A Different Take On Where China May Be Headed

[Annie]

I can see this, a collapse as quick and sudden as what happened in USSR:

http://www.publiuspundit.com/?p=889

I’ve been reading a lot about the maneuvering in Asia between China, India, Australia, and India. Of course, in the midst of all this, it doesn’t help U.S. policy that China has been portrayed as a capitalist boomland with the slight burden of a communist regime. Up until now, most people and even legislators have been growing too friendly with the China’s expansion. In case anyone forgot, let me refer you to the previous sentence: China has a communist regime.

At large, China is becoming a major power player on the world stage, and because of it, many issues ranging from Taiwan to the EU arms embargo are taking light. One of these that affects the U.S. most directly is the trade deficit with China, having just hit a record monthly gap of $61 billion.

The trend defied predictions by the administration, among others, that the declining value of the dollar would help close the trade gap as foreigners buy cheaper American goods and Americans buy fewer foreign goods.

The declining value of the dollar, however, is just one factor in the larger equation of trade. Creating a simple inverse equation can’t tell us how much lower our imports from China will be, especially since China’s manipulates its dollar-backed currency to be highly undervalued.

Now I’m all for free trade, but when you do so with a communist government, we end up with a form of hostile economic warfare. China’s refusing to revalue its currency is just one example of this, but it is a large one with an even larger impact on our economy. China is effectively trying to assert its economic leverage in the face of potential political resistence from the western world. This, combined with its huge military buildup, is making a generally open Congress nervous.

The US Senate will vote no later than July on legislation that would slap across-the-board tariffs on imports of Chinese goods unless China agrees to revalue its currency.

The agreement, worked out by the Senate leadership on Thursday, is the strongest sign yet that Congress might pass overtly protectionist legislation if the US trade balance with China continues to deteriorate.

After perusing the Senate’s legislation database for awhile, I came up with the Fair Currency Enforcement Act of 2005, which makes these findings in particular:

(8) A significant obstacle to United States manufacturers in competing against foreign manufacturers is the practice of some governments of intervening aggressively in currency markets, or pegging their currencies at fixed rates, to maintain their own currencies at artificially low valuations, thus subsidizing their export sales and raising price barriers to imports from the United States.

(9) Certain Asian countries exemplify this practice. China , Japan, South Korea, and Taiwan together have accumulated approximately 1/2 of the world’s total currency reserves. The vast majority of these reserves, perhaps as high as 90 percent, are in dollars. These same 4 countries account for 60 percent of the United States world trade deficit in manufactured goods. These reserves are symptomatic of a strategy of intervention to manipulate currency values.

(10) The People’s Republic of China is particularly aggressive in intervening to maintain the value of its currency, the renminbi, at an artificially low rate. China maintains this rate by mandating foreign exchange sales at its central bank at a fixed exchange rate against the dollar, in effect, pegging the renminbi at this rate. This low rate represents a significant reason why China has contributed the most to our trade deficit in manufactured goods.

(11) Economists estimate that as a result of this manipulation of the Chinese currency, the renminbi is undervalued by between 15 and 40 percent, effectively creating a 15- to 40-percent subsidy for Chinese exports and giving Chinese manufacturers a significant price advantage over United States and other competitors.

(12) The national currency of Japan is the yen. Experts estimate that the yen is undervalued by approximately 20 percent or more, giving Japanese manufacturers a significant price advantage over United States competitors.

(13) In addition to being placed at a competitive disadvantage by foreign competitors’ exports that are unfairly subsidized by strategically undervalued currencies, United States manufacturers also may face significant nontariff barriers to their own exports to these same countries. For example, in the past in China , until remediated, a complex system involving that nation’s value added tax and special tax rebates ensured that semiconductor devices imported into China were taxed at 17 percent while domestic devices are effectively taxed at 6 percent.

(14) The United States has the right and power to redress unfair competitive practices in international trade involving currency manipulation.

Putting the breaks on free trade, however, would hurt the consumer and China naturally could delay any “negotiations” as long as possible. As China grows, however, it continually becomes even more dependent on U.S. trade to survive. Wretchard writes:

Ironically, the bigger the Chinese economy becomes, the more vulnerable it grows to US countermeasures. And because any US-Chinese confrontation would be economically catastrophic for both countries, and to Japan and South Korea besides, Taiwan’s real guarantee against invasion is that it is a poisoned pawn. It would cost China everything it worked for in the last two decades to swallow.

Something whispers in my ear, however, that when the Chinese gets put up on its last legs, it won’t care about the ramifications of any drastic actions. Perhaps I’m one of the few, but I actually think that China’s democratization is an inevitability coinciding with its economic liberalization. With this kind of collapse around the corner, Taiwan could be a futile last grasp at maintaining authority.

It begs the question to be asked, Is China’s regime on its last legs? It wouldn’t appear so, given the economic boom. With the investors, however, comes western thought, and the influence of this thought has a way of piercing in and shining light on the dark corners of communism. They will either have to eventually reform, or go against the inevitable change of the tide and crumble. Along the lines of Wretchard’s ironic findings, it is also ironic to note that the economic growth that lends China’s rulers its ability to militarize is the same growth that causes the regime to rot from the inside with corruption.

The Epoch Times keeps track of how many people renounce their membership to the Communist Party.

The public announcements of withdrawing from the Chinese Communist Party (CCP) and League published on the special The Epoch Times website have already exceeded 700,000. Despite the CCP’s tight blockage of information into and out of China, through various means, the number of people withdrawing is 15,000-20,000 a day right now. Recently, The Epoch Times “Withdraw From the CCP” website has received announcements from the alumni of over 30 well-known universities including Shanghai Jiaotong University, Xi’an Jiaotong University, etc. of their withdrawals from the CCP. The announcements contain pictures, text, recordings, etc. Before this, the alumni from over 100 universities such as Beijing University, Qinghua University, the China Science and Technology University, Fudan University, etc. also made statements of withdrawal from the CCP/League in succession.

As the article notes, it’s all very hush hush to the outside while locals feel the heavy burden of corruption even with their village heads.

Protests and demonstrations are something a lot harder to quell and keep secret, on the other hand. Even the reason anti-Japan protests are coming under the baton for fear that they may turn anti-government. Even more blatant than that are the now tens of thousands rioting. This article that I posted last month notes the large increase in protests and those involved in them.

Protests have become increasingly common in China, fuelled by corruption and a widening urban-rural wealth gap.

More than three million people staged about 58,000 protests nationwide in 2003, according to Outlook magazine, a mouthpiece of the Communist Party. The number of demonstrations jumped 15 per cent from the previous year.

I think we can expect that to go even higher over the years. The Chinese leadership is finding itself increasingly in a situation of appeasement with its population. With so many internal problems erupting simultaneously, they must find a way to focus their problems on untouchable externals like Japan and Taiwan. Simon notes this trend.

The Chinese riots also reflect a major domestic political change. The Chinese Communist Party has long ceased to be a party of Communism. It has instead switched to becoming a party of nationalism. It suits to use such occassions as an outlet to allow people to vent. It would much rather than anger is directed externally than people look inwardly and discuss Government failings, such as the riots in Dongyang (more on them in another post). The problem is China will find it hard to contain the emotions unleashed and that will be to its detriment.

As those internal problems exponentially manifest themselves, the focus will likewise turn more and more outward. While not on its last legs completely, we will know when it is. China’s regime is like a light bulb making one last flash before burning out. Any incredibly desperate act, such as attacking Taiwan, will be precipitated by its struggle to survive in the face of ongoing economic, and therefore democratic, liberalization. It is therefore not a question of if, but of when China will march down the opposite road that Mao intended.

Robert Mayer