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Red Letter Day

September 11 may turn out to have been very bad for Communist China.

Nov 26, 2001, Vol. 7, No. 11 • By GORDON G. CHANG
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This summer it was clear that economies in North America, Western Europe, and even Asia were headed into recession. Nonetheless, most economists predicted only a brief disruption to economic growth. Since September 11, however, we've seen perhaps the worst downturn since the Great Depression. In October, China's leader, Jiang Zemin, said, "All this has made an already grave economic situation worse." Beijing's assessments of its economic prospects are getting steadily gloomier.

With the People's Republic entering the global trading body, multinationals will work hard to penetrate its markets. Around the world, consumers are consuming less. So these businesses will have to make up the shortfall somewhere, and the planet's only new source of buyers is China. Although multinationals may talk about increasing their foreign investment in the People's Republic, the reality is that they will use their idle capacity around the world to export to China. WTO accession makes that strategy feasible because tariffs will drop and internal barriers to trade will be eliminated.

On the other side of the equation, China's exports will continue to slump. WTO rules will prevent the People's Republic from offering all the generous subsidies that previously kept the export machine going. Meanwhile, as consumers pull back around the world, China's markets will dry up. Until now the People's Republic has done well with one-way trade, exporting much and importing relatively little. Now we will see if Beijing's political leadership can handle the effects of two-way trade in a rapidly worsening economic environment.

At the same time, the next few years will witness a major political transition. Beginning next year and continuing into 2003, almost all the top posts in the Communist party and the central government are supposed to change hands. Neither of the two prior transitions in Communist China's history went according to plan, and there's no indication that this one will be smoother. So when the challenges to China are greatest, the regime will be weakest.

In short, the coming years will witness the most difficult period in the history of the People's Republic. In the WTO era, many in China will hold the central government responsible for letting foreign businesses put Chinese out of work. When the economy fails, senior leaders in Beijing will be tempted to raise the flag of nationalism even higher to keep themselves in power, and that could mean acting even more belligerently toward Taiwan and maybe Japan. At the same time, the aggressive People's Liberation Army, a large power bloc within the Communist party, may well have more say than usual over China's foreign relations.

Beijing's leaders could miscalculate. They might reason that the United States, diverted by events in Central Asia, is in no position to counter a move by China on its borders. Hostilities would be over before Americans could arrive on the scene, they might think. That assessment would underestimate Washington's resolve and the will of the Taiwanese and Japanese populations to resist.

Already, even before China's economic failure has become manifest, General Zhang Wannian, a top PLA leader, said that war would be inevitable during the five-year period ending in 2005. He may mean what he says. Besides, whenever the economy does finally fail, war will be a tempting option for Beijing.

It would be difficult for China to win any conflict with Taiwan or Japan, even if America were distracted. Losing a war would surely spell the end for the People's Republic. September 11's biggest victim? Five years from now, it could well be China.

Gordon G. Chang is the author of The Coming Collapse of China (Random House).

November 26, 2001 - Volume 7, Number 11