Wednesday, January 13, 2010

Chinese Puzzle

Google has announced that they have uncovered a systematic attack on their systems in China, targeting pro-democracy activists. They have therefore renounced their policy of self censorship, the so-called "Chinese firewall", that prevents a Google search showing results that the Chinese Communist Party does not approve of. From the point of view of most users of the web, this will be welcome news, and Google has sustained some withering criticism for its willingness to accommodate the authoritarian regime in Beijing. As for Google itself, they have seen falling market share in China, and although there is a growth opportunity forgone, the costs of withdrawal from the Chinese market are not particularly severe at this point.
However, this is the latest in a series of news items from China that suggests that the country could be on the brink of significant upheaval. The Chinese economy is expanding rapidly, to the point where the Chinese monetary authorities are moving to tighten their reserve requirements, and may be forced into an early rise in interest rates. Despite the policy of keeping the Chinese currency at a low rate, when a free market would have appreciated the exchange rate, it may be that inflationary pressures in China are more serious than has been understood. Certainly, the incredibly inefficient Chinese banking system does not seem to function in a normal commercial way. Even three years ago there was substantial speculation that the Chinese banking system held losses about as large as their then holding of US Dollars. The Chinese economy is massively weighted in favour of manufacturing, and it is making the country exceptionally rich. Yet more and more we hear of problems emerging amongst Chinese producers, and several American manufacturers have decided to return some manufacturing to the US.

Part of the problem remains the fact that the Chinese do not respect intellectual property laws when it does not suit them. Widespread copying and counterfeiting amounts to wholesale theft, and many of these thieves operate under the protection of the Chinese authorities, including the Chinese army. Google too may be facing the theft of its codes, which might not be an issue of competition, but certainly is a question of security and privacy. In short there are major difficulties in dealing with the Chinese authorities that set limits to what can be achieved in the Chinese market.
Internationally too, we see policies, such as the hoarding of rare earths which suggest that China's embrace of free markets is an attempt to seize global economic domination by any means, and threats to the United States over their arms sales and other support for Democratic Taiwan. These policies have raised fears that China is a potential threat to the international system and potentially to global peace. Certainly as an emerging power it is inevitable that China will exert growing power on the world stage, however whether that is a force for good or bad will depend on whether China is prepared to respect international law and the agreements that she herself makes.
The root of the problem is the Chinese political system. It is increasingly obvious that prolonged one party rule is creating a corrupt cadre of leaders that are increasingly afraid of the material and political aspirations of the people. If this economic crisis stalls the astonishing economic growth of China, then a substantial part of the legitimacy of Communist rule will be undermined.
Even as it is, there is a growing number of Chinese who are seeking to create a more open and pluralist political system: and the emergence of a Chinese democracy out of the KMT dictatorship in Taiwan is becoming an ever louder rebuke to the Communist Party in Beijing. The Tienanmen square pro-democracy demonstrations of June 1989 still makes Communist blood run cold: they fear the challenge of political reform.

Yet that reform voice is growing, which is why harassment of democracy activists is growing more obvious too. Buried beneath a blanket of pro-regime propaganda, the mass of the Chinese people have given the regime legitimacy, but this legitimacy is conditional upon the continued delivery of economic success. Inevitably, though, there will come a time when the economy enters a cyclical downswing- and at that point the political challenge will be redoubled.
One Chinese commentator suggested that Democratic rule must be only a matter of time, that ultimately a free press and indeed multi party elections will come- and that this will give China far greater stability. He believed that the current "rule of men" must give way to a "rule of law". He wrote:

"It is the Western parliamentary democratic system that has demonstrated the most vitality. This system is currently the best one available. It is able to manifest the spirit of democracy and meet the demands of a modern society, and it is a relatively mature system.
Of course, this system is not perfect; it has many problems. yet relatively speaking, this system is best suited to a modern civilization, more adaptable to shifts in public opinions and more capable of realizing democracy. Moreover, it is more stable. The vitality of this system has grown increasingly clear. Almost all developed nations have adopted a parliamentary democracy.
In the past few decades, the newly emerging nations with their fast paced development have illustrated more clearly the trend to converge on a parliamentary democratic system. I am certain this is not by chance. Why is there not one developed nation practicing any other system? This shows if a country wants to modernize, to realize a modern market economy, it must practice parliamentary democracy as its political system.
Of course, it is possible that in the future a more advanced political system than parliamentary democracy will emerge. But that is a matter for the future. At present there is no other.
Based on this, we can say that if a country wishes to modernize, not only should its adopt a market economy, it must also adopt a parliamentary democracy as its political system. Otherwise, this nation will not be able to have a market economy that is healthy and modern, nor can it become a modern society with a rule of law. Instead it will run into the situations that have occurred in so many developing countries, including China: commercialization of power, rampant corruption, a society polarized between rich and poor"
As Democrats there is nothing we can disagree with here. So it may be surprising to learn that they are the words of Zhao Ziyang, the former Communist Prime Minister of China, who was placed under house arrest after the crushing of the Tienanmen Square demonstrations until his death in 2005.

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