Abridgement request
Chapter 5
- I don’t share the view that China is going to be a major world power. I don’t even believe it will hold together as a unified country.
2. China’s economy is not nearly as robust as it might seem and its politicalstability, which depends heavily on continuing rapid growth, is evenmore precarious.
3. China is gambling at the beginning of the twenty- first century that itcan carry out an indefinite balancing act. The assumption is that it will beable to gradually shift resources away from the wealthier coastal regionstoward the interior without meeting resistance from the coast and without
encountering restlessness in the interior. Beijing wants to keep the variousparts of China happy and is doing everything in its power to achievethat end.
Underlying this is another serious, and more threatening, problem. Chinaappears to be a capitalist country with private property, banks, and all theother accoutrement of capitalism. But it is not truly capitalist in the sensethat the markets do not determine capital allocation. Who you know counts
for much more than whether you have a good business plan. Between Asiansystems of family and social ties and the communist systems of political relationships,loans have been given out for a host of reasons, none of themhaving much to do with the merits of the business. As a result, not surprisingly,
a remarkably large number of these loans have gone bad—“nonperforming,”in the jargon of banking. The amount is estimated at somewherebetween $600 billion and $900 billion, or between a quarter and a third ofChina’s GDP, a staggering amount.
4. It is also a state in which equity holders—demanding profits—are lessimportant than bankers and government officials, who demand cash. Botheconomies rely heavily on exports, both have staggeringly high growth rates,and both face collapse when the growth rate begins even to barely slow.
Japan’s bad debt rate around 1990 was, by my estimate, about 20 percent ofGDP. China’s, under the most conservative estimate, is about 25 percent—and I would argue the number is closer to 40 percent. But even 25 percentis staggeringly high.
5. Loyalty in China is either bought or coerced. Without available money, only coercion remains. Business slowdowns can generally lead to instability because they lead to business failure and unemployment. In a country where poverty is endemic and unemployment widespread, the added pressure of an economic downturn will result in political instability.
6. The Chinese regime rests on two pillars. One is the vast bureaucracy thatoperates China. The second is the military- security complex that enforcesthe will of the state and the Communist Party. A third pillar, the ideologicalprinciples of the Communist Party, has now disappeared. Egalitarianism,
selflessness, and service to the people are now archaic values, preached butnot believed by or practiced by the Chinese people.
State, party, and security apparati are as affected by the decline in ideologyas the rest of society. Communist party officials have been the personalbeneficiaries of the new order. If the regime were to try to bring the coastalregions under control, it is hard to imagine the apparatus being particularly
aggressive as it is part of the same system that enriched those regions. In thenineteenth century the same problem emerged when government officialsalong the coast didn’t want to enforce Beijing’s edicts. They were on the sideof doing business with foreigners.
If there is indeed a serious economic crisis, the central government willhave to find a substitute ideology for communism. If people are to sacrifice,it must be for something they believe in—and if the Chinese cannot believein communism, they can still believe in China. The Chinese government
will attempt to limit disintegration by increasing nationalism and the naturalcompanion of nationalism, xenophobia. Historically, China has a deepdistrust of foreigners, and the party will need to blame someone for economicdevastation. As Mao blamed foreigners for China’s weakness and
poverty, the party will again blame foreigners for China’s economic problems.
7. The idea of China as a great power will substitute for the lost ideology of communism.
Chapter 8
1.
By 2010, China will be struggling with internal disruption and economic decline.This means that another reversal is likely sometime in the 2040s.This reversal will be a reassertion of political control by Beijing and acampaign to limit the foreign presence in China. But obviously, this process
won’t begin in the 2040s. It will culminate there. It will be emerging in the2030s, as foreign encroachment, particularly by the Japanese, gets more intense.This will be another lever the United States will use to control the situation.It will support Beijing’s efforts to reunify China and control Japan,a reversion of U.S. policy to the pre–World War II model.
1.…, India will help Tibet break free, and Taiwan will extend its power across the Taiwan Strait while Europeans and Americans create regional spheres of influence in China as well.