatening faltering dynasties.

From the Yellow Turban rebellion by a Taoist messianic sect in 184 CE to Mao ZeDong's Communist revolution of the 1930s and 1940s, these uprisings have been legion. Such a peasant rebellion felled the Ming dynasty in the mid-seventeenth century; the great Taiping rebellion, led by a guru with a new, partially Christian religion of his own, almost toppled the next dynasty, the Ching, in the 1850s and 1860s (an estimated 20 million people died in the process); and on a smaller scale, there was the Boxer Rebellion at the end of the nineteenth century, followed just more than a half-century later by the victory of Mao's peasant revolution. Yes, Russia had a few peasant rebellions, Brazil had one in its backlands, and France had its revolution as well as its revolt in the Vendée, but there's nothing on Earth like China's rebellious tradition.

You can be sure that its present leadership understands this history well; hence, though no one here thinks about it this way, the overwhelmingly repressive reaction to the Falun Gong religious sect. Its leaders also undoubtedly understand that the present state religion of "growth" is sacrosanct and, for the moment, dangerously in abeyance as what are called "mass incidents" (protests) rise. There are already an estimated 20 million unemployed migrant workers in the country. It's not that some as yet unimaginable modern version of a traditional peasant rebellion is on the horizon, but given the present economic meltdown and China's history, it shouldn't be ruled out as we try to imagine that country's fate as a possible future superpower.

Now, let Dilip Hiro introduce you to what nonetheless makes China economically remarkable, even in our meltdown moment. Tom

Defying the Economic Odds

The World Melts Down, China Grows
By Dilip Hiro

In the midst of the worst economic crisis since the Great Depression, a new world order is emerging—with its center gravitating towards China. The statistics speak for themselves. The International Monetary Fund (IMF) predicts the world's gross domestic product (GDP) will shrink by an alarming 1.3% this year. Yet, defying this global trend, China expects an annual economic growth rate of 6.5% to 8.5%. During the first quarter of 2009, the world's leading stock markets combined fell by 4.5%. In contrast, the Shanghai stock exchange index leapt by a whopping 38%. In March, car sales in China hit a record 1.1 million, surpassing the U.S. for the third month in a row.

"Despite its severe impact on China's economy," said Chinese President Hu Jintao, "the current financial crisis also creates opportunity for the country." It can be argued that the present fiscal tsunami has, in fact, provided China with a chance to discard its pioneering reformer's leading guideline. "Hide your capability and bide your time" was the way former head of the Communist Party Deng Xiaoping once put it. No longer.

Recognizing that its time has indeed come, Beijing has decided to play an active, interventionist role in the international financial arena. Backed by China's $2 trillion in foreign exchange reserves, its industrialists have gone on a global buying spree in Africa and Latin America, as well as in neighboring Russia and Kazakhstan, to lock up future energy supplies for its ravenous economy. At home, the government is investing heavily not only in major infrastructure, but also in its much neglected social safety net, its health care system, and long overlooked rural development projects—partly to bridge the increasingly wide gap between rural and urban living standards.

Among those impressed by the strides Beijing has made since launching its $585 billion stimulus package in September is the Obama administration. It views the continuing rise in China's GDP as an effective corrective to the contracting GDP of almost every other major economy on the planet, except India's. So it has stopped arguing that, by undervaluing its currency—the yuan—with respect to the U.S. dollar, China is making its products too cheap, thus putting competing American goods at a disadvantage in foreign markets.

The Secret of China's Success

What is the secret of China's continuing success in the worst of times? As a start, its banking system—state-controlled and flush with cash—has opened its lending spigots to the full, while bank credit in the U.S. and the European Union (EU) still remains clogged up, if not choked off. Therefore, consumer spending and capital investment have risen sharply.

Ever since China embarked on economic liberalization under the leadership of Deng Xiaoping in 1978, it has experienced economic ups and downs, including high inflation, deflation, recessions, uneven development of its regions, and a widening gap between the rich and the poor, as well as between the urban and the rural—all characteristics associated with capitalism.

While China's Communist leaders have responded with a familiar range of fiscal and monetary tools like adjusting interest rates and money supply, they have achieved the desired results faster than their capitalist counterparts. This is primarily because of the state-controlled banking system where, for instance, government-owned banks act as depositories for the compulsory savings of all employees.

In addition, the "one couple, one child" law, enacted in 1980 to control China's exploding population, and a sharp decline in the state's social-support network for employees in state-owned enterprises, compelled parents to save. Add to this the earlier collapse of a rural cooperative health insurance program run by agricultural cooperatives and communes—and many Chinese parents were left without a guarantee of being cared for in their declining years. This proved an additional incentive to set aside cash. The resulting rise in savings filled the coffers of the state-controlled banks.

On top of that came China's admission to the World Trade Organization (WTO) in 2001, which led to a dramatic jump in its exports. An average economic expansion of 12% a year became the norm.

When the credit crash in North America and the EU caused a powerful drop in China's exports, throwing millions of migrant workers in the industrialized coastal cities out of work, the authorities in Beijing focused on controlling the unemployment rate and maintaining the wages of the employed. They can now claim an urban unemployment rate of a mere 4.2% because many of the laid-off factory workers returned to their home villages. Those who did not were encouraged to enroll in government-sponsored retraining programs to acquire higher skills for better jobs in the future.

Whereas most Western leaders could do nothing more than castigate bankers filling their pockets with bonuses as the balance sheets of their companies went crimson red, the Chinese government compelled top managers at major state-owned companies to cut their salaries by 15% to 40% before tinkering with the remuneration of their workforce.

To ensure the continued rapid expansion of China's economy, which is directly related to the country's level of energy consumption, its leaders are inking many contracts for future supplies of oil and natural gas with foreign corporations.

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