Gordon Chang’s The Coming Collapse of China was one of the most widely read China books at the start of this decade. In it the author predicted the Communist dynasty would be brought down within five years as the financial system collapsed under a mountain of bad debt and corruption.
The deadline for Chang’s prediction has come and gone, and the Communist Party is still firmly in control. One could even mischievously suggest that Beijing has tightened its grip on power because it heeded Chang’s warning and bailed out the banks to the point where they are now the biggest (or most expensive, depending on your point of view) in the world by market capitalization.
The momentous overhaul of China’s financial system was made possible by the government’s strategy of using outside pressure to catalyze reforms that would have been impossible to implement from within. This meant agreeing to open up to foreign competition while at the same time pushing domestic banks to sell strategic stakes to the foreigners and do stock market listings as a means of raising capital and introducing better oversight.
Chinese banks still have a long way to go before they can claim parity with their international counterparts, but the credit crisis in Western markets makes the gap look a lot narrower than before.
Under President Hu Jintao the party has started to address – or at least pay lip service to – a host of other issues besides the weak financial system. These include the environment, the yawning gap between rich and poor and rampant official corruption. Each time the government adds a popular grievance to the list of tasks for cadres to tackle, it makes the coming collapse look even further off.
But the underlying premise behind Mr Chang’s book remains solid. Authoritarian dictatorships, whether left-wing or solidly right-wing like the current Chinese administration, are inherently fragile. The Chinese Communist Party today derives its legitimacy solely from the double-digit economic growth rates it has manufactured and maintained over the better part of a decade.
Without a popular democratic mandate, the mandarins worry constantly that an economic slowdown would see the restive masses rise up and demand a more representative government.
On a purely practical level they recognize the machinery of democracy is far more efficient than that of a dictatorship.
Elections are a barometer of public opinion the Chinese leadership can only dream about. In China, local officials suppress dissent and problems usually only become known to Beijing when they erupt into real crises. This casts officials in the role of firefighters who lurch from one emergency to the next, dealing with issues as best they can.
The consensus among China’s top financial officials is that the country is nearing the end of its current economic boom and there will be a downturn at some point in the next couple of years, perhaps caused by external forces beyond the reach of Beijing’s fire trucks. Domestic banking executives talk openly about the need to diversify risk away from the Chinese market and that is one of the reasons why the state-owned banks are looking to expand overseas.
Within the top Communist leadership, another consensus appears to be solidifying: In order to survive the coming challenges and avoid collapse and breakup of the People’s Republic, the party must implement political reforms that introduce some form of democracy.
In a speech to the World Economic Forum in Dalian last year, Premier Wen Jiabao told global business leaders that continued economic development in China would be impossible without political reform. Then Hu mentioned the word “democracy” at least two dozen times in his address to 17th Communist Party Congress in October.
This is of course an old Marxist strategy – adopt a word or concept and make it mean what you would like it to – and in Hu’s lexicon the word means something very different from what it means to the rest of the world.
But the party knows it must continue to heed apocalyptic warnings from people like Chang. Without continued evolution, China’s leaders will not be nimble enough to negotiate the post-economic boom challenges that lie ahead.