THE CHINESE ECONOMY; SUPERDRAGON

There’s a logic to China that would make a fiction writer cringe. The huge advances of the last decade have come against the most appalling history. Chinese economic history since the fall of the Qing Dynasty until recently has been one of the great horror stories of all time. After Dr. Sun’s revolution, the nation fragmented so badly that the economy, outside the foreign concessions, fell to pieces. The Kuomintang, the supposed “successors” to Dr. Sun, were even worse managers. By the time of the Japanese invasion China had made even Germany’s maimed economy during the Depression look healthy. During the war and before the Communist takeover, China’s economic strength consisted largely of American loans, and related corrupt incomes.

The next phase was another exercise in human misery. The Great Leap Forward Over The Nearest Available Cliff was arguably the single greatest collection of the worst economic policies of human history, futile in a sense the word was never intended to describe. The scatterbrained, ideologically perverted economics virtually ruined China, yet again. The only good thing that came out of this socioeconomic dance of death was the recognition of total failure, long overdue, but convincing.

Ironically, the original intention of the revolution which overthrew the Qing had been to modernize China, and restore some dignity and credibility to Asia’s biggest geriatric case. This underlying theme, buried under the cynical politics and endless corruption of the following seventy years, had never really gone away. Even those so enthusiastically destroying China had spouted the doctrine. The Japanese had done it, why not China? The Chinese had a terrible economic legacy from the decades of suffering and neglect. Ridiculously out of date industries, technologies, infrastructure, virtually the entire inventory of a modern economic state, were missing. While Japan boomed, China’s murderously heavy load of problems was being dealt with.

Fortunately for China, its most useful, and reliable, resource is historically its people. Offshore, Taiwan rested in its doze of Kuomintang senility. Its industries were too small to compete with Japan on the same scale, but they were modern, and highly productive. Costs were tough, and competing with the super efficient Japanese boiled down to cost. Simple solution: they could produce far more cheaply in China, and bring their modern methods with them. For once, politics wasn’t an obstacle. The reality was that China had to modernize, or die. Taiwan was a garden gnome, compared to Japan, headed for oblivion. There were no choices. Taiwanese industry moved to China, en masse.

Other highly successful overseas Chinese businesses had also retained ties with the mainland, as had some of the most effective businessmen in Asia, in Hong Kong and elsewhere. The new cost effective industrial capacity attracted them rapidly. The recipe for some true economic expansion, the first real boom seen in China in the 20^th century, was complete.

A further factor was that government was now run by educated people, not peasant soldiers or the highly reactive factional whims of the past. Policy could now be made, not just read about in the People’s Daily. Economic policy was considered, and, finally, realistically organized.

The Big Boom began. The cost factor appealed to a lot of manufacturers, and the quality of product was excellent. Even the electronic market, overwhelmingly dominated by the Japanese, was soon penetrated. The Japanese, also realists, soon bought in to this massive latent production capacity, followed by the Americans and Europeans.

The effect on China was to introduce gigantic amounts of capital, on a scale the PRC had never seen before. This capital was harnessed to ridding the nation of the quaint, but utterly useless, vestiges of a domestic infrastructure destroyed by dismal management over the preceding decades. It was also, very importantly, used to reinforce the social mechanisms for training and employing the Little Emperor generation, the first under the One Child Policy.

For sociology buffs, this is fascinating stuff, because the biggest population on Earth produced a whole middle class, virtually overnight. Global industry, wed to China, produced this effect in a society which was dirt poor a generation earlier. The Little Emperors have no concept of the ragged, threadbare China of the past, and wouldn’t be too inclined to return to it. As true social revolutions go, this tops them all.

Interestingly, while all this was happening, the world’s perception of China remained strangely primitive. The return of Hong Kong was more than symbolic, it was economically vital. The West, ignorant as usual, saw it as politics. There was one bit of farce when Deng threatened Thatcher to turn the place into a cinder rather than allow the colony to remain British. This was seen as the old Communist brute throwing its weight around at the time.

The usual superficial, simplistic, view of China remained the accepted perspective, even in government circles. The Chinese had no intention of losing such a valuable asset, a city which was an economic power in its own right, handling more capital than the entire economies of some of China’s neighbors. The Chinese didn’t need a heap of ashes, they needed Hong Kong, in working order.

Those who were paying attention at the time will remember that all these histrionics had no effect whatsoever on business inside or outside China. Foreigners can easily misinterpret the complexities of China, and usually do. This was real national interest, and nothing else. Hong Kong was and will be an ancestral powerhouse of the advanced Chinese fiscal economy.

ENTER THE SUPERDRAGON

The foreign view of China is dangerously inadequate. China is a complex place, the associations between individuals, let alone formal power groupings, aren’t simple, and can change. Politically, it’s no simpler, and it’s far more advanced now than it was twenty years ago. The much more moderate form of government is tasked with handling what will soon enough be the largest economy on Earth, in many respects. All the old bets are off. China’s “obsession” with Taiwan is an issue which relates to national status, not necessarily hard headed decision making. Rhetoric is rarely the basis of actions. The first baby steps of the Superdragon are being guided carefully.

They have good reason to be careful. China’s 20^th century economy had a history of horrendous management. Any Chinese could say with certainty what would happen if the wheels fall off, and it wouldn’t be pretty. In recent years there is a litany of very blunt, unequivocal cautions from the central government regarding out of control loans, and other basic domestic fiscal mechanisms.

In practice, the government is trying, hard, to maintain the necessary levels of growth and redevelopment to sustain the massive size of an economy which already dwarfs most nations on Earth. Seasonally, commodity prices are affected as the current range of policies and prices is negotiated after the regular policy reviews. China is now benefiting from the sort of capital inertia which created the postwar United States. That process, in a Chinese domestic context, equates to maintaining momentum. Like a bicycle rider, if you stop pedaling, while going up a rather steep hill…

For example, there’s a new policy to develop a good domestic consumer economy. This was announced in 2006, and received little or no attention from the global business community. The only notable comment came from someone surprised at the tangentially related idea of a new Chinese DVD player. Once again, the “Inscrutable” China, largely because some people seem to be too lazy to scrutinize properly, and regularly.

I can tell you from experience as a Sinophile that China-watching never gets dull. It’s fascinating, though, to watch the uninformed, shallow reactions to the breezes that blow through the Chinese economy these days. There’s even been a ludicrous effort to attach the mythologies of Wall Street on to the new Chinese equity markets, as if they were even vaguely related.

Chinese equity investors move in and out of markets in Asia, Australia, and Japan like schools of barracuda at full speed. They’ve been doing that for decades, and have moved into foreign markets at roughly the same velocity, with big money. A big move in Chinese stock prices is as likely to mean that they’ve found somewhere more profitable, as any other reason. The recent automatic rebound in Shanghai is an indicator of how fast this sort of money can move when it feels like it.

They don’t have to hold money onshore, and they don’t. They are not obliged to follow “market trends” because they’ve got enough capital to drive market trends. The best analogy would be standing on a Formula 1 racetrack trying to figure out what the cars are doing. If you get run over, it’s your own fault. The Chinese capital is not being handled by sheep.

The Superdragon isn’t wearing a Western suit, and isn’t a Japanese clone. It will always be a distinct individual. China was one of the oldest and most advanced nations on Earth for most of recorded history. It was a very uncharacteristic insularity that destroyed their old, highly advanced, dynamic, society, and that society was based on trade. Trade with China was one of the earliest forms of globalization, in the form of the Silk Road. During that period the Chinese imported and developed much foreign technology, and on an economic scale would have been the rough equivalent of the United States. Only the original Islamic civilization ever approached China technically, until the European expansion during the colonial period.

China will be China. If there’s ever a Chinese democracy, it will be a Chinese democracy, not an import. The Chinese are easily as thematic as the Americans in terms of China The Beautiful, and rightly proud of their achievements. China has come out of its long nightmarish slumber, and is feeling much better, thank you. This is their original dream come true, and nobody’s going to take it away from them.

They’re not blind to their defects, and not as insular as their old societies were. The greatest possible underestimation would be that they won’t learn from others and develop and improve what they learn. Chinese society comes in many forms, some trivial Westernizations, some mere consumer foibles, and a few largely cosmetic adoptions of other cultural values. The Superdragon wears a bit of seaweed occasionally, but it’s no more than that.

Look and learn. Research and think. China is perfectly capable of lifting the entire human race out of the gutter. We stand to make the same mistake their ancestral society did, not learning from a wave sweeping the world.