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Generational Dynamics Web Log for 6-Dec-06
China says that its economy is "sound and stable"

Web Log - December, 2006

China says that its economy is "sound and stable"

But dissident newspaper "Epoch Times" says China's economy and Communist Party are crumbling.

Not only is China's economy "sound and stable," according to official Chinese publications, but the one problem it has had -- overheated growth during the last few years -- has been "reined in" by China's "macro economy regulation [that] has been timely, effective, and without drastic fluctuations."

"The macro economic regulation policies will continue and remain stable in the fourth quarter and the near future to build a solid foundation for economic development next year," said Zhu Hongren, a senior official with the National Development and Reform Commission, as reported in a story in China Daily, an official government English-language news publication.

On this web site I normally reference only the most widely distributed mainstream media sources, in order to maintain the highest possible level of credibility.

However, that's a problem with China, a society that's almost completely opaque to the outside world, and whose news publications and even Internet postings are tightly controlled by the government, which is in turn controlled by the Chinese Communist Party (CCP), the only legal political party.

China's mainstream news publications are thus all required to present the most positive possible picture of China's society and economy. Thus, we only learn about massive regional rebellions when news leaks out from dissident sources, and China has even had a long record of refusing to release full data on health emergencies, including dangerous diseases like SARS and bird flu.

The situation has actually been getting worse recently, if that's possible. The 2008 Olympic games will be played in Beijing, and the CCP has been going overboard to project a favorable image of a modern country as 2008 approaches.

Outside of China, the best known dissident paper The Epoch Times, which claims to have 1.4 million readers. The paper was originally launched in May 2000 as part of the Falun Gong dissident movement which, itself, was launched after the 1989 Tiananmen Square massacre, where thousands of college students demonstrating against CCP policies were massacred. Since then it's become an international "human rights" newspaper, emphasizing China.

Fallout from Tiananmen Square massacre

The Tiananmen Square massacre has been almost forgotten in America, and has been "erased from history" by the CCP, as much as it can, but it's China's most significant and far-reaching cultural event for many decades, and it spawned the massive Falun Gong dissident movement in China. Since it's illegal to form another political party in China, Falun Gong can almost be considered a dissident political party. Of course belonging to the Falun Gong movement is also illegal in China -- and harshly punishable.

On Taiwan, there was a parallel development. Although Taiwan freely permits opposition political parties, the Kuomintang Party (KMT) had won every election since it was formed by nationalist group fleeing China after losing the civil war with Mao Zedong. However, the Tiananmen Square massacre spawned in 1990 the student-led Wild Lily rebellion, favoring Taiwanese independence from China, and led to the formation of the Democratic Progressive Party (DPP), which has been in power since it won in 2000.

So the Tiananmen Square massacre of 1989 has led to powerful dissident movements in both China and Taiwan, as well as to dissident sources of information, including the Epoch Times. These occurred as a reaction to the massacre but also because of major generational changes: By the 1990s, the generation of people who fought the 1940s civil war in China were mostly gone, replaced by younger generations of people who, as usual, are far more assertive and risk-seeking, and are uninterested in the "old men's parties," China's CCP and Taiwan's KMT.

Panic over loss of CCP membership

So when Epoch Times publishes publishes an article claiming that CCP officials are panicking over loss of membership, the claim is consistent with generational theory and is quite credible. After all, the Chinese are very well aware that Russian Communism collapsed in 1991, and they fear the same thing in China.

The article quotes published figures showing a dramatic loss of CCP membership in the 1985-91 time frame, which makes sense after the Tiananmen Square massacre. It claims that membership has continued to fall since then, and that also makes sense, thanks to generational changes. The loss of CCP membership in China parallels loss of KMT membership in Taiwan, and also parallels loss of membership of "older generation" American organizations, such as labor unions and feminist enterprises, during recent decades.

The dismal state of the economy is the subject of another article, where the paper quotes government sources that indicate that unemployment is very high and becoming increasingly serious.

According to the article, China's Minister of Labour and Social Security, Tian Chengping, "said that the severity of China's unemployment problems and the complexity of the situation have not been experienced by any other country... [T]he grim situation is the result of a severe imbalance between supply and demand and an outdated labour market structure. The rapid influx of workers from rural areas to urban centers worsened the situation in cities that were already bulging with unemployed workers."

These claims are quite credible. It's well known that well over a hundred million peasants have flooded into the cities as itinerant workers looking for factory work, to make money to send back to their poverty-stricken families on the farm. China has been aggressively eliminating state-owned enterprises in recent years, and the article points out that this has caused a great deal more unemployment. In addition, the number of unemployed university graduates is at least 5-6 million.

The optimistic view of the economy

The dire unemployment state in China contrasts not only to the "sound and stable" description given by government-controlled media, but also contrasts with the extremely optimistic views held by Chinese leaders, according to an analysis by Stephen S. Roach, Chief Economist at Morgan Stanley.

In his recent trips to China, Roach found that the Chinese are not facing up to the dangers that global problems would present to China's "seemingly Teflon-like economy."

"With visible signs of the boom literally everywhere you turn and an IPO-led stock market surging its way back toward the highs of early 2001, the mood remains as ebullient as ever," says Roach. "While the latest monthly data are flashing signs of a slowdown, you would never know that in meeting with key decision-makers in Beijing. The Chinese seem to be paying lip-service to the rebalancing imperatives that I and other macro types continue to stress...."

This is an interesting statement in view of what Roach wrote in May of this year, when he suddenly turned "optimistic on the world economy." Why? Because "the world is finally taking its medicine -- or at least considering the possibility of doing so." In other words, central banks for the first time were talking about taking the steps to correct global imbalances.

I mocked this change of heart, pointing out that talking is different from doing. At any rate, Roach now seems to have fully recovered from his momentary state of denial, as he says that "The Chinese seem to be paying lip-service to the rebalancing imperatives...." In other words, they've been talking, but not taking action.

The most serious of the global imbalances to which Roach refers are exports from China to America. Exports account for a huge 35% of China's economy, "making it, by far, the most externally dependent major economy in the world today," and America is China's largest export market. A reduction in those exports would deal a severe blow to China's economy, with severe implications for unemployment.

He points to two major dangers to the Chinese economy that are "American-made":

The high risk of Washington-led trade protectionism, supposedly to protect American jobs. "China doesn’t fully grasp the significance of the coming political power change [resulting from the recent Congressional election] and the deeply-rooted bipartisan anti-China sentiment that pervades both houses of the US Congress." This protectionism will be considered extremely offensive to the Chinese, and will, of course, reduce the level of exports.
It's worth remembering that in 1930, a year after the 1929 stock market crash, Congress passed the Smoot-Hawley Tariff act against the advice of almost all economists. This act shut down Japan's silk exports to America, infuriating them and triggering a series of events that led to the bombing of Pearl Harbor in 1941.

The second danger is a sharp slowdown in the American economy, as is being predicted by more and more mainstream economists. There are a number of reasons a downturn is considered increasingly certain: A big decline in the housing market, a big downward revision to personal income in the third quarter, and a major collapse in capital spending activity in October. This slowdown would strike at the heart of China's exports to America.

Roach concludes: "China’s performance has been so impressive for so long that I sense a growing tendency to take the boom for granted. Reflecting this belief, I am starting to detect an important shift in the Chinese mood, with long-entrenched feelings of self-doubt now giving way to a new-found confidence. There’s nothing wrong with confidence -- it can be a critical element of any successful economic development strategy. But confidence must be on solid ground to fuel sustainable growth. Lacking in support from internal private consumption, the Chinese confidence factor is increasingly dependent on a powerful export-led growth dynamic and associated gains in fixed investment -- both very much tied to the open-ended expansion of China’s outward-looking export production platform. This could turn into a surprisingly precarious situation. What happens if the narrow underpinnings of China’s growth strategy are undermined by the twin surprises of Washington-led protectionism and a sudden deterioration in the US economy? Beijing is unprepared for either of those possibilities -- as is, I’m afraid, the rest of the world."

In other words, China's leaders are totally in a "state of denial."

Generational splits in China

People are always very startled when I tell them that we're heading for a major war with China, but from the point of view of Generational Dynamics, all the pieces are falling into place.

According to Epoch Times, the CCP is so concerned about loss of membership that it's going all out on a public relations campaign.

The Central Committee of the CCP are requiring all Chinese officials at or above the county level to watch a movie scripted by a friend of Chinese President Hu Jintao. Entitled "Peace with Sword in Hand: The Historical Lesson from the Collapse of the Soviet Union Communist Party," the movie purports to draw lessons from the collapse of Communism in Russia, in order to prevent a similar crisis in China.

The movie criticizes Russia's discarding of the teaching of Josef Stalin who, as we know, joins Hitler and Mao as the three bloodiest tyrants of the 20th century, causing the deaths of tens or hundreds of millions of people.

However, the movie praises Stalin, and concludes that the reason for the collapse of Russian Communism came from loss of control in ideology, causing changes in "the opinion of their carefully educated elites. These elites, along with some institutional and economy management officials, some gray economic powers as well as crime forces became gravediggers for [Russian Communism]."

The movie's conclusion, based on the ideology that "USA-led global capitalism would finally be replaced by CCP-led global socialism" in the 21st century, the ultimate goal is to "liberate the entire human race." The CCP has stated repeatedly that in order to achieve "global socialism" and "control the world," the only means is to resort to "military power."

This sentiment is very similar to the one in a North Korean billboard whose picture I posted a few months ago:

Prominent billboard in Pyongyang, North Korea, 2003. The right-most frame shows a North Korean spearing an American with a bayonet.

Prominent billboard in Pyongyang, North Korea, 2003. The right-most frame shows a North Korean spearing an American with a bayonet.

North Korea is a country on the verge of starvation, for which they blame the United States, and so the attitude towards Americans is absolutely lethal. Kim Jong-il encourages that attitude so that angry citizens won't blame his government.

The Chinese people's attitudes aren't yet as lethal as the Koreans, but the Chinese elite are preparing them.

Meanwhile an internal conflict is building within China itself. Leading it are people from China's "Miserable Generation," the post-war generation (arrogant and narcissistic, like our Boomers) that starved in the 1950s because of Mao's "Great Leap Forward," and got no education in the 1960s because of Mao's "Great Cultural Revolution." These people form the heart of the Falun Gong dissident movement, supported by the college-age generation of itinerant kids who are struggling to make a buck .. I mean a Yuan, to send back to their starving families on the farm.

Arrayed against them are the wealthy CCP elites and their relatives and friends who own the property and have the privileged jobs.

This is exactly the kind of generational mix that leads to crisis wars, especially when combined with China's aggressive militarization program of the last ten years. A financial problem will quickly exacerbate China's economic problems, with massive unemployment and poverty, especially rural poverty. The CCP will work to turn the widespread fury against Japan and America. China's declaration of war against America will be met with widespread happiness and jubilation.

What, you didn't know? When these wars start, the immediate reaction among the people is anticipatory celebrations of victory, and pleasure at the coming humiliation of the hated enemy, as described by historian Wolfgang Schivelbusch. It's only at the first major battlefield loss that the public begins to feel a complete crushing of self-confidence, followed by almost complete paralysis, in the words of historian Carl von Clausewitz.

These kinds of hysterical reactions are what makes the difference between generational crisis wars, and ordinary non-crisis wars such as the Iraq and Afghan wars. The Chinese, the Koreans, the Japanese and Americans will all go through this roller coaster ride of from jubilation to panic and paralysis, and this pure visceral emotion is what makes crisis wars far worse than anyone who hasn't live through one can ever imagine. (6-Dec-06) Permanent Link
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