Copyright The Los Angeles Times
Now imagine that vast country’s economy growing more than four times faster than that of the United States (as China did between 1990 and 2002) — growing faster, in fact, than any economy in history. According to Goldman Sachs, China’s gross domestic product will overtake Britain’s this year and Germany’s in 2007. By 2041 it will have overtaken the U.S. gross domestic product. That’s what an average annual growth rate of 9% can do: The economy literally doubles in size every eight years.
What does such extraordinary material dynamism look like? Having just visited five of China’s fastest-growing cities, I can report that it looks like the construction of London’s Docklands, projected onto multiple plasma screens, all running images in fast-forward mode. I have never seen so many cranes. And they work day and night.
Not even the United States in its most hectic years — the Roaring ’20s — can have been like this. You go to sleep not knowing how the skyline through your window will look the next morning. Forget the New World. This is the New New World.
The change in China is so vast that it makes whatever the lead story is in the American media — the appointment of a new Supreme Court chief justice, the latest bombings in Iraq — seem almost parochial. Did we really kid ourselves that 1989 marked the “end of history” and the “triumph of the West”?
The biggest economic transformation of all time is currently being achieved by card-carrying communists, who show no sign of relinquishing their monopoly on power. On the contrary, since coming to power three years ago, President Hu Jintao has markedly tightened state control of the media.
The 60-billion-renminbi question, of course, is how long the heirs of Mao Tse-tung can get away with running the ultimate contradiction in terms: “the socialist market economy.” Can you really present people, as consumers, with the seemingly boundless choice of the free market without offering them, as citizens, some political choice as well? Put differently, won’t the social strains arising from this second (and real) Great Leap Forward inevitably stimulate popular demands for democracy?
My hunch is that China’s economic and political fates will be decided by two key institutions. Both are networks. The first is the country’s financial system — the credit network that links the country’s vast private savings to its equally vast investment boom. The second is the Internet.
Let’s take the credit network first. This is the shadow side of the Chinese economic miracle. Sure, the People’s Republic has acquired a forest of high-rises, endless miles of new highways and umpteen industrial estates the size of Wales. But its banks, stock market and other financial institutions are a joke. The banks are relics of the old, planned economy, owed unquantifiably large bad debts by the defunct state enterprises of Mao’s time. The relatively new stock market, meanwhile, is tiny in relation to the scale of the manufacturing sector. The result is that the allocation of funds for investment and credit is not done on the basis of meaningful competition and relevant information but through personal connections that maximize returns to a powerful few, rather than achieve general economic efficiency.
It may be that the familiar laws of economic development have been abolished by the Chinese Communist Party. It may be that China will be able to sustain this runaway growth without ever suffering a financial crisis of the sort that has periodically interrupted the miracles in other Asian economies. But I am doubtful.
China is certainly not going to suffer a currency crisis of the sort that hit Thailand and Malaysia in 1997; the pressure on the renminbi is upward, not downward, as speculators anticipate a further revaluation of the currency after July’s tiny move.
There are other kinds of financial crisis, however. The U.S. had ample gold reserves in 1929 — the biggest in the world. That did not prevent the banking panics that were the key drivers of the Great Depression. And let’s not forget the protectionist pressures building as China’s exporters erode ever more sectors of U.S. manufacturing.
What would the political effect be of a recession in China? Nobody knows. But if there were any kind of public protest, I cannot believe it would be stamped out as easily as the democracy movement was in 1989. One crucial change is that 100 million Chinese now have access to the Internet. It may be possible for the authorities to block the BBC’s websites, but so what? With the help of Google, I was able to call up numerous articles on “corruption in China” from sources all over the world. There are simply too many Western news agencies — to say nothing of the countless personal Web logs now out there — for censorship to be effective.
If an economic setback were to occur, people’s tolerance of the corruption that is inherent in the “planned market economy” might suddenly diminish. And with the Internet spreading so fast, there is a way to express disenchantment beyond the wildest dreams of the Tiananmen Square generation.
Watch this vast and vital space.