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"China
is on a rising path and America
welcomes the emergence of a strong and peaceful and prosperous China." This
tactful remark by President Bush during his 2002 visit to Beijing undoubtedly reflects the thought
and good will of many Americans. They are awed by what they believe to be the
world's fastest growing economy of 1.3 billion people, four times America's
population. Other Americans, however, are rather fearful of the Chinese
transformation from a poor backward and stagnant country to a world power. They
are pondering and wondering whether China is moving toward a peaceful
democratic market order or merely from a moribund communistic system to a
more energetic nationalistic or even fascistic system. If the new China
is advancing along such paths, the future may merely be the troubled past
again, entering through another gate.
The history of the People's Republic of China
is a record of promises and disappointments, political turmoil and bloody
purges, ideological indoctrination and confutation, economic blunders and
painful shortages, and much conflict with its neighbors.
It began in 1949 when, after a bloody civil war, Mao Zedong led his red army
into Beijing and president Chiang Kaishek sought refuge in Taiwan. Mao reigned supreme until
his passing in 1976, collectivizing agriculture, nationalizing industries,
and launching one five-year program after another. In October 1950 he sent
his armies into North
Korea where they did battle with American
and United Nations forces until 1953 when both sides agreed to an armistice. Chinese
relations with the Soviet Union deteriorated
soon thereafter. With the passing of Joseph Stalin in 1953 and the destalinization policies that followed in the USSR, growing
ideological conflict began to divide the two countries. Under Stalin, the Soviet Union had been a model and faithful ally of the
Mao regime; his successors terminated its aid and withdrew its technicians
and scientists in 1960. Both sides then marshaled
their armies in massive buildups along their
borders. Occasional clashes added the perils of a monstrous war. The UN
nevertheless welcomed China
as a new member in 1971. President Nixon visited Beijing a few months later, hoping to
normalize U.S.-Chinese relations. President Carter restored formal diplomatic
relations in 1979.
Throughout the Mao era his interpretation of
Marxism-Leninism provided the basic ideological guide for the Communist
Party's revolutionary actions. He introduced "five-year plans" that
established the economic objectives and priorities for the country. To make China an
industrial power overnight he embarked upon The Great Leap Forward; it
nationalized all industries which, under Party management, soon deteriorated
despite heavy government investment. He collectivized agriculture, combining
all farms in cooperatives and hence in vast rural communes. When acute food
shortages soon gripped the country, a ration system was introduced. Famines
nevertheless killed an estimated 30 million people from 1949 to 1951. Mao and
his men had a ready explanation for the calamities: there were natural
disasters such as floods and droughts, typhoons, insects, pests, plant
diseases, hailstorms, frost, and, of course, there were
"counter-revolutionary criminals." His administration reacted
promptly and resolutely by prosecuting the criminals and by moving millions
of people from Shanghai
and other large cities to the hinterlands and placing them in the agricultural
communes.
Wielding much power, Mao was fraught with knowledge
and wisdom. He presided over the Communist Party which worked through the
government structure, passing laws and regulations, and enforcing them
relentlessly. Ever mindful of the power and danger of ideas and ideology, Mao
immediately brought education under Party control. All schools and
universities were taken over; Christian missions were expropriated. Teachers
were put through "ideological remolding
campaigns" that redirected them toward mass education and ideological
conformity. Mao educators and propagandists even reached out to communist
parties throughout Asia, Africa, and South and Central
America.
The Great Leap Forward brought disintegration and
death rather than a rush forward. Mao reacted with a new program, The Great
Proletarian Cultural Revolution (1966-1976), which was a hardened ideological
approach to internal and external problems. Designed to eradicate the deep
roots of bourgeois ideology and wipe out the remaining vestiges of
capitalism, it launched a campaign against prominent publicists, novelists,
historians, and philosophers, in fact against all intellectuals. It was
spearheaded by the Red Guard which was composed mostly of teen-agers and led
by a few Mao favorites, including his wife. Their
emphasis on ideological purity and vigorous class warfare brought new social
turmoil and economic commotion.
In 1973, Mao, now 80 years of age,launched his final ideological campaign,
mobilizing the masses not only against cultural relations and exchanges with
the West but also against the teachings of Confucius, the Chinese sage of the
6th century B.C. Confucius and his many disciples created a popular system of
ethical precepts for the proper management of society, a system that views
man as a social creature bound to his fellowmen. Humanity, according to the
precepts of Confusionism, finds expression through
five peaceful ethical relations: sovereign and subject, parent and child,
elder and younger brother, husband and wife, and friend and friend. Of these,
the filial relation usually is paramount. Such ancient ethical relations
obviously confute and impugn the communist doctrines of class struggle and
war against bourgeois institutions, such as the family and religion. Many
Chinese who are conversant with the teachings of Confucius found grievous
fault with the law that limits families to one child. Loud protests and
widespread infanticide finally forced the government to moderate the policy.
The death of Mao Zedong in 1976 ushered in a new
phase of Chinese communism. The political and social conflicts of the Mao era
gradually gave way to peaceful cooperation. A new pragmatic leadership
embarked upon political and economic reforms that made way to market forces
and economic development. They granted more freedom in many matters of
economic production. But there is little relaxation of China's traditional authoritarian
predisposition; it has guided the country since ancient times.
During decades of turmoil and disappearment
the new Party leaders had learned to distinguish between fact and fiction,
good and evil. Determined to focus on facts and reality rather than ideology,
the Central Committee of the Communist Party in 1978 transferred much power
to regional managers, reorganized many facilities of production, and allowed
privately owned companies to lead the way. Above all, it opened China to
foreign investment and trade. A year later several coastal cities were
designated "special economic zones," to draw foreign investment,
trade, and technology. Most agricultural communes and collective farms were
"decollectivized," which led to a
dramatic increase in output.
In 1982 a new constitution upheld the supremacy of
the Communist Party and strengthened its governing capacity but unexpectedly
also proclaimed that " a citizen's lawful
private property is inviolable." It eliminated several thousand local
government units and made way for a rapid development in urban areas. The
reforms soon gave rise to small-scale industries and development of a service
industry. Millions of people left agriculture, which had offered subsistence
to many during the 1950s and 1960s, to partake of the rapid progress in urban
areas and the transition to a mixed economy.
The rate of economic development has surprised many
observers. Annual gross national product (GNP) reportedly is approaching $1.5
trillion and per capita production $1,200. "It cannot last. The Chinese
economy will crash," many forewarn. They are aware that many Chinese
companies are partially state-owned, government-funded, and publicly favored. Many produce only for local markets because they
cannot compete internationally. Surely, every such mixed system is bound to
suffer malinvestments that, sooner or later, need
to be corrected or abandoned. Suffering crashes that shed light on the
maladjustment and needed readjustment, it undoubtedly is more productive than
the commune and command system, which tolerates no light coming from the
market order.
The rate of Chinese economic development, as
calculated and publicized by the authorities, gives rise to much admiration
and applause all over the world. It unfortunately obscures the simple fact
that a given investment yields much greater rates of return in a primitive
economy than in one that is very productive. A million-dollar investment in a
poor workshop may increase the productivity of its workers manyfold; the same investment in an American
manufacturing plant may merely reduce the noise level. The workshop owner
even may borrow the investment fund from the manufacturer and then use his
latest technology and know-how to modernize the workshop. It took many
generations of entrepreneurs to build the manufacturing plant and many
generations of scientists and inventors to create modern technology, but it
may only take a few years to copy it all. Western capitalists and
entrepreneurs may even give a helping hand and American universities may
train the computer operators. At the present, some 20,000 Chinese students,
most of whom seek engineering degrees, are studying in the United States.
Unfortunately, it is unlikely that the leaders of the People's Republic of
China will for long recall the foreign capital and technology that ushered in
their new age and raised all levels of living. Gratitude may be the poor
man's payment; it is a painful thing to bear in politics.
In 1989 Chinese relations with the West suddenly
were overshadowed when the people's Liberation Army massacred several hundred
demonstrators in Tiananmen Square in Beijing.
Daily demonstrations of more than one million people during Soviet President Mikihail Gorbachev's visit were receiving worldwide live
television coverage and inciting the wrath of the Politburo. The people were
demonstrating about rampant inflation and the visible growth of corruption at
every level and in every sector of Party government; thousands of young
students were leading the protests. The carnage brought China's
budding democratic movement to a bloody end. By the end of the summer some
20,000 dissidents had been arrested and detained nationally; the number of
executions remained unreported.
The Western world was horrified by the massacre. Many
countries imposed political and economic sanctions on China,
suspending high-level contacts and freezing credits to the regime. Even the
UN Human Rights Commission passed a censure resolution, the first ever
brought against a permanent member of the UN Security Council. President
George Bush reluctantly blocked arms sales to China, but Congress passed its
own package of sanctions against the People's Republic.
Much productive capital nevertheless continues to
find its way from the developed countries and especially from the United States to China. At this time, the Bank of
America, the country's second-largest bank, is about to invest heavily in
China Construction Bank, one of China's big four state banks. Many
other private banks all over the world are attracted by the country's great
potential. But they are not allowed to own more than 25 percent of a Chinese
bank and occupy more than one or two seats on a bank board. Capital always
moves to places where it is secure and productive; it tends to move until its
return no longer warrants the move, that is, until the returns everywhere are
equal. Surely, most business capital consists of immobile means and
facilities of production. But they wear out and need to be replaced
which affords a great measure of mobility. The old factory may be closed, the
workers laid off, and the replacement factory with the latest technology may
be built abroad. It will raise labor productivity
wherever it goes and depress it wherever it leaves. It is a powerful force
toward equalization of working conditions and levels of living throughout the
world. According to official statistics, it raises Chinese gross national
product at a nine percent annual rate and causes the industries of old
industrial countries to stagnate or even decline.
Most observers may view this tendency as desirable
redistribution of income and wealth and consequently as an important factor
of international peace and harmony. Economists look with favor
on the equalization process. But they often overlook the political forces
that are likely to disrupt and ultimately hamper capital mobility. In the din
of labor criticism and opposition a country that is
losing business capital is likely to impose capital restrictions and erect
trade barriers that are designed to hamper and even prevent the movement of
capital. Such policies obviously cause much international agitation,
irritation, and confrontation. In the end, politicos everywhere may wage
economic wars of retaliation which cause business capital to seek safe havens
rather than highest productivity and return.
A growing point of contention and confrontation is China's
monetary policy. The bank of China
is maintaining a decade-old exchange rate of 8.28 yuan
to the U.S. dollar, which apparently undervalues the yuan
while it overvalues the dollar. No matter how the Federal Reserve System
inflates and depreciates the dollar, Chinese monetary authorities are keeping
in step with the Fed. Chinese authorities obviously like exchange rate
stability which has enabled the Chinese economy to adjust to the world market
and expand in an orderly fashion. But the world economy is rather unstable.
The United States
is suffering huge trade deficits which are rising continually; according to
Organization for Economic Cooperation and Development (OECD) estimates, they
may reach $900 billion or 6.7% of US GDP in 2006. The risk of a monetary
disaster surely is rising steadily.
Many Americans are quick to lay the blame on the
doorsteps of China;
the Chinese naturally find fault with American money managers. They may point
out that the American trade deficits, which have flooded the world with
American dollars, are the inevitable consequence of Federal Reserve monetary
policy. To lower interest rates far below market rates is to increase the
demand for money. While such a policy would devastate a national currency, it
merely floods the world with the primary world currency, the U.S. dollar. Adjustments
to global imbalances are rather slow, but they are bound to come. Asian
central banks in particular are inundated with American IOUs, holding some 60
percent of all international dollar reserves. If they should decide to unload
their reserves and move into euros or any other currency, the dollar would
crash, that is, suddenly lose a large share of its international value. It
would inflict instant losses on all dollar holders, upset all bond and stock
markets, and depress the world economy. The two biggest dollar holders and
creditors, Japan and China, would
be the biggest losers, which undoubtedly makes them fearful and reluctant to
initiate any unloading and dumping of their dollars. A Japanese or Chinese
government that means to strike the United States for any reason
could easily trigger the dumping. The crash would be heard around the globe
and the effects be felt worldwide.
Economic wars tend to prevent capital from finding
productive employment; they may even consume it, causing labor
productivity and levels of living to stagnate or even decline. Such wars harbor a danger far greater yet than simple retaliation
and economic depression. They may trigger bloody wars between the retaliating
parties. Surely, most Western countries are rather hesitant and slow in
striking at their neighbors; it takes a majority of
political representatives to declare and wage war. But China is no
democracy; it is led by a handful of party autocrats who command the largest
army in the world. They possess an armory of atomic
weapons since 1967 and know how to send intercontinental missiles on their
way since 1970. To aggrieve them with painful trade restrictions and
sudden withdrawals of business capital may have ominous consequences. Moreover,
they harbor an old grievance in the form of the U.S. military alliance with a secessionist
part of China, the island of Taiwan. This old hurt together with
new economic injuries inflicted by American trade restrictions could strain
and ultimately exhaust the patience of the autocrats. In reaction they may
shape the history of the 21st century.
There are a few Americans - chiefly political
scientists and military officials - who are sounding the alarm about the
Chinese threat. They are speaking largely in political and military terms. China is gradually expanding its military
might, purchasing modern equipment from Russia, although the amount of
arms spending merely is a fraction of the Pentagon's annual defense budget. But these amounts may change quickly;
they are determined by a few autocrats in Beijing. Some political scientists are
dismayed especially by the total supremacy of the Chinese Communist Party
together with the long Chinese tradition of autocratic rule. In 2004 the
People's National Congress, while it made minor concessions to the market
order, expressly confirmed the fundamental principles of Chinese power: the
leadership of the Communist Party, the people's dictatorship, the socialist
road, and Marxian-Leninist-Mao teaching. Few American observers are alarmed
by such proclamations.
Communist power has meant bloody terrorism, deadly
purges, lethal prison, forced labor and mass
executions. According to some estimates, from 1917 to 1976, global communism
has taken the lives of some 110 million people, which compares with 35
million killed in all 20th century wars from World War I and II to the Korean
and Vietnamese Wars. Fighting "exploitation" and
"imperialism", communist regimes have purged capitalists, the rich
and the landlords, intellectuals and clergymen, the rightists, tyrants, and
counterrevolutionaries.
Marxism-Leninism is alive and well not only in China but also in North
Korea, Vietnam,
Laos, some African
countries, Cuba,
and in the minds of many South and Central American politicians and
revolutionaries. It pollutes the minds of many European and American
academics, intellectuals, and politicians. Its terminology may differ from
language to language and may change over time, but its arguments about
"class struggle" turn up again and again in many political and
economic discussions. In China,
the Communist Party with some 50 million members presently seems to be
divided about its calling and direction. Some Party leaders favor the new direction toward rapid improvement in
productivity and accumulation of national wealth while others are actively
promoting old policies designed to achieve fair distribution of all income
and wealth. Some seek to maintain a good relationship with the United States
and its Asian neighbors; others emphasize the
importance of national power and military might. They all are faithful
students of Marxism-Leninism-Maoism, always ready to follow the party line. When
provoked, they may seize the foreign capital that found its way to China in
recent years. Closing ranks again, they may want to lead the proletariat of
the world to sweep away capitalism and point the way to "the
dictatorship of the proletariat." Indeed, they may become the greatest
threat ever faced by the West.
Dr Hans F. Sennholz
www.sennholz.com
Dr. Sennholz is President
of The Foundation for Economic Education, Irvington-on-Hudson, New York and a
consultant, author and lecturer of Austrian Economics.
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