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May 30, 2005

Does the Future Belong to China?
by Hans F. Sennholz

"China is on a rising path and America welcomes the emergence of a strong and peaceful and prosperous China." This tactful remark by President Bush during his 2002 visit to Beijing undoubtedly reflects the thought and good will of many Americans. They are awed by what they believe to be the world's fastest growing economy of 1.3 billion people, four times America's population. Other Americans, however, are rather fearful of the Chinese transformation from a poor backward and stagnant country to a world power. They are pondering and wondering whether China is moving toward a peaceful democratic market order or merely from a moribund communistic system to a more energetic nationalistic or even fascistic system. If the new China is advancing along such paths, the future may merely be the troubled past again, entering through another gate.

The history of the People's Republic of China is a record of promises and disappointments, political turmoil and bloody purges, ideological indoctrination and confutation, economic blunders and painful shortages, and much conflict with its neighbors. It began in 1949 when, after a bloody civil war, Mao Zedong led his red army into Beijing and president Chiang Kaishek sought refuge in Taiwan. Mao reigned supreme until his passing in 1976, collectivizing agriculture, nationalizing industries, and launching one five-year program after another. In October 1950 he sent his armies into North Korea where they did battle with American and United Nations forces until 1953 when both sides agreed to an armistice. Chinese relations with the Soviet Union deteriorated soon thereafter. With the passing of Joseph Stalin in 1953 and the destalinization policies that followed in the USSR, growing ideological conflict began to divide the two countries. Under Stalin, the Soviet Union had been a model and faithful ally of the Mao regime; his successors terminated its aid and withdrew its technicians and scientists in 1960. Both sides then marshaled their armies in massive buildups along their borders. Occasional clashes added the perils of a monstrous war. The UN nevertheless welcomed China as a new member in 1971. President Nixon visited Beijing a few months later, hoping to normalize U.S.-Chinese relations. President Carter restored formal diplomatic relations in 1979.

Throughout the Mao era his interpretation of Marxism-Leninism provided the basic ideological guide for the Communist Party's revolutionary actions. He introduced "five-year plans" that established the economic objectives and priorities for the country. To make China an industrial power overnight he embarked upon The Great Leap Forward; it nationalized all industries which, under Party management, soon deteriorated despite heavy government investment. He collectivized agriculture, combining all farms in cooperatives and hence in vast rural communes. When acute food shortages soon gripped the country, a ration system was introduced. Famines nevertheless killed an estimated 30 million people from 1949 to 1951. Mao and his men had a ready explanation for the calamities: there were natural disasters such as floods and droughts, typhoons, insects, pests, plant diseases, hailstorms, frost, and, of course, there were "counter-revolutionary criminals." His administration reacted promptly and resolutely by prosecuting the criminals and by moving millions of people from Shanghai and other large cities to the hinterlands and placing them in the agricultural communes.

Wielding much power, Mao was fraught with knowledge and wisdom. He presided over the Communist Party which worked through the government structure, passing laws and regulations, and enforcing them relentlessly. Ever mindful of the power and danger of ideas and ideology, Mao immediately brought education under Party control. All schools and universities were taken over; Christian missions were expropriated. Teachers were put through "ideological remolding campaigns" that redirected them toward mass education and ideological conformity. Mao educators and propagandists even reached out to communist parties throughout Asia, Africa, and South and Central America.

The Great Leap Forward brought disintegration and death rather than a rush forward. Mao reacted with a new program, The Great Proletarian Cultural Revolution (1966-1976), which was a hardened ideological approach to internal and external problems. Designed to eradicate the deep roots of bourgeois ideology and wipe out the remaining vestiges of capitalism, it launched a campaign against prominent publicists, novelists, historians, and philosophers, in fact against all intellectuals. It was spearheaded by the Red Guard which was composed mostly of teen-agers and led by a few Mao favorites, including his wife. Their emphasis on ideological purity and vigorous class warfare brought new social turmoil and economic commotion.

In 1973, Mao, now 80 years of age,launched his final ideological campaign, mobilizing the masses not only against cultural relations and exchanges with the West but also against the teachings of Confucius, the Chinese sage of the 6th century B.C. Confucius and his many disciples created a popular system of ethical precepts for the proper management of society, a system that views man as a social creature bound to his fellowmen. Humanity, according to the precepts of Confusionism, finds expression through five peaceful ethical relations: sovereign and subject, parent and child, elder and younger brother, husband and wife, and friend and friend. Of these, the filial relation usually is paramount. Such ancient ethical relations obviously confute and impugn the communist doctrines of class struggle and war against bourgeois institutions, such as the family and religion. Many Chinese who are conversant with the teachings of Confucius found grievous fault with the law that limits families to one child. Loud protests and widespread infanticide finally forced the government to moderate the policy.

The death of Mao Zedong in 1976 ushered in a new phase of Chinese communism. The political and social conflicts of the Mao era gradually gave way to peaceful cooperation. A new pragmatic leadership embarked upon political and economic reforms that made way to market forces and economic development. They granted more freedom in many matters of economic production. But there is little relaxation of China's traditional authoritarian predisposition; it has guided the country since ancient times.

During decades of turmoil and disappearment the new Party leaders had learned to distinguish between fact and fiction, good and evil. Determined to focus on facts and reality rather than ideology, the Central Committee of the Communist Party in 1978 transferred much power to regional managers, reorganized many facilities of production, and allowed privately owned companies to lead the way. Above all, it opened China to foreign investment and trade. A year later several coastal cities were designated "special economic zones," to draw foreign investment, trade, and technology. Most agricultural communes and collective farms were "decollectivized," which led to a dramatic increase in output.

In 1982 a new constitution upheld the supremacy of the Communist Party and strengthened its governing capacity but unexpectedly also proclaimed that " a citizen's lawful private property is inviolable." It eliminated several thousand local government units and made way for a rapid development in urban areas. The reforms soon gave rise to small-scale industries and development of a service industry. Millions of people left agriculture, which had offered subsistence to many during the 1950s and 1960s, to partake of the rapid progress in urban areas and the transition to a mixed economy.

The rate of economic development has surprised many observers. Annual gross national product (GNP) reportedly is approaching $1.5 trillion and per capita production $1,200. "It cannot last. The Chinese economy will crash," many forewarn. They are aware that many Chinese companies are partially state-owned, government-funded, and publicly favored. Many produce only for local markets because they cannot compete internationally. Surely, every such mixed system is bound to suffer malinvestments that, sooner or later, need to be corrected or abandoned. Suffering crashes that shed light on the maladjustment and needed readjustment, it undoubtedly is more productive than the commune and command system, which tolerates no light coming from the market order.

The rate of Chinese economic development, as calculated and publicized by the authorities, gives rise to much admiration and applause all over the world. It unfortunately obscures the simple fact that a given investment yields much greater rates of return in a primitive economy than in one that is very productive. A million-dollar investment in a poor workshop may increase the productivity of its workers manyfold; the same investment in an American manufacturing plant may merely reduce the noise level. The workshop owner even may borrow the investment fund from the manufacturer and then use his latest technology and know-how to modernize the workshop. It took many generations of entrepreneurs to build the manufacturing plant and many generations of scientists and inventors to create modern technology, but it may only take a few years to copy it all. Western capitalists and entrepreneurs may even give a helping hand and American universities may train the computer operators. At the present, some 20,000 Chinese students, most of whom seek engineering degrees, are studying in the United States. Unfortunately, it is unlikely that the leaders of the People's Republic of China will for long recall the foreign capital and technology that ushered in their new age and raised all levels of living. Gratitude may be the poor man's payment; it is a painful thing to bear in politics.

In 1989 Chinese relations with the West suddenly were overshadowed when the people's Liberation Army massacred several hundred demonstrators in Tiananmen Square in Beijing. Daily demonstrations of more than one million people during Soviet President Mikihail Gorbachev's visit were receiving worldwide live television coverage and inciting the wrath of the Politburo. The people were demonstrating about rampant inflation and the visible growth of corruption at every level and in every sector of Party government; thousands of young students were leading the protests. The carnage brought China's budding democratic movement to a bloody end. By the end of the summer some 20,000 dissidents had been arrested and detained nationally; the number of executions remained unreported.

The Western world was horrified by the massacre. Many countries imposed political and economic sanctions on China, suspending high-level contacts and freezing credits to the regime. Even the UN Human Rights Commission passed a censure resolution, the first ever brought against a permanent member of the UN Security Council. President George Bush reluctantly blocked arms sales to China, but Congress passed its own package of sanctions against the People's Republic.

Much productive capital nevertheless continues to find its way from the developed countries and especially from the United States to China. At this time, the Bank of America, the country's second-largest bank, is about to invest heavily in China Construction Bank, one of China's big four state banks. Many other private banks all over the world are attracted by the country's great potential. But they are not allowed to own more than 25 percent of a Chinese bank and occupy more than one or two seats on a bank board. Capital always moves to places where it is secure and productive; it tends to move until its return no longer warrants the move, that is, until the returns everywhere are equal. Surely, most business capital consists of immobile means and facilities of production. But they wear out and need to be replaced which affords a great measure of mobility. The old factory may be closed, the workers laid off, and the replacement factory with the latest technology may be built abroad. It will raise labor productivity wherever it goes and depress it wherever it leaves. It is a powerful force toward equalization of working conditions and levels of living throughout the world. According to official statistics, it raises Chinese gross national product at a nine percent annual rate and causes the industries of old industrial countries to stagnate or even decline.

Most observers may view this tendency as desirable redistribution of income and wealth and consequently as an important factor of international peace and harmony. Economists look with favor on the equalization process. But they often overlook the political forces that are likely to disrupt and ultimately hamper capital mobility. In the din of labor criticism and opposition a country that is losing business capital is likely to impose capital restrictions and erect trade barriers that are designed to hamper and even prevent the movement of capital. Such policies obviously cause much international agitation, irritation, and confrontation. In the end, politicos everywhere may wage economic wars of retaliation which cause business capital to seek safe havens rather than highest productivity and return.

A growing point of contention and confrontation is China's monetary policy. The bank of China is maintaining a decade-old exchange rate of 8.28 yuan to the U.S. dollar, which apparently undervalues the yuan while it overvalues the dollar. No matter how the Federal Reserve System inflates and depreciates the dollar, Chinese monetary authorities are keeping in step with the Fed. Chinese authorities obviously like exchange rate stability which has enabled the Chinese economy to adjust to the world market and expand in an orderly fashion. But the world economy is rather unstable. The United States is suffering huge trade deficits which are rising continually; according to Organization for Economic Cooperation and Development (OECD) estimates, they may reach $900 billion or 6.7% of US GDP in 2006. The risk of a monetary disaster surely is rising steadily.

Many Americans are quick to lay the blame on the doorsteps of China; the Chinese naturally find fault with American money managers. They may point out that the American trade deficits, which have flooded the world with American dollars, are the inevitable consequence of Federal Reserve monetary policy. To lower interest rates far below market rates is to increase the demand for money. While such a policy would devastate a national currency, it merely floods the world with the primary world currency, the U.S. dollar. Adjustments to global imbalances are rather slow, but they are bound to come. Asian central banks in particular are inundated with American IOUs, holding some 60 percent of all international dollar reserves. If they should decide to unload their reserves and move into euros or any other currency, the dollar would crash, that is, suddenly lose a large share of its international value. It would inflict instant losses on all dollar holders, upset all bond and stock markets, and depress the world economy. The two biggest dollar holders and creditors, Japan and China, would be the biggest losers, which undoubtedly makes them fearful and reluctant to initiate any unloading and dumping of their dollars. A Japanese or Chinese government that means to strike the United States for any reason could easily trigger the dumping. The crash would be heard around the globe and the effects be felt worldwide.

Economic wars tend to prevent capital from finding productive employment; they may even consume it, causing labor productivity and levels of living to stagnate or even decline. Such wars harbor a danger far greater yet than simple retaliation and economic depression. They may trigger bloody wars between the retaliating parties. Surely, most Western countries are rather hesitant and slow in striking at their neighbors; it takes a majority of political representatives to declare and wage war. But China is no democracy; it is led by a handful of party autocrats who command the largest army in the world. They possess an armory of atomic weapons since 1967 and know how to send intercontinental missiles on their way since 1970. To aggrieve them with painful trade restrictions and sudden withdrawals of business capital may have ominous consequences. Moreover, they harbor an old grievance in the form of the U.S. military alliance with a secessionist part of China, the island of Taiwan. This old hurt together with new economic injuries inflicted by American trade restrictions could strain and ultimately exhaust the patience of the autocrats. In reaction they may shape the history of the 21st century.

There are a few Americans - chiefly political scientists and military officials - who are sounding the alarm about the Chinese threat. They are speaking largely in political and military terms. China is gradually expanding its military might, purchasing modern equipment from Russia, although the amount of arms spending merely is a fraction of the Pentagon's annual defense budget. But these amounts may change quickly; they are determined by a few autocrats in Beijing. Some political scientists are dismayed especially by the total supremacy of the Chinese Communist Party together with the long Chinese tradition of autocratic rule. In 2004 the People's National Congress, while it made minor concessions to the market order, expressly confirmed the fundamental principles of Chinese power: the leadership of the Communist Party, the people's dictatorship, the socialist road, and Marxian-Leninist-Mao teaching. Few American observers are alarmed by such proclamations.

Communist power has meant bloody terrorism, deadly purges, lethal prison, forced labor and mass executions. According to some estimates, from 1917 to 1976, global communism has taken the lives of some 110 million people, which compares with 35 million killed in all 20th century wars from World War I and II to the Korean and Vietnamese Wars. Fighting "exploitation" and "imperialism", communist regimes have purged capitalists, the rich and the landlords, intellectuals and clergymen, the rightists, tyrants, and counterrevolutionaries.

Marxism-Leninism is alive and well not only in China but also in North Korea, Vietnam, Laos, some African countries, Cuba, and in the minds of many South and Central American politicians and revolutionaries. It pollutes the minds of many European and American academics, intellectuals, and politicians. Its terminology may differ from language to language and may change over time, but its arguments about "class struggle" turn up again and again in many political and economic discussions. In China, the Communist Party with some 50 million members presently seems to be divided about its calling and direction. Some Party leaders favor the new direction toward rapid improvement in productivity and accumulation of national wealth while others are actively promoting old policies designed to achieve fair distribution of all income and wealth. Some seek to maintain a good relationship with the United States and its Asian neighbors; others emphasize the importance of national power and military might. They all are faithful students of Marxism-Leninism-Maoism, always ready to follow the party line. When provoked, they may seize the foreign capital that found its way to China in recent years. Closing ranks again, they may want to lead the proletariat of the world to sweep away capitalism and point the way to "the dictatorship of the proletariat." Indeed, they may become the greatest threat ever faced by the West.

Hans F. Sennholz
www.sennholz.com

Copyright © 2002-2007 Hans F. Sennholz

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