International Consequences
THE ISSUE:
The official visit of Venezuelan President Hugo Chavez was highlighted with Chavez signing agreements to quadruple Venezuelan oil exports to China during the next decade. Trade will increase to 1 million barrels per day and the package will include a $5 billion Chinese investment-partnership to develop Venezuelan oil fields during the next six years; $2 billion will go into oil and petrochemicals and China will invest $9 billion into a Venezuelan railway. In addition, Chinese leader Hu Jintao pledged to support Venezuela as a new member of the United Nations Security Council -- against the opposition of the United States. At an international media event, Chavez and Hu toasted what Chavez proclaimed as a growing “strategic partnership” with the Asian giant.
On Netherlands Radio, Jan van der Putten observed, “The US is obsessed with the anti-terror battle and hasn’t so much time to spend on Latin America. It [the partnership] is a stunt by Venezuela and China against the United States. China is heavily helping countries who have their problems with the United States and that has to do with China’s own aspirations to become a world power. China is advancing in Latin America, Africa, Southeast Asia, Central Asia and everywhere the position of the United States is at stake.”
On one hand, China claims its intentions are for a peaceful world and a long-term business and political partnership with the US. On the other hand, Beijing is socially regressing by suppressing political openness and information transparency. The ruling Communist Party maintains control through corruption and favoritism in its one-party rule. Simultaneously, Beijing is spending a fortune expanding its military’s long-distance conventional and nuclear strike capabilities and aggressively competing with the US for economic and political influence on a global scale. The reasons why may be found in the economic, social and political contradictions inside of China.
Cash Reserves and Banking Instability:
The good news that lures increasing international investors to China is that its economy grew by 11 percent during the first half of 2006. It also leads the world in cash reserves, apparent in its military expansion and gifts and investments in resource-rich governments around the world. At the same time, the BBC reported on July 30, 2006, Chinese leaders have called for urgent steps to prevent economic overheating, stating that runaway growth could soar out of control into a crisis, fueling inflation and leaving banks exposed to overwhelming debts. Japan fears it is holding too much of Chinese insolvent bank debts and is nervously seeking to transfer investments to regional neighbors, such as India. Australian Sushil Seth commented in the August 18, 2006 Taipei Times, “A closed political system, in the midst of rapid economic and social change, will inevitably create pressure points with the potential to explode.”
Chinese Premier Wen Jiabao, as quoted in the July 30 BBC News, worries about the imbalance and internal combustion created by a growing wealthy class in the cities juxtaposed against the desperate poverty of 800 million people in rural areas. “We must take forceful steps to prevent the economy’s rapid growth from turning into overheating,” Jiabao warned.
Seeking a damper, China has raised interest rates, which creates the risk of unemployment. George Friedman observed in the June 20, 2006 STRATFOR.com, “Lending has become a system for maintaining the political solidarity of China’s elite. Loans were not made only to avoid the problem of unemployment, but as part of political arrangements that allows the Chinese Communist Party and regional party organizations to avoid conflicts and divisions. The question of who will go bankrupt and who will not becomes a highly divisive and potentially destabilizing political crisis.
“The financial problem is a symptom; the fundamental problem is the tremendous irrationality that has been built into the Chinese economy. Enterprises [especially state-owned] that are not economically viable continue functioning through infusions of cash. Some of the cash comes from borrowing [banks], some by exporting at economically unsustainable prices. It is not only the state-owned enterprises that are economically unsustainable; it also includes many newer enterprises including those in which Western companies have invested. When we look at the figure of nonperforming loans, they amount to nearly half of China’s gross domestic product.”
Urban Growth in Communist Party Membership vs Rural Decline:
The Chinese Communist Party under the “helmsmanship” of Mao Tse-Tung began largely as a rural movement, claiming to champion the peasants and workers who were victimized by urban and foreign capitalists. There is a major contradiction in the make-up of today’s Communist Party that may unhinge social order throughout the People’s Republic.
Writing in the August 28, 2006 Japan Times, Cambridge University professor David Wall observed those contradictions in the post-Deng Xiaoping communist party. “Membership in the Chinese Communist Party (CCP) has grown to a record 71 million; apparently there are also 17 million applicants waiting to join. Since 1990 party membership has grown by almost one-fifth.” However, Wall continues, “In the countryside, the rural poor, who had been led to believe that communism would improve their income and welfare, are leaving the party in droves. Rural membership is apparently down by 80 percent since 1990.”
“Eight percent of all college students are now members of the Party -- up from 1.1 percent in 1990. The ratio is still increasing: There was a 29 percent increase in the numbers of students admitted to the party in 2005. A study by the Chinese University of Hong Kong suggests that people who join the CCP can expect, on average, to enjoy a 28 percent growth in their income as they take advantage of the connections that membership gives them. This is growth in legal income. And many, possibly most members enjoy much bigger increases in income from illegal sources.
“As China continues to deteriorate, with environmental and social degradation accelerating, the leaders of the CCP are beginning to sound like Emperor Nero fiddling while Rome burned. Party leaders seem concerned more with preserving their privileges and those of their families than in remaining honest and seeing to the welfare of workers and the unemployed.
“Being a member of the CCP does not mean one has to act like a communist. You are more or less required to play at capitalism, legally or illegally. The state-owned enterprises that still dominate the Chinese economy, and the state-owned banks that keep them going, continue to divert huge amounts of capital -- billions of dollars a year -- to party members.”
Impact on International Political
Stability:
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Although China has substantial cash reserves, they do not match the financial needs to cover a domestic banking crisis. As STRATFOR’s George Friedman states, China’s cash reserves and manipulation of financial rules and regulations may allow insolvent banks to perform for a while longer. But, “On the other side of a bad loan is a creditor.” This would especially include Japan, the United States and other Western countries whose business communities have been caught up in China investment fever. This would also devastate the American middle-class whose pension funds and private investment portfolios may be invested in the Chinese economy.
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The effects on the Chinese people will be exceptionally severe, not only in the loss of financial security of the emerging middle class and but also the collapse of state-owned enterprises that employ subsistence workers. In seeking to maintain their grasp on political power while civil unrest grows, Chinese Communist leaders will intensify their violent abuses of civil liberties and human rights.
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The potential for international conflict will grow as Beijing’s leaders lash out at their neighbors and blame foreign competitors for their self-imposed economic and political problems in order to seek unity under the banner of patriotism. The recent increase of Chinese cyber attacks and probes on US and Japanese State Department and Defense Department sensitive computer systems should be seen as dress rehearsals for a cyber “Pearl Harbor.” According to Chinese military doctrine, the first strike in an actual war would include massive cyber attacks on financial institutions and communications systems.
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Proxy conflicts may also intensify in resource-rich Third World nations where China competes with the West for scarce natural and energy resources. In addition, cooperation among major Powers at resolving disputes at the United Nations and other international economic and security forums will be exceptionally complicated. This is exemplified by Chinese and Russian government backing pugnacious Hugo Chavez’s Venezuelan government to have an influential seat on the UN Security Council.
