Lawrence Solomon: China’s coming fall

(Jan. 22, 2011) Like the Soviet Union before it, much of China’s supposed boom is illusory — and just as likely to come crashing down.

In 1975, while I was in Siberia on a two-month trip through the U.S.S.R., the illusion of the Soviet Union’s rise became self-evident. In the major cities, the downtowns seemed modern, comparable to what you might see in a North American city. But a 20-minute walk from the centre of downtown revealed another world — people filling water buckets at communal pumps at street corners. The U.S.S.R. could put a man in space and dazzle the world with scores of other accomplishments yet it could not satisfy the basic needs of its citizens. That economic system, though it would largely fool the West until its final collapse 15 years later, was bankrupt, and obviously so to anyone who saw the contradictions in Soviet society.

The Chinese economy today parallels that of the latter-day Soviet Union — immense accomplishments co-existing with immense failures. In some ways, China’s stability today is more precarious than was the Soviet Union’s before its fall. China’s poor are poorer than the Soviet Union’s poor, and they are much more numerous — about one billion in a country of 1.3 billion. Moreover, in the Soviet Union there was no sizeable middle class — just about everyone was poor and shared in the same hardships, avoiding resentments that might otherwise have arisen.

In China, the resentments are palpable. Many of the 300 million people who have risen out of poverty flaunt their new wealth, often egregiously so. This is especially so with the new class of rich, all but non-existent just a few years ago, which now includes some 500,000 millionaires and 200 billionaires. Worse, the gap between rich and poor has been increasing. Ominously, the bottom billion views as illegitimate the wealth of the top 300 million.

How did so many become so rich so quickly? For the most part, through corruption. Twenty years ago, the Communist Party decided that “getting rich is glorious,” giving the green light to lawless capitalism. The rulers in China started by awarding themselves and their families the lion’s share of the state’s resources in the guise of privatization, and by selling licences and other access to the economy to cronies in exchange for bribes. The system of corruption, and the public acceptance of corruption, is now pervasive — even minor officials in government backwaters are now able to enrich themselves handsomely.

This ethos of corruption is captured in a popular song in China, I want to marry a government official, whose lyrics explain why an official makes for a good matrimonial catch: “He has power, a car and house; He only needs to drink tea and read the newspaper during work; He never spends his own money on cigarettes and alcohol; He can get free food every day; He can get promoted by only kissing his boss’s ass.”

If the corruption were limited to awarding contracts to friends and giving mines, power plants, and other public assets to relatives, the upset among the poor, who would realize some trickle-down benefits, would be constrained. In fact, the corruption deprives the poor of their homes, livelihoods, health and lives.

Take golf courses, a status symbol among China’s new rich. To obtain the immense tracts of land needed near urban markets, developers have been cooking up deals with local officials that see land expropriated and typically tens of thousands of residents and businesses evicted per golf course, generally with unfair compensation. Although the construction of new golf courses is officially banned, thousands more are expected to be built in the next few years.

Golf courses aside, countless other real estate developments abetted by officialdom likewise wipe out entire communities. Then there are resource projects such as hydro dams that can displace numerous people and businesses — the Three Gorges Dam alone displaced several million people.

The corruption extends to the enforcement of regulatory standards for health and safety, which few in China trust. In recent years China has endured a tainted milk scandal and a tainted blood scandal, each of which implicated corrupt officials in widespread death and debilitation. In a devastating 2008 earthquake, some 90,000 perished, one-third of them children buried alive in 7,000 shoddily built “tofu schools” that skimped on materials. Nearby buildings for the elites that met building standards, including a school for the children of the rich, were largely unscathed.

The government tries to tamp down the outrage over the abuses inflicted on the public by banning demonstrations and censoring the Internet. But it is failing. Year by year, the number of demonstrations increases. Last year alone saw 100,000 such protests across the county, directly involving tens and indirectly perhaps hundreds of millions of protesters.

China is a powder keg that could explode at any moment. And if it does explode, chaos could ensue — as the Chinese are only too well aware, the country has a brutal history of carnage at the hands of unruly mobs. For this reason, corrupt officials inside China, likely by the tens of thousands, have made contingency plans, obtaining foreign passports, buying second homes abroad, establishing their families and businesses abroad, or otherwise planning their escapes. Also for this reason, much of the middle class supports the government’s increasingly repressive efforts.

What might set off that spark? It could be high unemployment, should China be unable to control inflation or the housing bubble that now looms. It could be another natural disaster such as the 2008 earthquake which spawned outrage — rapidly organized via cellphones and the Internet — that the government had difficulty containing. It could be a manmade disaster — many fear that a “tofu dam” might fail, leading to hundreds of thousands of downstream victims.

Whatever might set off that spark, it is only a matter of time. The government shows no interest in relaxing its grip on power — if it did so, the officials in power might face retribution.

Meanwhile, we in the West see a China that by all measures is becoming stronger and stronger, not realizing that it is also becoming more and more brittle. The Soviet regime, when it fell, went out with a whimper. China’s will more likely go out with a bang. No regime can contain the grievances of a billion people for long.

Lawrence Solomon, Financial Post, January 22, 2001

Lawrence Solomon is executive director of Energy Probe and a founder of its sister organization, Probe International.

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