China’s Bumpy Ride Ahead
By Minxin Pei
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PlurkChina’s ties with other major powers took a sharp turn for the worse in 2010. Its leaders need to change mindset, says Minxin Pei.
The China the world sees at the beginning of its new year hardly resembles the one of a year ago. At home, inflation and public resentment are rising. While political elites in Beijing jockey for power ahead of the transition to a new generation of leaders, average Chinese citizens are venting their anger and frustrations over rising prices, corruption and unaffordable housing. Overseas, meanwhile, China’s external environment has deteriorated so significantly that many veteran observers are saying that its relations with major powers and its neighbours are the worst they’ve been since the dark days of the Tiananmen crackdown in 1989.
Judging by the enormous domestic and foreign policy challenges Beijing faces in 2011, perhaps the most optimistic thing that can be said about how China will fare in the year ahead is that since most of the damage to its economic health and foreign relations is self-inflicted, Chinese leaders are better positioned than anyone else to repair the damage. Of course, rectifying mistakes isn’t the only path—things could conceivably get worse if politicking on the eve of the leadership transition gets in the way.
At home, the most critical issue is, without doubt, taming inflation. Over the past decade, China has adopted a loose monetary policy (printing far too much money) and maintained financial repression (keeping deposit rates negative and loan rates artificially low). Such a combination may have delivered double-digit growth because it unleashes a torrent of funds available for China’s investment-driven development.
But it also inevitably results in rising prices and asset bubbles (in China’s case, a housing bubble in urban areas). Combating inflation requires not only short-term measures such as raising interest rates and revaluing the currency. A long-term solution lies in difficult financial sector liberalization, fiscal reforms and privatization. Since China entered the World Trade Organization, the economy has become, contrary to expectations, more statist and less liberal. Supported by easy access to credit and government protection against competition from foreign firms and the private sector, state-owned companies now dominate key sectors of China’s economy (finance, banking, energy, telecoms services, natural resources, steel and automobile) while the business climate for dynamic private firms has deteriorated significantly.
At the same time, local governments collude with real estate developers to maximize their revenues from the booming residential housing market. Because of an implicit deal between local governments and Beijing, Chinese provinces and municipalities derive nearly half of their fiscal revenues from land sales. In other words, high housing prices are an inevitable outcome of the current Chinese fiscal system because they are simply taxes in disguise. So making housing affordable for the average Chinese means lowering taxes.
Image credit: Mike Beltzner
Robert
So far, China has improved ties with both the US and Japan this year, with China media and leadership offering support for Japan’s earthquake recovery. Unfortunately, incidents in the S. China sea has once again reared its ugly head, with the Philippines, Vietnam, and China playing a game of chicken.
Leonard R.
TE Low: “2. Repairing China’s battered ties with the United States:
…China actually gave America a lot of face when Hu did not point out America’s various human rights abuses and financial robbery. Once again, what is there to repair the relationship over?”
****
Yes. And you forgot to mention, America should thank Lang Lang too.
TE Low: “3.China having a self-destructive mindset:
China focusing on long-term economic and prosperity planning? China building for 30 years in the future? China building up its defences so that no foreign devils can ever rape its country again? China taking a stand so that no one can ever push it over again and call it the weak man of Asia?
Perfectly acceptable mindset. Especially where preventing rape by foreign devils is concerned. China needs to be able to sink the next gunboat (aircraft carrier?) that tries to swagger down her coasts next time.”
***
I agree that is how it will unfold. That is why it is long past time for negotiating anything with the PRC. America must be prepared for war – now.
Absent a deus ex machina, there is no way to avoid it.
T E Low
Just a few quick points I would like to comment on:
1. China “humiliating” the Japanese and having to swallow bitter pills to rebuild the relationship:
Professor Pei’s comments seem to be very subjective and opinion based, not objective. As far as I am aware, from the Chinese point of view, it was the Japanese who humiliated THEM and not the other way round, by refusing to release the trawler captain despite repeated requests from the Chinese foreign minister to the Japanese ambassador. The last straw came when the Japanese wanted to charge the trawler captain; that was when the Chinese decided the Japanese were trying to test them and were not showing them face. So they had to respond.
Sorry Professor, most right-minded Chinese reading this article and your opinion on the Chinese-Japanese relationship would think you were a brainwashed American layman being fed a diet of selected, unobjective media and not the distinguished professor that you are (or supposed to be). Most of China’s citizens would be firmly behind their government on their stand.
2. Repairing China’s battered ties with the United States:
Your commentary on this matter was just that – full of commentary, and non-existent on the facts or examples of when China pissed the United States off. Oh, you mean China must march to the drumbeat of the United States and take all their instructions? I’m sorry, but which country do you come from that you expect everyone to kowtow down completely to American exceptionalism? China actually gave America a lot of face when Hu did not point out America’s various human rights abuses and financial robbery. Once again, what is there to repair the relationship over?
3.China having a self-destructive mindset:
China focusing on long-term economic and prosperity planning? China building for 30 years in the future? China building up its defences so that no foreign devils can ever rape its country again? China taking a stand so that no one can ever push it over again and call it the weak man of Asia?
Perfectly acceptable mindset. Especially where preventing rape by foreign devils is concerned. China needs to be able to sink the next gunboat (aircraft carrier?) that tries to swagger down her coasts next time.
gannon
I think we all know what to expect by such comments from Chinese right wing nationalists like T E Low. I think they still believe foreigners are selling opium and demanding extraterritorial rights. Calling everyone else “Foreign Devils” shows just how xenophobic and arrogant the mindset can be. Those comments reflect just how difficult it will be in dealing with a more assertive China in this decade, but I do I have hope that the majority of the Chinese people don’t think this way.
Anyways, if Mr. Low is so concerned about “rape its country again”, then I guess when China becomes more powerful; it will revert to its middle kingdom mentality and ask for tributary rights from its neighbors. China might not have been a colonizer (we can argue about this today in Africa) but it was certainly a commercializing tributary empire in the past. China had tried establishing control over northern Vietnam, northern Korea, and the Tarim Basin of Central Asia during the Han Dynasty. China had high imperial aims during the Sui Dynasty reinvading Annam (northern Vietnam) and attacking Champa (southern Vietnam), while they also attempted to conquer Korea. Even during the Song Dynasty, China secured maritime trade routes that ran from South East Asia into the Indian Ocean; by establishing fortified trade bases in the Philippines (we can call these Treaty Ports).
If Mr. Low claims that the author has been brainwashed, then I’m afraid that Mr. Low might have been brainwashed by decades of communist revisionist history. We all know that Maoist China had caused more death and destruction than all the foreign incursions in China combined.
I’m sorry but the middle kingdom must change its traditional view of the world and be more of a mature global player or else, allies will form in Asia, and China will find itself isolated and contained. That’s what the author was referring to as “self destructive”. I think the world doesn’t need a second cold war.
ThomasR
@T E Low
One of the most ignorant things about your comment is your confused understanding of international relations and diplomacy. Well, really anything outside of China (Your confused understanding of things inside of China is one of the others).
Example: “from the Chinese point of view, it was the Japanese who humiliated THEM and not the other way round”
Example 2: “Oh, you mean China must march to the drumbeat of the United States and take all their instructions?”
Example 3: “China focusing on long-term economic and prosperity planning? China taking a stand so that no one can ever push it over again and call it the weak man of Asia?”
When talking about how other countries view china, it doesn’t matter what the Chinese think. To a certain degree, yes, China must march to the drum of other nations if it wants to benefit from international trade. Long-term economic prosperity requires a lot more international support than China will be able to get from scaring countries away. If China tries to take a stand alone against every other country in the world, then yes, China will be pushed over again. Period.
A long way from home
@ThomasR
While I agree that T E Low comments are decidedly right-wing. I would however like to ask a simple question. If another country took an American fishermen and decided to charge him what would the American reaction have been?
I do however agree with the article that the Chinese have a lot of work to do in the coming years.
Wangchuk
The CCP dictatorship, like all previous dictatorships in China & around the world, is doomed to fall. The only question is how. Will it go out in violence in chaos causing untold damage or death? Or will it exit stage left peacably & allow the Chinese people to develop the democracy they so desperately desire? Corruption, police brutality, censorship, pollution, income disparity, abuse of power: All these things will make the Chinese people rise up & demand change & reform & an end to the CCP dictatorship.
John
In regards to Korea, I am more open to the idea that S.K. is more open to possibility of changes than N.K.
If N.K. truly used nuclear weapons, well S.K. doesn’t need to develop them as the US would either use them on thier behalf or give them to S.K. in a “we never used them but:” situation.
If N.K. used them first and S.K. retaliated, then China is in a fix. It couldn’t back up N.K. after thier aggression. I mean they couldn’t nuke S.K, without harming themselves.
So its in Chinas best interest to be at peace with its neighbors and accept that sometimes, you have to step back from a fight within the family.
Every Korean I have ever spoken too thinks of N.K. and S.K. as part of Korea and therefore thier family, even if they dont know how to end the dispute.
Chinas only problem is that just as Chinese claim history for thier idea of China, so do some Koreans. Koreas history is the history of thier people and thier claim to thier peoples land.
Therefore, :)
John
Sorry, I forgot to add this so my comment is more understandable.
“On the security front, China will also likely use more pressure to restrain North Korea, its troublesome client state, so that tensions on the Korean Peninsula remain under control—reconvening the Six-Party Talks will be China’s top priority. Even though such talks have proved to be ineffective in getting the North Koreans to denuclearize, China believes that as long as the talks are held, the North Koreans will behave themselves.”.
mareo2
I think that these is a good article that improve my opinion of the author and The Diplomat. It almost convinced me that peace can be possible, but I burned myself quite badly before by being an openly pro-China supporter, so I rather remain quite skeptic of the CCP’s foreign policies. In fact… perhaps is better if we wait until it become clear what factions end getting more influence after the leadership transition is done.