China a great power? Consider the obstacles


PARIS -- The announcement that China will sell off its state industries, made last Friday at the 15th Communist Party Congress in Beijing, invites misunderstanding about China's economic liberalization.

The announcement has also fueled discussion of what some contend is China's irresistible ascent to regional and even global power, challenging America's present standing as the dominant military power and political influence in the western Pacific.

At the party congress, following what appears to have been considerable controversy within the leadership, President Jiang Zemin said that some 10,000 of the 13,000 medium- and large-sized enterprises owned by the state will be sold. Sold to whom was not explained.

President Jiang indicated that they would not be privatized but would go into "public ownership," a concept yet to be clarified. It would seem to suggest that shares will be created in these enterprises to be bought by other public or semi-public bodies, or possibly by the managers of the enterprises -- although the latter raises the danger of the same kind of managerial confiscation of public assets that gave Russia its robber-baron capitalism. This cannot have escaped the attention of China's leaders.

It is possible to suspect that this devolution of state ownership is in fact a maneuver to shift responsibility from the state and party to more elusive and ambiguous targets when reform of these inefficient and money-losing enterprises causes hundreds of thousands of job losses. More than two-thirds of these firms are in deficit, and the aggregate losses increased by nearly 50 percent last year.

The government appears to want takeovers, fusions and bankruptcy to sort this out, so as eventually to produce a small number of industrial-banking-marketing conglomerates on the model of the big Japanese and Korean trading and manufacturing groups. Those are close to their governments, following national industrial and trading strategies.

Could such a change give China the industrial dynamism of Japan and the other capitalist Asian economies (notwithstanding their current problems)? The obstacles to China's development are too often neglected.

A devastating critique of the forecasts that say China is becoming a superpower was written last year by a Hudson Institute analyst, Robert Dujarric. He made his arguments again this summer in a German foreign-affairs journal (Internationale Politik und Gesellschaft). Some of his arguments are worth noting.

It was the impact and influence of the West that destroyed Manchu China. Today "there is no way for China to modernize itself without increasing its economic and social intercourse with the capitalist world," thus further undermining existing institutions.

A decaying Communist Party faces an eventual succession crisis internally, and the collapse of its legitimacy externally. The party is corrupt. So is the bureaucratic system. This is uncorrectable so long as government legitimacy is unrestored and no mediating civil society and civil ethic exists. (According to one survey of international businessmen, China is the 5th most corrupt of 54 countries surveyed.) China (quoting a Chinese scholar) now is "a land of no faith." Only money matters.

China's lack of law and accountability is a crippling obstacle. Sustained foreign investment and further development depend

on reliable and impartial legal systems.

The problem of who owns what remains unanswered, and nothing in current projects for reforming the economy will give an answer which the Chinese public and foreign investors are likely to find satisfactory. The sale of state corporations worsens this problem. Sixty-three percent of peasant farmers do not know the duration of their land rights.

A huge rural exodus is taking place. The urban infrastructures and economic development adequate to support this do not exist.

The present scale of the economy is usually vastly overestimated because purchasing-power comparisons are made. Actual GNP is probably less than $1 trillion, as against Japan's nearly $5 trillion. China's GNP per capita is $780 compared to $38,000 for Japan. The qualitative industrial and technological gap is vastly greater.

There is no effective tax system (only 11 percent of GDP is currently raised in taxes) and there will be none so long as a private sector does not formally exist. The regime has no effective alternative method for raising revenue. "The absence of a working tax system is a huge obstacle to further progress whose magnitude cannot be overestimated," Mr. Dujarric writes.

There are great risks in future rivalries among governing factions including the army), ethnic conflict (extending to ethnically related bordering regions in Central Asia) and regionalism (even warlordism). Civil war is not unimaginable. Nationalism, on the other hand, could produce self-isolation and international conflict.

The country is militarily weak. Its army functions as an internal political-control institution. It has neither the sophisticated management and command systems nor the technological capacities of, for example, the Japanese or Taiwanese military, and China's civil society cannot supply them.

The Singaporean or Japanese political and economic models are irrelevant to China for reasons of relative scale, their cultural coherence, and the political structures the former possessed when modernization began.

There is more to be said, of course. The Chinese are an enormously talented people with a rich and formidable history. But their situation today is much more difficult than is generally understood abroad.

William Pfaff is a syndicated columnist.

Pub Date: 9/18/97

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