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  1. Politics
10 January 2000

Will this be the Chinese century?

"To get rich is glorious," said Deng Xiaoping. But in Beijing, John Lloyd finds that industry is sti

By John Lloyd

China is this new century’s wildest card. The largest nation in the world, it is also the only one (given the continuing weakness of Russia) which can challenge US-cum-western interests anywhere on the globe. Its reform strategies have depended neither on western advice nor on International Monetary Fund support; its security policies are unconstrained by treaties with regional organisations such as Nato or the OSCE; its nuclear forces are now larger than those of Britain or France; its apparent confidence in its own economic strength was signalled at the end of last year by the agreement with the US on the terms under which it would join the World Trade Organisation. For those who look for a new 21st-century hegemon, the signs are all there.

For example, Richard Bernstein and Ross Munro, both former newspaper correspondents in Beijing, argue in their recent book The Coming Conflict with China that “China [is] rapidly becoming the globe’s second most powerful nation [and] will be a predominant force as the world takes shape in the new millennium”. They quote General Mi Zhenyu, vice-commandant of the Academy of Military Sciences, as saying that “for a relatively long time it will be absolutely necessary that we quietly nurse our sense of vengeance. We must conceal our abilities and bide our time.” In other words, though China may seem unthreatening in the years to come, that is merely part of its strategy: the ultimate aim is to surpass America in international stature.

The diplomatic gestures have underpinned that view: China is a power to be treated with ostentatious respect. Most western leaders have done the pilgrimage to Beijing to meet Jiang Zemin, the Chinese president and Communist Party leader. In a return visit to the UK late last year, Jiang was shielded from human rights protesters and – in the view of many of those protesters – the demonstrations were themselves curbed out of deference to his sensibilities. Yet even the prime minister, Zhu Rongji, admitted last year in the US that the treatment of dissenters in his country is often indecent.

Beneath the respect – and the willingness to complain only softly about human rights abuses – lies the judgement that China will do much better than Russia in making the transition from state command economy to some form of capitalism. For the past 20 years, the Chinese Communist Party has identified a move towards the world market as a central strategic aim; and with the slogans and approach of Deng Xiaoping (“liberate your minds”; “to get rich is glorious”) it gave the activities of entrepreneurs and traders a moral and political underpinning. At the same time, it put pressure on the big state companies, which still dominate or even monopolise the sectors considered strategic, to match the global competition by the first years of the new millennium. Indeed, it was understood that the success of China as a superpower depended upon just such a move. Western power was increasingly built on the strength of its corporations, and so must China’s be.

But how strong in reality is that corporate sector? I recently visited Beijing for the concluding seminar in a remarkable series of brainstorming sessions involving senior Chinese executives and their UK equivalents. The main organisers had been Professor Peter Nolan, who holds the chair of Chinese management at the Judge Institute in Cambridge, and Wang Xiaoqiang, a Chinese economist who had once advised the prime minister and is closely connected with the economic modernisers. These two had done detailed studies of the performance of the Chinese state industries, matching them, according to their own desired benchmark, against the global competition.

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The corporations included some of the giants of the Chinese industrial scene: the Chinese National Petroleum Corporation, the petrochemicals companies Sinopec and Shanghai Petrochemicals, Harbin Power Plant, Shougang Steel Corporation, the pharmaceuticals group Sanjiu, the Shenhua Coal Corporation, the Yuchai Diesel company and the AVIC aerospace corporation. In all of these – certainly according to their leaders – China had to have a major strategic presence; yet in all of these, even in coal production, it already faced, and would (under WTO terms of membership) face much harder, international competition.

What the Nolan-Wang research showed, and what the debate in Beijing underscored, was that the past 20 years of preparation for the capitalist market had only partly worked. The Chinese industrialists had made corporations of what had previously been ministries; had allowed the bosses of the corporations some autonomy in reorganisation and in identifying and serving new markets; had permitted partial flotations of company stock on Hong Kong and even on New York exchanges; had let some of these bosses get rich, even to sack some workers.

And there had been real successes. The Sanjiu pharmaceuticals company had grown enormously, to dominate the market and develop a promising international line of Chinese herbal remedies – even as it was formally the property of the Chinese Peoples’ Liberation Army. The oil and petrochemical companies have absorbed many of the new managerial practices, raised capital on international markets and agreed a series of multi- billion-dollar joint ventures. Shougang Steel became so expert in computerised production techniques that it won a contract to install the control systems for a US steel-maker.

When compared with Russia’s decade of more or less continuous decline, China looks good: Nolan wrote a book in 1995 called China’s Rise, Russia’s Fall, in which he dismissed the prevailing view that the Gorbachev/Yeltsin reforms were in some way “better” than the continued Chinese domination of the economy and of politics. China’s communist dictatorship, he argued, was vastly better at governing China than the Gorbachev or Yeltsin governments were at governing the USSR and Russia respectively. It was superior to its Russian counterpart in selecting and implementing “good” policies “that would release the system’s productive potentialities and enhance the welfare of the vast bulk of its population”.

But that was five years ago. It is no longer a matter of pride that China has avoided the fate of Russia; it must, under its own terms of engagement with the world, now approach the efficiency of the United States. The world has moved on: and it is the speed with which the world moves that now obsesses and appals the Chinese economic leadership. Globalisation has marginalised a Russia unable and unwilling to change; it threatens to do the same to a China striving as hard as it can to change.

In the preface to his report to the seminar, Nolan quotes, tongue in cheek, from the Communist Manifesto of 1848. “The bourgeoisie,” it reads, “has through its exploitation of the world market given a cosmopolitan character to production and consumption. To the great chagrin of reactionaries, it has drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed . . . in place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal interdependence of nations.”

Ludicrously ahead of their times (most of the following century and a half saw industries growing up precisely on “national grounds”), Marx and Engels wrote a perfect text for the dawn of the 21st century, especially for a leadership which still sets store by the tablets. The Chinese leaders argue that socialist strategy must indeed be to “have intercourse in every direction” by mastering and bestriding the forces of globalisation. But the problem is that this conflicts with every tenet of Chinese socialism, and not all of those tenets can be waved away with homilies about multi-coloured cats and mice.

The debate in Beijing – frank and serious as it was – came back time and again to the constraints under which the state industry bosses laboured, even after being set free. The foreign media had made much of those industries that had been allowed to float shares on international markets – but many more that wished to do so were refused permission. When flotation was allowed, it was under strict central control. The Chinese press was full of stories about senior executives bribing state officials to allow flotation; one group of oil executives has been arrested and may face the death penalty for such conduct.

The Chinese state did and does encourage entrepreneurial behaviour from its managers; but it stifles and cramps them, and can even destroy them. Both the past and present chief executives of the AVIV aerospace corporation attended the Beijing seminar to complain that the state was inconsistent and arbitrary in its approach to an industry which it saw as critically important to its industrial and military strategies; at the end of the debate, Nolan commented tartly that such were the needs of capital and technological expertise for the construction of large airliners that China had to think very carefully before attempting to create a “national champion” to compete with Boeing and Airbus.

Above all, state industry has been – as in the Soviet Union and throughout the socialist bloc – a political and social affair at least as much as an economic one. Industry was there to create and sustain a working class, the backbone support of the Communist Party. And Chinese firms, even more than their Soviet companies, were “little societies”, running their own education systems, housing departments, hospitals, creches, sports and leisure facilities. To close a company is to shut down a support network for a whole district.

As with the post-Stalin leadership of the Soviet Union, the post-Mao leadership of China has stressed and delivered – rather more successfully – material success in place of ideological mobilisation. But it cannot go too far. The Falung Gong cult’s popularity, and the regime’s nervously repressive reaction to it, shows that the fear of chaos and anarchy is never far from the surface in China; stability is often preferable to radicalism when the two are directly counterposed. So unemployment is always seen as an absolute bad; plants are kept going at a loss, or turned to new uses if production of one commodity ends. Companies are not allowed to focus wholly on the market; their responsibilities are not only to make profits, but also to the workers and their families.

“It is better to ‘seek truth from facts’ than live with illusions,” concludes Nolan in his report. “There is no point in trying to fight a battle that cannot be won. The heroic age of building national champions through state-supported industrial policy is over. The idea has not been defeated by the full flowering of perfectly competitive firms. Rather, it has been defeated by the full flowering of global oligopilistic capitalism.”

A bitter point on which to start a century many think will be Chinese.