'False Contradiction' and the Never-Ending Big Question About China

People who say they know what will happen in China, don't.

Exposure to modern China leaves you with an endlessly expanding list of specific questions*, plus one unchanging Big Question. That big question, in various forms, is where this whole high-speed juggernaut is headed.

Do the past 30 years of growth mean (as many credulous Westerners, and a few assertive Chinese, have assumed) that China is soon destined to dominate everything, everywhere? Or is the real worry whether growth and progress can be sustained at all? Is the Chinese system too strong? Or too weak? Or both?

Will the newest crop of leaders realize, as Deng Xiaoping did 30-plus years ago, that if China is to stay Communist-run, then Chinese Communists will have to relax controls as fast as they can? Or will they keep pumping out slogans about “reform” without doing anything serious to clean up the structural imbalances, the crony-capitalist/communist corruption, and the needless intrusions (like Internet censorship) that threaten the country's ability to move up to fully modern "rich country" status? My attempt to wrestle with all of these questions, especially the last, is in the form of my book China Airborne. [Below, Beijing on my latest visit a few months ago.** I feel unsporting posting pictures like this, but they're part of the reality.]

The more confident people sound in answering the big Whither China? question, the more skeptical I've become of them and their views. On a day when the news out of China includes the still-unexplained multi-fatality crash of a Jeep into a crowd in the governmental heart of Beijing at Tiananmen Square, here is a sample of the attempts to answer questions big and small:

1) “One Big North Korea?”  John Craig is an analyst based in Queensland, Australia who produces an idiosyncratically formatted, and very long and detailed, set of reports on Asian and global affairs. He has put up a new one in response to an (overexcited, IMHO) U.K. article saying that the Chinese leadership is taking instruction from the Kim family of Pyongyang. Worth reading.

2) Will Creative Destruction be more creative, or destructive, for China? The latest online discussion from our friends at the ChineFile site of the Asia Society, involving a number of my real-world friends, considers whether China should be considered unusually supple in dealing with world economic surprises, or unusually brittle.

3) “Unhinged in China.” From the always elegant and insightful Ian Johnson, a NYRB piece that seems particularly suited to today's Tiananmen Square news. China has achieved an undoubted GDP miracle over the past generation; like previous pell-mell rushes to industrialization, it has come at considerable human cost. Check his article for more.

4) On the bearish front, What about those millions upon millions of empty apartments? A cautionary report in Forbes by Anne Stevenson-Yang.  See this parallel report today in our China channel about the risk of a Chinese version of the Lehman collapse.

5) On the anti-bearish front, see this in Bloomberg on why the Chinese economy keeps heading for a fall, but keeps not falling.

6) Two of my best-informed economics-world friends in China—Michael Pettis, of the Guanghua School of Management at Peking University in Beijing; and Andy Rothman, the chief economist for the brokerage firm CLSA in Shanghai—keep turning out convincing, but differing, assessments of the strains on the Chinese economy. Pettis has been among the earliest, strongest voices warning about unsustainable distortions in the Chinese economy; Rothman has consistently pointed out the system's ability to make adjustments just in time and repeatedly work its way out of jams and corners.

You can find most of Pettis's dispatches on his site, for instance recently this about the rebalancing of China's economy from export/infrastructure- dependence to consumer-led growth: “I believe that 3-4 percent average annual growth rates is likely to be the upper limit for China during the adjustment period [of around ten years] ... If the adjustment period is much longer than ten years, perhaps ... because political opposition is fiercer than expected, growth rates might be a little higher on average in the first few years but the period of stagnant growth would last longer than ten years and there would be a much higher risk of an economic collapse.”

Rothman's analyses come mainly through his in-house newsletter and email list—whose latest entry, for example, said this about the ongoing Chinese “slowdown” (quoted with his permission):

China’s 3Q macro data offers little to worry about.  As long as you are comfortable with the idea that growth rates will continue to slow gradually.  Fortunately, the Party leadership seems comfy with that, and is more focused on longer-term structural change.  GDP growth of 7.8 percent in 3Q and 7.7 percent YTD, compared to 7.7 percent last year, provides plenty of room for change ...

China remains the world’s best consumer story, with retail, new home and car sales healthy and inflation modest.  Restructuring is well under way, with private firms, not SOEs [state owned enterprises], driving growth in investment, employment and profits, and with, for the first time, the tertiary sector overtaking secondary as the largest share of GDP ...

It is also important to recognize that, unlike in many developed countries, wages continue to rise rapidly for China’s low-income workers.  Wages for the migrant workers who hold the majority of manufacturing and construction jobs in Chinese cities are up 13 percent this year.  In our view, strong income growth at the lower end of the pay scale, along with rising government spending on health care and education, is far more important than the wide gulf between rich and poor.

It's not false equivalence, or mere courtesy to friends, for me to point out that both the cautionary and the more confident analyses are very much worth following, and both could in different ways be true. We may need a concept of “false contradiction” when it comes to China: recognizing that incompatible-seeming observations may all be accurate. The slangy way of putting this: everything you might say about China is true—somewhere.

7) Speaking of friends in print about China, I can recommend Damien Ma's In Line Behind a Billion People  (with William Adams), about the role of scarcity in everything about modern China; and Adam Minter's Junkyard Planet, which I've mentioned previously and which you can read more about here.

8) The New York Times's online presentation of yesterday's Magazine story "A Game of Shark and Minnow," on nationalistic tensions in the South China Sea, deserves the praise and attention it has received. It is an amazing piece of work.

9) Last week, we ran an item by Eric Fish on the firing of a prominent Peking University professor, Xia Yeliang. There are two contending interpretations of his dismissal: Was it one more step in an ongoing wave of retribution against political dissidents in China? Or was it because students and colleagues didn't like the way he taught? Our previous item laid out the case for the “teaching problems” view. In a WSJ interview a few days later Prof. Xia explains why he thinks this was because he was an original signer of the “Charter 08” appeal for civil liberties and political reform. Check them both out.

* Example of the specific questions: What is the business model for so many fruit-and-nut vendors from the farthest western extremes of China, often ethnic Uighurs, having so many identical push-carts heaped with dried fruits and "nut cake" through major eastern cities thousands of miles away? Who actually runs the pirate DVD business? Who, exactly, is underwriting the costs for those Armani/Prada luxury stores in which you see lots of sales clerks and no customers?

** I am supposed to make my next trip in a few weeks. But my latest visa has expired, and in a standard “this is China” moment one state-sponsored research organization has invited me to a conference in Beijing—while the local Chinese embassy seems highly skeptical about renewing my visa.

Similar things happen all the time in the U.S., of course, especially since 2001. A federally sponsored research organization will invite foreign scientists or researchers to a conference, but consular officers won't let the foreigners in. In their case, and mine, I think the explanations are the same: over-reach by each government's security organizations, and lack of coordination between them and other parts of the sprawling, bureaucratized state.