The Magazine

A REGIME IN CRISIS

May 24, 1999, Vol. 4, No. 34 • By ARTHUR WALDRON
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For much of the rest of Asia, bankruptcies, devaluations, and bank failures are slowly receding into the past, but in China they are breaking news. Economic growth has been slowing, despite massive public works and other government spending, and foreign investment has been falling. The scale of the problem is only now starting to become clear: During the years of easy money and rapid growth, investments in China were evaluated even less strictly than elsewhere in Asia, with cronyism, bribery, and political influence steering vast flows into ill-considered real estate ventures and other losing projects. At the same time, the antiquated state-owned heavy industrial enterprises that still employ much of the urban workforce were not shut down (as in Russia and Eastern Europe) but kept on life support with forced loans, which in turn have rendered China's banking system insolvent. All this would have been extremely difficult to fix had reform begun in earnest a decade ago. But the pervasive corruption of China's political system prevented reform, guaranteeing that when the attempt to change is made, it will bring at least as much distrust and anger as it does progress.


The problem of China's entry into the World Trade Organization captures the dilemma Beijing faces. Remaining outside the international organization would stunt China's growth and condemn it to marginality. Yet a genuine freeing of the economy is also perilous, at least in the short term. Washington has praised Beijing for not devaluing the renminbi, but can a fixed exchange rate survive an open regime? China's rulers insist that the state-owned enterprises will be reformed so as to compete in world markets like multinational corporations, but who can believe that? The WTO would bankrupt many of them and throw millions out of work.


Add to this political problems. The aspirations expressed at Tiananmen in 1989 have never been crushed, despite the continuing arrests and detentions of dissidents, crackdowns on the media, screenings of Korean War films, and other expedients. Demonstrations large and small are now a regular feature of Chinese life, numbering in the thousands every year. A Chinese Democratic party has been founded, although the government refuses to recognize it; religions, kinship societies, labor unions, smuggling rings, and messianic cults all exist under the surface of society as well. Not only the Chinese economy, but also the Chinese population, poses an increasing problem to the regime, an old-style Leninist organization that has dismantled most of its institutional props. What is the answer?


When Japan was challenged by Commodore Perry's black ships in 1853, the reaction in fairly short order was not only a change of administration, but also a transformation of governmental structure -- the Meiji restoration -- so that, by the end of the 19th century, the institutions of Japan's constitutional monarchy differed little from those of contemporary European states like Imperial Germany. When Japan then defeated China in war, it looked as if Beijing might follow the same path. But the attempt similarly to reconstruct China that began during the "hundred days reform" of 1898 miscarried. The empress dowager carried out a coup d'etat, initiating the pattern that has followed ever since. Though repeatedly challenged, militarily in the past and economically in the present, and despite regular talk of democratization, China has never actually modernized its political structures: Indeed, a Ming courtier brought back to life would quickly find his bearings in contemporary Beijing (but be baffled by Tokyo or Taipei).


Not only that, the lurch backwards has regularly been accompanied by mass protest, spontaneous or otherwise. The classic example is the empress dowager's patronage of the anti-foreign "boxers," whose popularity in her closed China has a parallel in the craze for the mystical martial art qi gong today. The point is not that the Chinese are particularly credulous; they are not. It is that when other avenues are closed off, dissatisfaction nevertheless finds a means of expression.