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  • New China. New crisis

    New China. New crisis


    In the last decade China has emerged as a powerful, resurgent economic force with the muscle to challenge America as the global superpower. But, in his controversial new book, Will Hutton argues that China's explosive economic reforms will create seismic tensions within the one-party authoritarian state and asks: can the centre hold?

    Sunday January 7, 2007
    The Observer

    For more than 2,000 years, China's conceit was that it was the celestial kingdom, the country whose standing was endowed by heaven itself and whose emperors tried to reproduce heavenly harmony on Earth. All China basked in the reflected glow; foreigners were barbarians beyond the gilded pale who should not be allowed even to learn the art of speaking and writing Chinese.

    When I first visited China in the autumn of 2003, such articles of Confucian faith seemed very far away, submerged by the lost wars and the 26 humiliating treaties of the 19th century, subsequent communist revolution and now the economic growth to which Beijing's motorway rings and Shanghai's skyline are tribute. This was a new China that had plainly left behind obeisance to the canons of Confucianism and the later cruelties of Mao. More than three years and a book later, I am less convinced.

    Article continues
    All societies are linked to their past by umbilical cords - some apparent, some hidden. China is no different. Imperial Confucian China and communist China alike depended - and depend - upon the notion of a vastly powerful, infallible centre: either because it was interpreting the will of heaven or, now, of the proletariat. In neither system have human rights, constitutional checks and balances or even forms of democracy figured very much. As a result, China has poor foundations on which to build the subtle network of institutions of accountability necessary to manage the complexities of a modern economy and society. Sooner or later, it is a failing that will have to be addressed.

    China is both very confident about its recent success and very insecure about its past, a potent mix that breeds a deep-seated xenophobia and shallow arrogance. China's economy in 2007 will be nearly nine times larger than it was in 1978 when Deng Xiaoping won the power struggle with the Maoists and began his extraordinarily sinuous, gradualist but successful programme of market-based economic reforms, groping for stones to cross the river, as he called it. China is now the fourth largest economy in the world - after the United States, Japan, and Germany - and is set to become the second largest within a decade. More than 150 million workers have moved to China's booming cities and 400 million people have been removed from poverty. It is a head-spinning achievement.

    China is the new factor in global politics and economics, and its rulers and people know it. It now has more than $1 trillion of foreign exchange reserves, the world's largest. It is the single most important financier of the United States' enormous trade deficit. It is the world's second largest importer of oil. Before 2010, it will be the world's largest exporter of goods. It is, comfortably, the world's second largest military power. Last year, the Pentagon's four-yearly defence review stated that China is the power most likely to 'field disruptive military technologies that could over time offset traditional US military advantages'. A new great power is in the making, but one whose pursuit of its self-interest takes the amorality of power to a new plane. It is not just the Chinese who should be concerned about its institutional and moral failings; all of us should be.

    In China, you can almost smell the new self-confidence: it is in the skyscrapers built in months; it is in the brash and unashamed willingness to rip off and copy Western brands; it is in the well-groomed and inscrutable demeanour of the rich entrepreneurs, self-confident officials and assured academics.

    I sat in a Beijing bar just over a year ago with a typical member of China's new class of rich businessmen who double up as members of the party, a combination of commercial and political power that China knew well as the old Confucian mandarinate, now strangely reproducing itself in a new guise after Mao tried to eliminate it forever in the Cultural Revolution.

    In surprisingly fluent English and with his Mercedes waiting outside, he praised China's communist regime and its curious mix of capitalism and communism with all the enthusiasm of a Tory businessmen praising Thatcher. Chinese corruption? Think of Enron and party-funding scandals in London, he declaimed. Double standards between communist rhetoric and practice? What about the US and Britain's invasion of Iraq, and Guantanamo Bay? What I failed to realise, he insisted, betraying both assurance and insecurity, is that China will not surrender again the natural rank that it should never have lost. Western values, institutions and attitudes were being revealed for being straw men, blown away by resurgent China and the pragmatism of its communist leaders.

    Yet Western values and institutions are not being blown away. The country has made progress to the extent that communism has given up ground and moved towards Western practices, but there are limits to how far the reformers can go without giving up the basis for the party's political control. Conservatives insist that much further and the capacity to control the country will become irretrievably damaged; that the limit, for example, is being reached in giving both trade unions more autonomy and shareholders more rights. It is the most urgent political debate in China.

    The tension between reform and conservatism is all around. For example, the party's commitment now is no longer to building a planned communist economy but a 'socialist market' economy. The 26,000 communes in rural China, which were once the vanguard of communism, were swept away by the peasants themselves in just three years between 1979 and 1982, the largest bottom-up act of decollectivisation the world has ever witnessed. Hundreds of millions of peasants are, via long leases, again farming plots held by their ancestors for millenniums. China's state-owned enterprises no longer provide life-long employment and welfare for their workers as centrepieces of a new communist order; they are autonomous companies largely free to set prices as they choose in an open economy and progressively shedding their social obligations.

    Equally amazing, China's communists have declared that the class war is over. The party now claims to represent not just the worker and peasant masses but entrepreneurs and business leaders, whom it welcomes into its ranks. The party refers to this metamorphosis as the 'three represents': meaning that the party today represents 'advanced productive forces' (capitalists); 'the overwhelming majority' of the Chinese (not just workers and peasants); and 'the orientation ... of China's advanced culture' (religious, political and philosophical traditions other than communism).

    Party representatives say that the country is no longer pledged to fight capitalism to the death internationally, but, instead, wants to rise peacefully. China has joined the World Trade Organisation and is a judicious member of the United Nations Security Council, using its veto largely in matters that immediately concern it, such as Taiwan.

    But for all that, it remains communist. The maxims of Marxist-Leninst-Maoist thought have to stand, however much the party tries to stretch the boundaries, because they are the basis for one-party rule. Yet the system so spawned is reaching its limits. For example, China's state-owned and directed banks cannot carry on channelling hundreds of billions of pounds of peasant savings into the financing of a frenzy of infrastructure and heavy industrial investment. The borrowers habitually pay interest only fitfully, and rarely repay the debt, even as the debt mountain explodes. The financial system is vulnerable to any economic setback.

    Equally, China is reaching the limits of the capacity to increase its exports, which, in 2007, will surpass $1 trillion, by 25 per cent a year. At this rate of growth, they will reach $5 trillion by 2020 or sooner, representing more than half of today's world trade. Is that likely? Are there ships and ports on sufficient scale to move such volumes - and will Western markets stay uncomplainingly open? Every year, it is also acquiring $200bn of foreign exchange reserves as it rigs its currency to keep its exports competitive. Can even China insulate its domestic financial system from such fantastic growth in its reserves and stop inflation rising? Already, there are ominous signs that inflationary pressures are increasing.

    These ills have communist roots. It is the lack of independent scrutiny and accountability that lie behind the massive waste of investment and China's destruction of its environment alike. The pace of desertification has doubled over 20 years, in a country where 25 per cent of the land area is already desert. Air pollution kills 400,000 people a year prematurely. A hacking cough in the Beijing smog or the stench when the wind comes from the north in Shanghai are reminders of just how far China still has to go.

    Energy is wasted on an epic scale. But the worst problem is water. One-fifth of China's 660 cities face extreme water shortages and as many as 90 per cent have problems of water pollution; 500 million rural Chinese still do not have access to safe drinking water. Illegal and rampant polluting, a severe shortage of sewage treatment facilities, and chemical pollutants together continue to degrade China's waterways. In autumn 2005, two major cities - Harbin and Guangzhou - had their water supplies cut off for days because their river sources had suffered acute chemical spills from state-owned factories.

    Enterprises are accountable to no one but the Communist party for their actions; there is no network of civil society, plural public institutions and independent media to create pressure for enterprises to become more environmentally efficient. Watchdogs, whistleblowers, independent judges and accountable government are not just good in themselves as custodians of justice; they also keep capitalism honest and efficient and would curb environmental costs that reach an amazing 12 per cent of GDP. As importantly, they are part of the institutional network that constitutes an independent public realm that includes free intellectual inquiry, free trade unions and independent audit. It is this 'enlightenment infrastructure' that I regard in both the West and East as the essential underpinning of a healthy society. The individual detained for years without a fair trial is part of the same malign system that prevents a company from expecting to be able to correct a commercial wrong in a court, or have a judgment in its favour implemented, if it were against the party interest.

    The impact is pernicious. The reason why so few Britons can name a great Chinese brand or company, despite China's export success, is that there aren't any. China needs to build them, but doing that in a one-party authoritarian state, where the party second-guesses business strategy for ideological and political ends, is impossible. In any case, nearly three-fifths of its exports and nearly all its hi-tech exports are made by non-Chinese, foreign firms, another expression of China's weakness. The state still owns the lion's share of China's business and what it does not own, it reserves the right to direct politically.

    Mark Kitto, a former Welsh Guardsman, has found at first-hand how difficult it is to sustain private ownership in China. He built up three Time Out equivalents in Beijing, Shanghai and Guangzhou but, after seven years of successful magazine publishing, learnt last year that he was about to become a partner of the state. The only terms on which his licence to publish could be retained was if he were to accept a de facto takeover from China Intercontinental Press, controlled by China's State Information Council, the propaganda mouthpiece of the Communist party. It did not matter that he owned the shares, wanted to retain his independence and had been careful to stay within the party's publishing guidelines. The party now wanted control of his magazines and simply took it. It is an example repeated many times over.

    China must become a more normal economy, but the party stands in the way. Chinese consumers need to save less and spend more, but consumers with no property rights or welfare system are highly cautious. To give them more confidence means taxing to fund a welfare system and conceding property rights. That will mean creating an empowered middle class who will ask how their tax renminbi are spent. Companies need to be subject to independent accountability if they are to become more efficient, but that means creating independent centres of power. The political implications are obvious.

    China's future is shrouded in uncertainty. My belief is that what is unsustainable is not sustained. Change came in the Soviet Union with the fifth generation of leaders after the revolution; the fifth generation of China's leaders succeed today's President Hu Jintao in 2012. No political change will happen until after then, but my guess is that sometime in the mid to late 2010s, the growing Chinese middle class will want to hold Chinese officials and politicians to account for how they spend their taxes and for their political choices. What nobody can predict is whether that will produce another Tiananmen, repression and maybe war if China's communists pick a fight to sustain legitimacy at home or an Eastern European velvet revolution and political freedoms. Either way, China's route to becoming a world economic power is not going to proceed as a simple extrapolation of current trends.

    This book has been something of a personal intellectual odyssey. My hypothesis when I began was that China was so different that it could carry on adapting its model, living without democracy or European enlightenment values. I have changed my mind and now see more clearly than ever the kinds of connection I identified in The State We're In between economic performance and so-called 'soft' institutions - how people are educated, how trust relations are established and how accountability is exercised (just to name a few) - are central. They are equally important to a good society and the chance for individual empowerment and self-betterment.

    Early in my research, I tried out the still-emergent thesis at a small dinner in Lan Na Thai, one of the restaurants in Shanghai's Ruijin guest house, a complex of refurbished old mansions and traditional pavilions in the French quarter where communist leaders reputedly once ate and slept.

    Over stir-fried curried chicken and crispy fried flying sea bass, the Chinese guests repeated politely and persuasively that China was making up new economic and political rules. Afterwards, I chanced to have a few words alone with one of the local rising government stars as we walked out of the complex. He kept his eyes on the ground. 'Don't allow yourself to be dissuaded, despite what you have heard. You are right that China is not different. I want my children to see a China with human rights and democratic institutions. And I am not alone.' He jumped into a taxi and was gone.

    I have often thought about that chance exchange. Britain and the West take our enlightenment inheritance too easily for granted, and do not see how central it is to everything we are, whether technological advance, trust or well-being. We neither cherish it sufficiently nor live by its exacting standards. We share too quickly the criticism of non-Western societies that we are hypocrites. What China has taught me, paradoxically, is the value of the West, and how crucial it is that we practise what we preach. If we don't, the writing is on the wall - for us and China.

    China's quest for oil

    China's foreign policy is increasingly driven by the need to feed its growing appetite for oil. General Xiong Guangkai, deputy chief of the Chinese general staff, has said that China's energy problem needs to be taken 'seriously and dealt with strategically'.

    That means less reliance on the Middle East; less transportation of oil via sea-lanes policed by the US navy; more capacity for the Chinese navy to protect Chinese tankers; and more oil brought overland by pipeline from central Asia.

    Over the past two years, China has pulled off a string of strategic oil deals. In April 2005, Petro China and Canadian company Enbridge signed a memorandum to build a $2bn 'gateway' pipeline to move oil from Alberta to the Pacific Coast. In Venezuela, President Hugo Chavez is to build a Chinese-financed pipeline to the Pacific coast through Colombia, having given China oil and gas exploration rights in 2005. Saudi Arabia surrendered to Chinese courtship in 2004 and accorded exploration rights.

    In Sudan, a major source of oil, China's blind eye to human rights and mass murder if it hinders its interests is demonstrated by Zhou Wenzhong's comment when Deputy Foreign Minister about the situation in Darfur where more than 250,000 have died.'Business is business,' he said. 'We try to separate politics from business and, in any case, the internal position of Sudan is an internal affair, and we are not in a position to influence them.'

    Wrong: China has substantial influence on Sudan if it chose to exercise it. It does not, a commentary on China's approach to foreign policy and an awesome warning of the future if an unreconstructed China became yet more powerful.

    Tiananmen: the legacy

    The image of a single student halting a tank in Tiananmen Square is one of the most arresting in modern history. But the protests spread well beyond Beijing for six weeks in spring 1989 to encompass demonstrations in 181 cities.

    The party and army were divided over how to respond; 150 officers openly declared that they would not fire on demonstrators after martial law was declared, and at least a third of the central committee wanted to reach a compromise with the protesters. The party's then general secretary, Zhao Ziyang, proposed a partial meeting of demands for reform. Nobody should be killed.

    That was not the view of Deng and the party elders - the eight 'immortals', veterans of the Revolution. A 'counter-revolutionary' riot had to be suppressed. But before Deng could act, he had to leave Beijing to ensure that army groups 28 and 29, personally loyal to him, would provide the core of the force rather than the uncertain army groups based around the capital. Once in place, Zhao was then brutally deposed, remaining under house arrest until his death in 2005. Martial law was imposed on 19 May and a fortnight later the tanks rolled into Tiananmen Square. Official estimates were that 5,000 soldiers and police officers were wounded and 223 killed. Civilian losses - 2,000 wounded and 220 killed - were lower. Many still languish in prison.

    Tiananmen is the event that cannot be discussed in China; websites mentioning it are blocked. It was no 'counter-revolutionary riot' but a demand for freedoms that infected all China and very nearly succeeded.

    Current leader Hu Jintao and his successors know they are not Deng and cannot command the loyalty of key elements of the army in the same way. Their best strategy is to deliver growth and jobs while trying to keep the lid on China's growing but still disconnected social protests. Whether the policy will carry on working is the open question asked daily in Beijing's inner circles.

    · An edited extract from The Writing on the Wall: China and the West in the 21st Century to be published by Little, Brown on 15 January, £20.

    ©Will Hutton 2007
    http://observer.guardian.co.uk/revie...984044,00.html
    Zhang Fei and Pin,

    How do you read this article?


    "Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

    I don't have to attend every argument I'm invited to.

    HAKUNA MATATA

  • #2
    lol... Pin's profile says he's been banned, so I wouldnt hang on too long to hear what he thinks.

    Comment


    • #3
      Some interesting points there.
      I want to know what the China Hands like the Col Sir and Astralis think about this article....
      Seek Save Serve Medic

      Comment


      • #4
        Originally posted by Ray View Post
        Zhang Fei and Pin,

        How do you read this article?
        Sir, all developing nations have problems. Especially ancient civilizations where foreign idealogies and ideals hold sway, even as they attempt to modernize. This has been true for India and the PRC, but in Indias case, open democratic ideals (despite how imperfect their execution is) and relatively open/chaotic media/ judiciary allow for competing viewpoints, while modernisation occurs. In the case of the PRC, the Communist Party has dominated public space, totally. I can only presume that if they were to ever cede control, the backlash against their excesses would be severe, so they will always seek to retain control. That apart, in a centralized system, with one organ controlling everything, a lot of ills- Govt'al and social get covered up and fester. This is a particularly challenging issue for both the PRC and India, both countries have a lot to do, and move towards. I seriously wonder if the PRC, will ever make a transition to a democratic system, where the communists will compete for political power.
        Karmani Vyapurutham Dhanuhu

        Comment


        • #5
          Archer,

          I don't dispute what you say.

          I, however, wanted to know the comments of the Chinese; more so, those who live in Communist China.

          I want to know how much of facts are in the article and how much is speculation and propaganda!


          "Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

          I don't have to attend every argument I'm invited to.

          HAKUNA MATATA

          Comment


          • #6
            667medic,

            some interesting points, but the man makes some elemental mistakes in his china-watching. bear with me as i go down some of them- it may get a bit longish.

            foreigners were barbarians beyond the gilded pale who should not be allowed even to learn the art of speaking and writing Chinese.
            exaggerated, given the old writing forms of vietnam and korea, and the constant trade/tribute system institutionalized within imperial china.

            This was a new China that had plainly left behind obeisance to the canons of Confucianism and the later cruelties of Mao.
            confucianism never really disappeared in china, not even during the period of the 1920s. mao (in a similar fashion to chiang kai-shek before him) utilized precepts of confucianism for easier rule while attacking confucianism as feudal thought. now the CCP is doing its best to encourage a neo-neo-Confucianism again.

            A new great power is in the making, but one whose pursuit of its self-interest takes the amorality of power to a new plane. It is not just the Chinese who should be concerned about its institutional and moral failings; all of us should be.
            this is realism in action. big whoop, every other country in the world works through realism, with a few countries seeking to cloak realist actions with either neo-liberalism or international liberalism. only in a very few and limited set of examples do we see states taking action not out of self-interest.

            The maxims of Marxist-Leninst-Maoist thought have to stand, however much the party tries to stretch the boundaries, because they are the basis for one-party rule.
            and that is why the CCP no longer depends on marxist-leninst-maoist thought, instead choosing a hybrid of confucian/nationalist ideology. the "three represents", JZM theory- cheap forms of window dressing.

            Equally, China is reaching the limits of the capacity to increase its exports, which, in 2007, will surpass $1 trillion, by 25 per cent a year. At this rate of growth, they will reach $5 trillion by 2020 or sooner, representing more than half of today's world trade. Is that likely? Are there ships and ports on sufficient scale to move such volumes - and will Western markets stay uncomplainingly open? Every year, it is also acquiring $200bn of foreign exchange reserves as it rigs its currency to keep its exports competitive. Can even China insulate its domestic financial system from such fantastic growth in its reserves and stop inflation rising? Already, there are ominous signs that inflationary pressures are increasing.
            the CCP has, in the last few years, instituted programs designed to boost domestic growth/spending, realizing the limits of export-based trade.

            These ills have communist roots. It is the lack of independent scrutiny and accountability that lie behind the massive waste of investment and China's destruction of its environment alike
            not particularly. corruption, while prevalent in "communist" systems, does not just exist under communism. in another vein, environmental destruction is being caused not by communism, but by untrammeled free-market expansion, with unscrupulous industries dumping their trash into rivers and polluting away. the CCP does, however, hold some responsibility, because up until recently, the ideology has been economic growth above all. now, with economic growth being as high as it is, the CCP is finally realizing the costs of such growth.

            Enterprises are accountable to no one but the Communist party for their actions
            again, not so much to the party but to the local corrupt bureaucrat.

            there is no network of civil society, plural public institutions and independent media to create pressure for enterprises to become more environmentally efficient.
            would have been true 15-25 years ago, but no longer. to be sure, these institutions are still weak, but they exist and are growing.

            where the party second-guesses business strategy for ideological and political ends, is impossible.
            this is not the 1960s anymore! the current party does less second-guessing than japan's LDP did all the way up until the early 1990s (see MITI).

            Chinese consumers need to save less and spend more, but consumers with no property rights or welfare system are highly cautious. To give them more confidence means taxing to fund a welfare system and conceding property rights. That will mean creating an empowered middle class who will ask how their tax renminbi are spent. Companies need to be subject to independent accountability if they are to become more efficient, but that means creating independent centres of power. The political implications are obvious.
            the first evolves naturally, as we've seen in the last 15 years. as for independent accountability, the judicial system is finally developing such.

            It was no 'counter-revolutionary riot' but a demand for freedoms that infected all China and very nearly succeeded.
            yes and no. the protests first started out as being against corruption and inflation; it later expanded to demand civil and political liberties. by the end of the protests- around late may- many of the original protesters either could not camp out at tiananmen anymore, or they felt that they had gotten the message across. the hard-core dedicated ones, seeing the momentum of the protest evaporating, turned to a harder line calling for the overthrow of the CCP.

            in the other cities which the author mentions, the line that was the most popular was corruption, and in a few areas, labor organizing. it is interesting to note that the CCP cracked down the hardest upon labor, NOT the students. this is some indication of where the CCP felt its legitimacy was most threatened- and it wasn't the call of democracy.

            ----

            all in all, the article brings up some very definite problems that china faces: banking problems, ownership, environmental issues, independent balances of power, legitimacy. the author is certainly right in that a growing middle-class will call for expanding power, and that no one can truly predict the future. however, i do think it is rather sensationalist to proclaim that these problems will lead to the (violent, as the article implies) downfall of the CCP. heck, gordon chang of "the coming collapse of china" fame goes into more complete detail. yet the funny thing is, when the collapse did not materialize, he promised a "coming collapse of china, part 2", to explain what had happened and why china would STILL collapse. and then instead of doing that, he abruptly started a new project on north korea.

            the CCP has demonstrated remarkable resilience and, surprisingly, flexibility in the matter. as the author himself points out, the CCP now embraces capitalists to their bosom, something that was completely anathema 30 years ago. this is no new crisis, this is a continuation of one long evolution since deng xiaoping kicked capitalism into gear.
            There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

            Comment


            • #7
              This author does not know China's banks are HOT in stock market.

              3 of the 4 largest Chinese banks are listed in HK and China's domestic stock market. ICBC alone is the second or the third largest bank In the WORLD judging by the MARKET VALUE. Forgot to tell: big buyers of those stocks are western INSTITUTES.

              Edit by Officer of Enineers: Reason - No more x versus y
              Last edited by Officer of Engineers; 30 Jan 07,, 17:53. Reason: No more x versus y

              Comment


              • #8
                Is it me or is the underlying assumption that since China does not have our value system, it cannot become a successful and modern country?

                Comment


                • #9
                  This author does not know China's banks are HOT in stock market.
                  Tech Stocks were also hot during their heyday. The confidence with the Chinese Banks is probably that they would never be allowed to bankrupt, even if they have a lot of non-performing assets...
                  Seek Save Serve Medic

                  Comment


                  • #10
                    Originally posted by 667medic View Post
                    Tech Stocks were also hot during their heyday. The confidence with the Chinese Banks is probably that they would never be allowed to bankrupt, even if they have a lot of non-performing assets...
                    no one can stand the bankrupty of chinese big banks ,such as ICBC.
                    If ICBC were to bankrupt,China would also bankrupt.
                    If China were t bankrupy,wall street would also bankrupt.then....

                    Comment


                    • #11
                      Schwab Wants to Make China Squirm Over Subsidy: Andy Mukherjee

                      By Andy Mukherjee

                      Feb. 6 (Bloomberg) -- Susan Schwab, the U.S. trade representative, has decided to make China squirm.

                      Sixty percent of Chinese-made goods sold in the U.S. are eligible for ``market-distorting'' export subsidies from the government, Schwab alleged last week in what is to date the biggest complaint against China at the World Trade Organization.

                      This is not an isolated attack on Chinese shrimp, furniture or brassieres. Between $122 billion and $158 billion of China's exports to the U.S. may be at stake, depending on which of the two trading partners' recordkeeping you want to believe.

                      The Commerce Ministry in Beijing called the U.S. complaint ``regrettable.''

                      This is the third time the U.S. has asked the global trade body to settle a dispute with China.

                      The first time the U.S. dragged China to the WTO was in March 2004, alleging unfair blockage of imported semiconductors. China gave in and changed its policy.

                      Then, in March 2006, Rob Portman, Schwab's predecessor, filed a complaint about similar discrimination against imported auto parts. That dispute is yet to be settled.

                      The latest U.S. case against China is also its most ambitious. The scope of the allegation covers the gamut of Chinese business practices with one notable exception: China's currency policy. It is a case that is meant to create pressure.

                      It's not a complaint that can be easily proven.

                      Export subsidies, which are banned under WTO rules, are getting increasingly hard to pin down. Most nations have learned how to structure the freebies in order to keep them safe from legal challenge.

                      Subsidy Culture

                      A case in point is the U.S., which provides billions of dollars of support to farmers through programs that distort global trade but don't have to be classified as export subsidies.

                      Similarly, the explicit subsidies in China don't purportedly seek to boost exports. Their objectives vary from providing budgetary support to weak banks and unprofitable state-owned enterprises to promoting science and technology.

                      Then there are the largely unrecorded subsidies dished out by local governments, which seek to lure investors with a bouquet of freebies, including zero-rental leases and cheaper bank loans to discounts on electricity and phone bills.

                      A University of Nottingham study last year evaluated the impact of these ``production subsidies'' on more than 98,000 firms in China. The researchers found strong evidence of handouts stimulating exports.

                      ``Irrespective of the motive of local or central governments for extending production subsidies, the fact that subventions foster export activity might lead to suggestions of unfair trade practice,'' the report said.

                      Tax Rebate

                      The other thorny issue in U.S.-China trade relations is tax refunds. China's exporters, including U.S. multinationals, enjoyed rebates of 337 billion yuan ($43 billion) last year on value-added tax, the highest since 1994.

                      This, by itself, isn't a subsidy.

                      Under WTO rules, it is an acceptable practice for nations to protect their exporters from ``double taxation.''

                      When there's no domestic sale of the product, value-added tax can't be recovered from the final customer and ends up being a drag on the exporter's competitiveness. VAT rebates, therefore, are considered perfectly legitimate.

                      However, when the same concessions are tied to corporate profits, they become export subsidies and are deemed illegal.

                      That's a lesson that the U.S. learned when its effort to keep subsidizing exporters with corporate-tax breaks was held by the world trade body as illegal. Over three decades, the U.S. came up with three different laws to boost its exporters' profitability. Each had to be struck down, with the last -- the Extraterritorial Income Exclusion Act -- phased out since 2005.

                      The U.S., which depends more on direct taxes than indirect, thus finds itself at a disadvantage in playing the export promotion game. China has no such difficulty.

                      Economics Drive Change

                      The next step in the U.S.-China trade spat is consultations between the two trading partners.

                      The Chinese authorities, mindful of the pressures of the U.S. election cycle, will probably make small concessions so that the Bush administration has something to show for its efforts to a Congress controlled by Democrats.

                      Last year, China reduced the tax rebates for exporters of steel, non-ferrous metals and textiles. It may prune the rates even further to reduce its trade surplus.

                      A more advanced stage of the confrontation, where negotiations fail and the dispute has to be mediated by a WTO settlement panel, may yet be averted.

                      That doesn't mean China's export-led strategy is sustainable. The Chinese authorities are aware of the urgent need to contain the ballooning trade surplus and deliver on their promise of rebalancing the economy.

                      Increasing domestic consumption, lowering income inequality and arresting the damage to the environment are more pressing priorities for China than selling yet more widgets to the world.

                      (Andy Mukherjee is a Bloomberg News columnist. The opinions expressed are his own.)

                      To contact the writer of this column: Andy Mukherjee in Singapore at [email protected] .
                      Last Updated: February 5, 2007 12:20 EST
                      Bloomberg.com: Opinion
                      What say you, Bad guy and Top Hatter?


                      "Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

                      I don't have to attend every argument I'm invited to.

                      HAKUNA MATATA

                      Comment


                      • #12
                        Sir. Ray,

                        Here is a China Special on CNN in 1999, 50 years after PRC was born. The information is a little bit out of date but still interesting.

                        Visions of China by CNN: 50 and Beyond

                        CNN In-Depth Specials - Visions of China - 50 and Beyond
                        I am here for exchanging opinions.

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                        • #13
                          Originally posted by Ray View Post
                          Zhang Fei and Pin,

                          How do you read this article?
                          Communism was always an ideological veneer on the old command-and-control Chinese model of superiors giving orders and subordinates obeying without question. (Note that this did not mean the subordinates were meekly obeying like sheep - merely that they were rightly afraid of the consequences of disobedience). Much of what the writer attributes to Communism is really an artifact of traditional Chinese approaches to government. For instance, imperial China used to grant monopolies to favored individuals, who became fabulously wealthy, as a result. Something similar happened after Deng's reforms in the late 1970's.

                          Chinese triumphalism is the result of years of strong economic growth, and relative ignorance about the outside world. In this respect, Chinese are probably no different from the average Indian or American or the average citizen of an East Asian Tiger during the boom years. For instance, the average Chinese thinks that per capita income wise, China is in the upper half of the East Asian countries, when it is in fact in the lower half. They also think that China isn't really separated from the developed economies by all that much - a notion deliberately encouraged by the government via the successful conclusion of China's first manned spaceflight, and its Soviet-style sports programs and medal tallies.

                          Nonetheless, there are indications that substantial pockets of economic deprivation exist among the Chinese population - pockets that have led to large scale physical clashes with city- and borough-level officials involving hundreds and even thousands of people. It is clear from the tens of thousands of demonstrations that occur every year - combined with several dozen violent clashes involving deaths - that the Chinese population is no longer as trusting of the government or fearful of the government's coercive powers as it used to be. Times are about as good as they have been since the Communists took power. But the downside for the ruling clique is that the population is nowhere near as deferential as it was at the time of its victory in 1949.

                          My feeling is that whatever succeeds the Party, it is unlikely to be democracy. Any Chinese willing to take the risks to fight the Party isn't going to be interested in handing it over an electorate. And the ordinary Chinese is quite comfortable with the concept of winner-takes-all, especially when there's not a lot he can do about it. What is more important is that the average Chinese has lost enough respect for the Party that he is unlikely to risk death defending it. The loss of respect for the Qing government is ultimately what undid it, as provincial officials went their own way.

                          I think the loss of fear of the government displayed through the increasing number of violent clashes with governmental bodies is a bad sign for the government. Don't mistake the apparent placidity of the average Chinese for acquiescence. Speaking forthrightly about grievances against the government is a luxury available only to Westerners who don't risk jail, torture or execution for seditious views. Chinese have traditionally voted with their feet*, via violent revolts, not wispy opinions aired over dinner.

                          Obedience to your face combined with plotting behind your back is the Chinese mode of behavior, if he sees the governing authority as both powerful and ruthless. Once he loses his fear, plots begin to translate in action. There has been no shortage of political entrepreneurs in Chinese history - many of the founding members of dynasties that killed off their predecessors were themselves minor government officials - and there will be many who think they have no less a right to rule than the existing Communist Party leadership.

                          * This is not some kind of zeitgeist argument - I am not suggesting that the entire population of China has revolted during dynasty changes - only that those who actively participated in successful revolts got to rule those who did not.
                          Last edited by Zhang Fei; 17 Feb 07,, 07:16.

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                          • #14
                            Here's an example of the kind of thing that happens from time to time.

                            Thousands of local residents have converged on an upscale hotel in the southwestern Chinese province of Sichuan, setting fire to the building in protest at the death and alleged rape of a 16-year-old girl who worked there. Mobile phone footage taken outside the hotel in Dazhu township showed confused and raucous crowds in darkness in front of a burning building as crowds gathered outside. Witnesses said the crowd reached 20,000 at its peak late Wednesday.

                            “There are still around a few thousand people on the scene and they protested outside the hotel this afternoon,” a shop owner near the Nest Business Hotel in Daizhu told RFA’s Cantonese service.

                            Hotel worker Yang Daili, who some Internet accounts said was a karaoke hostess, was found dead in a hotel room on Dec. 30. Police enquiries initially yielded little evidence, and the hotel said she had died of an overdose. Friends protested

                            But the girl’s friends and classmates pursued the matter and began a protest in the hotel, drawing public attention.

                            The riot was triggered, residents said, after the hotel posted a notice denying any involvement in the girl’s death. Protesters stormed the hotel and vandalized it, then set fire to it.

                            Police announced Thursday they had arrested two suspects in the case of the girl’s death. One was described in official media coverage as ’suspected rapist Liu Chikun.’ 'Witnesses' posted online

                            The report, posted by Sichuan Online and rebroadcast by Phoenix TV(ZH), said local leaders had ordered an investigation into possible business links between local police and the hotel.

                            An officer who answered the phone at the Dazhu police station declined to give further details.

                            “I have just come on duty and we haven’t got any updated information yet. How can I tell you the current situation outside?” he said.

                            Two Chinese-language forum posts translated into English by Hong Kong-based blogger Roland Soong said Yang was drugged and raped repeatedly by karaoke room clients until she died.

                            China sees thousands of “mass incidents” across the country every year.

                            While many are civil rights protests over land disputes, unpaid wages or environmental issues, spontaneous outbursts of anger and violence are occurring over numerous other issues, including changes in business licensing regulations, perceived miscarriages of justice, or fraudulent advertising claims.

                            ******

                            Roland Soong (very left-wing, pro-CCP Chinese-American) translates an account:

                            I'm an employee at the hotel and I want to share with you what I saw.

                            There is a bar in the hotel known as the Slow Rock Bar. I work in the bar.

                            The deceased is 16-year-old Yang Li. She is a hostess at the Nest Business Hotel KTV. She is 1.7 meters tall and very pretty.

                            On that evening, three big clients showed up. These were friends of the boss and senior officials in Sichuan province. They liked this girl and they asked her to keep them company. Then they wanted to take her out. So Yang Li asked our boss for time off, and he agreed. At around midnight, Yang Li returned. At around 2pm, we closed up the place but we discovered that she was motionless and unconscious. We took her to the hospital and she was already dead.

                            This is what happened. The three men put drugs in Yang Li's drink. You know what kind of drug. But the dosage was too strong. They also f*cked her. They f*ck her to death because her vagina was bleeding. Later when someone took her to the Dazhu county People's Hospital, she was dead.

                            During the negotiations between the hotel and the family of the deceased, a compensation of 800,000 RMB was offered. The family of the deceased rejected the offer, because they really wanted the murderers brought to justice. But since the murderers were three senior officials, that was out of the question.

                            Actually, several people have died at the hotel already, but the hotel managed managed to keep the lid on. Previously, two girls and a security guard had died. The security guard witnessed their secret, so they had to eliminate him. As for the girls, they put some needle holes in their arms and said that the girls overdosed.

                            This is a black hotel. They do everything, including selling drugs.

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                            • #15
                              Remit money immediately or lifeless

                              A Time magazine article from the glorious early years of the Liberation:
                              Monday, Nov. 26, 1951

                              Before Red China entered the Korean war, Chinese in the U.S. sent as much as $50 million a year to families across the water and, even since, great sums have been voluntarily sent to China through Hong Kong. Last winter, it began to be apparent that these gifts of dollars were becoming a curse rather than a blessing; Red China, hungry for foreign exchange, was putting the squeeze on those who received them.

                              In San Francisco, Boston, Wichita and dozens of other U.S. cities, Chinese began getting letters from relatives pleading for more money. Mothers, grandfathers or sons wrote that new taxes had been assessed on them, or that they had been fined for crimes against the Communist regime. A 57-year-old woman wrote her son in San Francisco that she had been charged with underpaying the workmen who had built her house 25 years before.

                              The U.S. Chinese who paid soon received new demands and new threats. To the small merchants who received them, some of the requests were huge. A group of Honolulu businessmen with relatives in the Kwangtung village of Bucktoi got a frantic request for $20,000. Another Honolulu Chinese, who sent his father $3,000, was immediately asked for $5,000. He sent it, and got a request for $20,000. By that time he was broke.

                              Requests in the form of cables from Hong Kong signed by intermediaries were frankly blackmail. One sent to San Francisco read: "Grandfather fined $2,000 U.S. Remit money immediately or lifeless." A Boston Chinese was informed that his family was in a concentration camp—unless he paid, each member would be lashed by ropes to five horses and pulled apart. The extortion letters and cables were even sent to such places as Wichita, Kans., which has only 100 Chinese.

                              Month after month, Chinese-Americans kept the extortion racket secret, not only for fear of reprisals in China but for fear that the U.S. might act against them for giving aid to an enemy. But last week Chinese-American editors and organizations such as San Francisco's Six Companies were bringing Red China's threats into the open. They guessed that $500,000 had been squeezed from New York Chinese, hundreds of thousands more from other colonies all over the U.S. Dozens of new threats were arriving in every big city every day.

                              Sadly the Chinese leaders asked the U.S. for help, and instructed their countrymen to send no more money. Said a Chinese leader in Chicago: "There is only worry and trouble in our district tonight. You don't know what you're going to hear tomorrow. The Chinese are praying in their homes. Their only hope [now] is in prayer."

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