China: Looking to the Future

Amid world tensions, are there good news stories?

== China’s Syndrome? ==

transformation-bustInvestment maven John Mauldin’s Thoughts from the Frontline: Ttransformation or Bust looks at China’s economy: “…there are no cases in modern history where an economy has managed to avoid an outright bust after experiencing rapid lending growth anywhere in the neighborhood of China’s ongoing credit boom.”

Mauldin continues: “The more I dig into the data, the more convinced I become that Xi Jinping and his colleagues in Beijing are facing an impossible challenge. After fueling one of the single greatest credit booms in modern history, the People’s Republic is left with a mountain of bad debt backing a number of overleveraged industries that are simply not viable without the state’s continued favor.” And: “While China does boast substantial buffers that can – at least in theory – allow it to paper over bad loans for another few years or resist the pressure of foreign capital outflows for a time, those buffers cannot protect China indefinitely. The longer the People’s Republic continues down the path of low-quality credit growth and widespread misallocation, the bigger the bubble will become. China may suffer one of the defining economic crises of our lifetimes.”

China-economyDoes this mean to be bearish on China? Of course not. In the 32 years since Deng Xiao Peng initiated the reforms that led to a spectacular development boom, more human beings have been lifted out of poverty than ever before. China’s new infrastructure is spectacular, especially in comparison to the decaying and underfunded, penny-wise neglect of America’s once-proud capital base. China’s education levels are skyrocketing and – the most encouraging development of all – science fiction is starting to take some real hold over there.

Two factors that receive far too little notice… that it was willing U.S. policy to allow three decades of trade deficits to enrich China — foreign aid through WalMart. See: How the U.S. saved the world by buying vast amounts of stuff. Probably the most generously helpful policy ever enacted by a great power, in the history of our species…

Intellectual-Property…that, plus turning a mostly blind eye to the hand-over-fist grab-theft of nearly all the crown jewels of American industrial Intellectual Property. (We need to recall that we were IP thieves, during our own early development; but still, this flagrant raid must stop. It kills the goose that lays the golden eggs that China relies upon.)

==Fighting Corruption==

So what are the prospects? Under President Xi Jinping, the Chinese Communist Party appears to be engaged in a major anti-corruption drive, using the “Central Commission for Discipline Inspection” to perform stings on bribed or shady party officials and then hand them over to state authorities. If this effort is sincere and vigorous, that is all very well and laudable…

fighting-corruption…and it has no bearing on the real way to eliminate corruption, which is liberating people to competitively apply transparency — reciprocal accountability — both laterally and from below.

Yes, yes, it is obvious why Xi and his cohorts — who are human, after all — will do what human rulers almost always do, and that is “solve” problems by top-down command. Indeed, sometimes it works. But then what? Something has always happened, after every Lorenzo di Medici, or Marcus Aurelius, or the first Tang or first Ming Emperors. After that initial burst of reform, top down systems always become spectacularly corrupt again.

east-westSome time ago, it looked as if the Chinese leadership was determined to leverage the ‘best possible’ combination of western and eastern methods, retaining hierarchical command control in the top tiers of governance, while allowing western methods of transparency and citizen-based accountability to root out inefficiencies and corruption down at the local and city and provincial level, where it does its worst harm to both average citizens and the economy.

I saw hints of this approach and squinted into the future, hoping I would hear Chinese leaders say something that is far from ideal (from a moral or righteous perspective) but that is at least smart and practical:

“We must retain single party control for at least another generation, in order to preserve stability during an era of rapid change. (Subtext: and also to preserve our grip on top-power in a traditional Chinese pyramid; we are, after all, human.)

citizenship-accountability“BUT, in order to maximize progress, efficiency and happiness, we will unleash citizen accountability upon all officials at the city and corporate level. People may record their interactions with officials. Moreover, the press is encouraged to publish exposés…

“… so long as the light STOPS at the district level. We will take it from there.

 “Only… district officials are warned. In ten years citizen accountability will rise to that level, so get ready! And ten years after that, this rule of openness will rise to the provincial level. So start preparing now, and stay clean enough to survive, when that happens.”

China-globalWould this create a dicey situation… the people may get that confrontational habit and try to pick up the pace! But the benefits — eliminating 90% of all corruption and waste — would be worth taking the risk.

That is what a Marcus Aurelius or Tang Emperor would have done, if they were truly wise. But wisdom, among human leaders, is as scarce as walking, talking dinosaurs.

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