China: Superpower or Basket Case?

China as an “emerging superpower” makes for a compelling story line in the media. It is reinforced by the propaganda image that the current Chinese leadership would like us to accept. But the reality is quite different. Although recent events in Tibet and western China – and the central government’s response – appear to be generating pro-government patriotic feelings, they dramatically display the practical limits of the government’s power. Other sources of unhappiness with the regime, including income disparities and the inevitable collapse of unsustainable price controls on fuel and food, could breed both urban and rural discontent that has no ready outlet besides unlawful opposition to the government.

Meanwhile, the West, in its fixation on its own economic difficulties in comparison to the Chinese “juggernaut,” is neglecting to prepare for equally likely “weak China” contingencies. Just as we failed to predict and prepare for the implosion of the Japanese economy and the collapse of the Soviet Union, we appear unready for a dramatic economic and political reversal in China that would be a defining event of the 21st Century.

China is in every sense a world under construction, with the physical, social, economic, legal, and institutional blueprints being drawn and revised daily as the construction proceeds. The depth and scale of the transformation taking place in every dimension of Chinese social, economic, and political life is difficult even for the most knowledgeable observers to comprehend. With luck, this great experiment can be one of the most successful developments in human history. If it fails, the consequences for China and for the rest of us could be tragic, and possibly catastrophic.

Wow/Not Wow

As the U.S. economy slips into recession, the American media are filled with impressive-sounding statistics about Chinese economic, social, and military progress. The implicit or explicit tag line is: “Wow!” For example:

Beijing has three million vehicles and is adding 1,000 cars a day to its already grid-locked streets –Wow! In fact, the Beijing metro area of 16,000 square kilometers, with a permanent population of almost 13 million (plus another 4 million “transient” residents), has about three million vehicles. The Los Angeles metro area, with a similar population but one-quarter the area, has over seven million vehicles. Nationally, China has 22 vehicles per 1,000 people, while the United States has 764 vehicles per 1,000. The Beijing gridlock reflects the serious lack of transportation infrastructure, not a large number of vehicles, and the three new subway lines opening this summer will hardly make a dent in this deficiency.

China is the world’s third-largest economy and has been growing consistently at 10% per year for more than a decade – Wow! In fact, China’s Gross Domestic Product (GDP) of $3.8 trillion, for 1.5 billion people, is less than one-fourth the $13.2 trillion U.S. economy, for 300 million people. (The European Union has a GDP almost five times that of China’s with one third the population.) Based on energy consumption and other indicators, China’s longer-term growth rate is probably more like 6% per year, according to MIT economist Lester Thurow. Or, if environmental degradation is included in the calculations, China has essentially no net growth, according to World Bank Reports and statements the senior officials in the Chinese Ministry of Environment. Even assuming that the claimed 10% rate could continue uninterrupted indefinitely from China’s small economic base, China would just catch up with the United States in GDP in about 20 years – but not nearly approach the United States in GDP per capita. The gap between the average Western citizen and the average Chinese citizen will not close for the indefinite future.

China’s consumption of oil is responsible for about one-third of the increase in demand in recent years (and it is also consuming enormous amounts of iron, aluminum, cement, etc.) – Wow! In fact, China consumes about 9% of total global oil consumption, which compares to U.S. consumption of about 25% of the global total and over 10 times the Chinese per-capita consumption. Unquestionably the increase in consumption of oil and other natural resources by China, India, and other developing countries is raising demand more rapidly than supply, and probably more than the planet can deliver for long (even with more dramatic price increases). But the world’s growing resource consumption would hardly be sustainable even without China’s growing demand.

Of course the American media coverage is not all pure “wow!” Longer articles often embed the dramatic statistics in discussions of China’s fundamental problems, which are legion. The disparity in income distribution exceeds even that of the United States, the government provides virtually nothing in the way of a social safety net, and most people have minimal access to health care. Its cities are choking on air pollution, and water is in short supply and unsafe to drink. But even the “balanced” articles often leave the impression that these problems are merely social welfare matters that do not fundamentally impinge on China’s “superpower” status.

More scholarly works have also endorsed the “emerging superpower” image – perhaps in the hope that a catchy title will attract the necessary public attention to sell books and ideas. A valuable book of mostly economic analysis and statistics produced jointly by the Center for Strategic and International Studies and the Institute for International Economics, China: The Balance Sheet, carries a cover line, “What the WORLD needs to know now about the emerging SUPERPOWER.” An article by G. John Ikenberry in the January/February 2008 issue of Foreign Affairs describes China as “on the way to becoming a formidable global power.” Even Sinologist Susan Shirk’s generally very thoughtful book on China and American foreign policy, China – Fragile Superpower, assumes that the country is a superpower and must be dealt with accordingly.

Inherent Weakness

It may not make such interesting reading to say that China is slowly emerging out of feudalism and desperately hopes to use the fruits of Western technology to pull its people away from the edge of starvation, at least for a few decades. And it is extraordinarily difficult to quantify the real economic limitations imposed by China’s environmental and natural resource deficiencies. But these concerns are rarely given serious consideration as real constraints on China’s future development. Equally important, the international policy consequences of a faltering China are not being seriously discussed or explored.

The reality is that the Chinese “Communist” central government and Chinese economic, social, political, and legal institutions are quite weak. China is ineffectually governed. It will be struggling for decades to get and stay beyond subsistence. It has built an export-dependent economy ill-suited to meeting its domestic needs, and it will shortly face insurmountable environmental and natural resource obstacles to its rapid growth. The central government has succeeded in unleashing the entrepreneurial, profit-driven economic engine, but it is unable to apply any brakes – that is, to address effectively any of the adverse effects of the single-minded focus on profit. The leadership claims that it recognizes the corrosive economic and social consequences of the current situation and is taking remedial actions. Even if it were seriously committed to these policies as a high priority, the government lacks the mechanisms to rein in the runaway horse.

China has satisfactory national laws about minimum wages and hours, child labor, food and other product safety, worker safety, intellectual property, and air and water pollution. But the central government has not effectively empowered judges and prosecutors to enforce these laws, because they are controlled by provincial and local party leaders. These officials, who often benefit personally or professionally from the success of local profit-making enterprises, are rarely inclined toward enforcement.

China’s urban transformation is creating a need for a new government-managed social welfare system that disburses retirement, disability, unemployment, and child welfare benefits – functions formerly handled by the now-diluted extended family. This traditional culture is rapidly collapsing in the newly mobile, urban society.

The supposedly all-powerful central government is unable even to end its substantial subsidies of gasoline, electricity, and water consumption – for the same reasons the U.S. government is unable to raise gasoline taxes or end the mortgage interest deduction. Both fear strong popular opposition. Meanwhile, the dramatic increase in wealth has created more opportunities and incentives for corruption. The high visibility of some of this corruption – poorly-compensated expropriations of private property to help developers, for example – is creating an increasing public backlash.

The current Tibet conflict does not threaten the government domestically. But it shows how quickly events can get out of control in a globally linked media world and when there are no opportunities in China for democratic participation to absorb the energy of the dissatisfied. More threatening to the regime in this situation is public unhappiness with internal economic decisions. Though less publicized internationally, recent events like the unauthorized rallies in Shanghai in opposition to a new rail line in a middle class residential neighborhood, organized through Internet and cell phone messaging, and the demand for public hearings about the PX chemical plant in Xiamen, show the risks of decision-making without mechanisms for public participation.

The popular “emerging superpower” picture in our media mostly takes at face value the central government’s assertions about the success of its governance. The government claims primary credit for the “economic miracle” and the dramatic transformation of Beijing, Shanghai, and other major cities. It asserts that all of the country’s environmental, social, and economic problems are manageable, and that it controls everything that happens in China. The government may indeed be able to lock up or kill off several thousand dissidents (a comparatively easy task logistically, though recent events in Tibet have shown that there is still a significant domestic and international cost). But that is a much easier task than designing and implementing necessary modern economic, regulatory, and social welfare institutions and programs in a society that has almost none. So far it has not demonstrated real success in those arenas.

China is big in almost every dimension, and its international influence has been increasing, as one would expect of a society comprising one-quarter of the world’s people. But does that make it a “superpower”? Or even a “power”? What exactly is the “power” of 500 million near-subsistence farmers who mostly lack substantial electricity, safe drinking water, and indoor plumbing, and whose education consists largely of the ability to write and read a few prescribed texts? How much “power” is gained by adding in another 500 million educated city-dwellers with Western consumer aspirations who may well be living in economically and ecologically unsustainable Potemkin Villages? Balanced against its very real difficulties, China’s capabilities are certainly not as great as they are often portrayed.

Military Ambitions?

China is expanding its military spending and technical capabilities, but it is hardly a global threat in any rational context. The Pentagon estimates 2006 Chinese military spending at less than $90 billion; most other estimates are lower. Compare that amount to the $440 billion FY 2007 appropriation for U.S. military spending, not counting $50 billion for Iraq and Afghanistan. The growth in the Chinese military budget more likely reflects the Communist Party’s need to buy the army’s loyalty, rather than any imperialist military ambitions. Chinese civilian worker productivity is about 4% of American worker productivity, and a roughly similar productivity ratio probably applies to its military machine as well. Against the combined U.S., Japanese, and Taiwanese military forces, any military venture would be nothing less than a catastrophe for China.

This military balance against China severely limits any rational military ambitions. China’s only active military focus grows out of its adamant opposition to Taiwan’s independence, an issue that appears likely to recede as a result of this year’s elections in Taiwan. China certainly wants enough military capability to make its threat of military action credible to Taiwan, the United States, and Japan. The Chinese tradition of military strategy is built around outwitting and outmaneuvering the enemy, not applying overwhelming brute force.

For that purpose the appearance of strength is important, but the actual use of force would reflect a strategic failure. Worse, any serious, long-term military engagement could easily create just the kind of domestic economic dislocations and shortages that, after the initial burst of patriotic enthusiasm, would feed social and political dissatisfaction, which the regime rightly fears most. The months-long adverse consequences of last winter’s blizzard show the true vulnerability of China’s economic structure.

Economic Power?

China’s economic “power” is significantly less than the often-quoted statistics suggest. U.S. industrial imports from China amounted to less than 3% of the U.S. GDP in 2006 (up from less than 0.5% of GDP in 1993). The standard statistics on U.S.-China trade volume vastly overstate China’s economic benefit. Only about one-third of the nominal value of China’s exports reflects goods actually manufactured in China. China is still largely an assembler, and most of the components come from abroad. China’s manufacturing is heavily dependent on imports of components, raw materials, energy supplies, intellectual property, and financial and other management skills, which all result in economic outflows.

Moreover, a significant part of China’s current price competitiveness has grown out of its postponement of the costs of safe and sustainable management of its natural and human resources. Recent indications are that some of these postponed costs are coming due. The government is already spending billions of yuan (directly and by ordered closures) to dismantle environmentally unredeemable manufacturing facilities in time for the Olympics. More billions are being invested to divert water from agricultural uses to supply the growing cities of dry northern China.

Thus the much-discussed financial reserves China has accumulated are mostly offset by real-world social welfare and environmental debits to repair and maintain their human and natural resources. And the value of China’s international reserves, mostly invested in declining U.S. dollar paper assets, depends almost entirely on the economic viability of the United States, the EU, and Japan. China was apparently a significant loser in the U.S. subprime mortgage collapse, though the actual amounts have not been revealed. This dependency deprives China of the kind of independent economic power of Saudi Arabia or Russia, which control substantial physical resources.

International political power is largely derived from the world’s perception of a nation’s independent military and economic resources, and its willingness to invest them – and risk them – in order to change the behavior of other nations. Thus China’s international political influence depends in significant part on what the Chinese government says, and what we believe, about its capabilities and intentions. Though it would like the West to believe otherwise, China cannot afford to risk significant military or economic resources in international political competition.

The Real Threat

In light of these realities, the West is overly focused on the Chinese “emerging superpower” threat and giving far too little attention to the real risks and foreign policy challenges that would flow from a serious breakdown in Chinese economic, political, or social structures. A crisis might be triggered by any number of factors. A dramatic slowdown in the Chinese or world economy could disrupt the lives of millions of factory workers. Serious rationing of water, food, or energy, whether by dramatic price increases or some other mechanism, could be unacceptably painful for a large part of the population. The loss of individual savings from a stock market or banking collapse could fuel popular discontent among the new urban elite. Even with continuing economic progress, widening income disparities could generate increasingly serious opposition in rural areas. A widespread farmers’ strike might cut off food to the urban centers, leaving them in a state of chaos.

Systemic crisis could then lead to an open challenge to the regime. Here are two scenarios to consider. In one, students, factory workers, and peasants gather again in Tiananmen Square to protest economic conditions and perceived political non-responsiveness. When urban professionals start to join them, the central government calls in the army. It begins a brutal campaign of violently repressing demonstrators, arresting domestic and foreign media representatives, and purging uncooperative members of the Party and civilian government, entirely disregarding the legal system. The demonstrations do not stop, and various groups ask for outside help to protect foreign residents and foreign investment and to end the wholesale disregard of human rights. Overseas Chinese and major U.S. banks and corporations with investments and supply lines at stake argue that the situation is too dangerous to ignore.

In the second scenario, the central government’s inability to control the economy or cure the country’s problems becomes increasingly obvious. The educated, urbanized residents of Shanghai and the urbanized areas around Hong Kong increase control over their regional governing systems, perhaps through more democratized Party elections, and disregard Beijing’s directives. Taiwan offers economic and technical assistance to these areas, with the aim of creating more of a “one China, many systems” environment. In response, the Chinese military threatens to impose military rule on Shanghai and Hong Kong, and to recapture Taiwan. The new local leaders ask for help from Taiwan and other nations to avoid the bloodbath, economic disruption, danger to U.S. and other foreign citizens, and destruction of foreign investment property that will inevitably result if no one comes to their aid.

Responding to Chinese Instability

Some American hardliners may believe that the United States should encourage crisis and regime collapse in China. However, nothing in Chinese history, or in the history of revolutions and coups almost anywhere, gives any reason to believe that a collapse or violent change in Chinese leadership would be followed by a more stable, more reliable, more democratic, or more cooperative international actor than the current central government. The tragedies of the French revolution, the Russian revolution, the post-World War II coups in Eastern Europe, and the Chinese cultural revolution are far better indicators of what might come next if faltering economic progress or other stresses of transformation become unmanageable.

In our globalized economic world, the West could not simply sit back and smile as China disintegrates. Chaos in China is far more threatening, economically, politically, and militarily, to the United States and the world than China’s current “peaceful rise.” Both for China’s sake and our own, we must help the Chinese succeed in their transition to a 21st-century economy and society. Being better prepared for possible failures along the way is an essential component of planning for and realizing that goal. Western leadership needs to think now about how it would rank and balance various potentially conflicting objectives, including protecting diplomats and foreign citizens, salvaging Western investments, ensuring the stability of the global economy, protecting human rights, avoiding unpredictable military action and reaction, and maintaining civil relations with those who claim to be in power in Beijing.

The West needs to act immediately and more vigorously to help strengthen Chinese civil institutions, recognizing the continuing imperative of the Chinese government to show improvements in its domestic economic and social structures. The 2007 Party Congress was filled with rhetoric about “democracy.” But real democracy – the broad diffusion of power beyond the Party and its attendant government bureaucracies, to independent legal institutions, media, and non-government organizations – will only be implemented if it is seen as a means of promoting social harmony and strengthening the authority of national laws over local corruption and opportunism. Arguments that China should expand individual human rights as an independent moral objective are unlikely to motivate the central government. Rather, the central government should be persuaded to decentralize power and create a diverse civil society to create the social resilience, adaptability, and sense of participation that will enable it to survive through the coming storms. The current Tibet controversy, because it is perceived by most Chinese as an ungrateful challenge to territorial integrity, is only a shadow of what may lie ahead.

Finally, we must also prepare for the worst. First, our foreign policy and military planners must develop and publicly discuss contingency plans for the consequences of a dramatic setback in Chinese economic growth and resulting breakdowns in domestic order. Second, we need stronger mechanisms to avoid miscommunication of military movements, lest we lurch into a World War I-like disaster as hardline propaganda and sensationalist media lock both China and other governments into inflexible postures. Third, if the physical entry of national or multilateral military forces into any part of China is unthinkable under all circumstances, we must identify other steps that might be taken to minimize and mitigate the destruction of life, property, social order, and global economic activity. What leverage, if any, can the outside world bring to bear on the central government or the military, without military intervention? Can the threat, or imposition, of economic sanctions, embargoes, blockades, or other tools have a significant impact in time to avoid disaster? Can the UN make any difference at all in this context? Timely, coordinated response by the outside world might make a difference; slow reactions and uncoordinated U.S., EU, and Japanese positions will almost certainly accomplish nothing.

The Chinese propaganda machine is doing its best to make us (and the Chinese people) believe the government has everything under control and on track. We must not take its claims of economic and military strength at face value. We need a more realistic understanding and perspective on the nature and scope of China’s growing capacity and hidden weaknesses, learning more about its limits as well as its strengths. And we must think seriously about how the West might proceed to address the global interest in conditions in China if a real breakdown occurs.

Samuel Bleicher is currently principal in his consulting firm, The Strategic Path LLC. From 2001 to 2007, he served as Chief Strategist for New Initiatives in the Overseas Buildings Operations Bureau of the U.S. State Department. From August through December 2007 he taught American law in Beijing to Chinese prosecutors, judges, lawyers, and administrative officials in a joint Tsinghua U./Temple U. LLM program funded primarily by the Chinese and US governments. His previous government service includes senior positions in the National Oceanic & Atmospheric Administration and the Ohio EPA. He can be reached at: Bleicher@StrategicPathLLC.com