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Chinese New Year

Written By: - Date published: 9:26 am, January 27th, 2020 - 15 comments
Categories: China, Free Trade, health, International, Japan, trade, uncategorized - Tags:

With China’s New Year arriving, and a terrible flu virus struggling to be contained within it at the same time, it’s time to reflect again on China’s future and impact for New Zealand.

Do yourself a huge favour and go to one of the many Chinese New Year
celebrations on now. It’s a blast.

China has had a hugely impressive three decades. After triumph in the
Cold War, both the west and the cause of liberal democracy has by
comparison continued to stumble. So perhaps an autocratic China is
sure to become the world’s dominant power in a few decades? No. It’s
possible but unlikely.

In the 1980s Japan was supposed to be the “number one”. It’s
stagnating in every sense now.

Rapid and sustained national success should not be presumed to be permanent. Exaggerating the benefits of centralized direction over economic and political competition doesn’t work either. As detailed over numerous case studies in Why Nations Fail, unless you have really robust public institutions, buffers and regulators, national economies tend to get rigid and brittle, and absence of political competition makes flexibility, intergenerational continuity and handover, and self-renewal become unlikely. The result is often rapid decline through civil war or simple torpor and anomie.

China has had an astonishing run that has pulled off the greatest poverty-eradication programme in the history of humanity. China still has great potential for continuing to catch up on productivity levels of the more advanced countries. It also has a proven ability to generate sustained growth. But we saw the same in Japan in the 1980s. Similar policies of ultra-high investment and rapid debt accumulation which kept China growing after the 2008 GFC, make it vulnerable to a sharp deceleration.

For one and a half decades, China benefited from the reforms introduced by Zhu Rongji, Premier from 1998 to 2003. No comparable reforms have happened since his time, but too few say that.

Today, credit is still being preferentially allocated to state businesses, while state influence over large private businesses is growing. With so much pressure being put on it by the United States through trade aggression, the state is centralizing power when it needs to let businesses and markets react faster than governments ever could. At the cost of outright finical crises, innovation and flexibility of response to new economic conditions gets slowed down.

Many of China’s neighbours continue to grow from the aftermath of war to sustained prosperity for many. Vietnam and Korea are the standouts. Hong Kong and Taiwan are Chinese territories that have forged their own paths and become powerhouses for the world because of the specific freedoms, institutions and regulatory mechanisms they support and enjoy. China could well be on the way to sacrificing the global wealth and standing of Hong Kong independence through its nasty suppression of democratic dissent.

China needs to learn from its neighbours if it is to remain a high growth country and become a high income country. Otherwise it could see growing resistance to even its most resolute nation-building efforts, such as the Belt and Road programme.

New Zealand and Australia, as low-innovation and bulk commodity driven economies, can’t really claim that same status as role models to sustained Chinese multi-factor prosperity. But for New Zealand, China is about as economically indispensable as it gets.

Yet at exactly the moment global sentiment is turning away from the United States, China’s governmental authoritarianism provides no alternative ally to turn to in its place.

That authoritarianism goes hand in hand with a ridiculous defensiveness to criticism, as our own Professor Brady amply illustrates.

China’s influence is growing here as in Australia, and they don’t like having that pointed out to them.

So it’s really complex.

It’s only on the days of Chinese New Year that we feel the full flourish of Chinese cultural influence really step into the street. New Zealand had a poor history of engaging with China, but now that it is our most important trading partner, it should also be our most important diplomatic partner too.

While it’s great that our government is slowly waking up to the need to resist foreign ownership on the kind of scale that comes with engaging with China,

We have been historically racist to the Chinese. Even recently, it’s pretty hard to see any hue and cry against the likes of U.S. corporations like Coca Cola expanding in southern Auckland and Christchurch, when compared to a Chinese company taking water from New Zealand.

When it comes to China, New Zealand has needed a drink of water and put its face over a fire hydrant. More influence not less is coming, as CPTPP enables the evolution of the utterly giant RCEP.

But the triumph of Chinese authoritarianism is far from inevitable. As has been shown by U.S. support for Hong Kong and Taiwan, the alternative to Chinese government authoritarianism can stay supported and can thrive if it’s allowed to. Nations who continue to find successful new mechanisms of renewal and innovation are all around China, staring it in the face. China is awesome, but needlessly brittle. It can decline as it has before, just as many democracies are declining now.

In case China’s government needed a test, Coronoa Virus is providing
it right now.

A pandemic in China right on Chinese New Year is as good a test for the necessity of authoritarianism as one could conceive.

China is the one country in the world with all the governmental power it needs to continue change, all the economic momentum it needs to renew, and all the risk that it could fall.

15 comments on “Chinese New Year ”

  1. RedLogix 1

    Great OP, well argued and thought out. I can appreciate the generally optimistic tone. Still you've neglected any mention of the four critical problems China faces; a constrained geography and poor control over trade routes, a declining demographic and huge shortage of young people, a low trust society coupled with a nakedly authoritarian govt, and finally regional neighbours deeply distrustful of their overt military expansion into their territories.

    Not to mention a USA that is busy disengaging from their world trade order that made China's export success story possible in the first place.

    All of these factors will put a massive handbrake on the economic expansion upon which the CCP has built it's moral legitimacy and social stability, and this is the huge risk factor which you mention, but underplay. The CCP of course knows all of this, which explains the CCP's increasingly authoritarian, jingoistic stance in the past four years.

    • Andre 1.1

      To expand on that "declining demographic", the population pyramid is instructive to look at. Here's China's, which looks like Japan's but a decade later. Then compare to countries that performed less spectacularly but more steadily, such as New Zealand or USA.

    • Ad 1.2

      I have a sneaking suspicion that China is successfully shifting its trade preferences to the post-Soviet states like oil-rich Kazakhstan, to Russia itself and its direct allies, to South-East Asia and Iran, and of course to ourselves. Seems to be doing that just fine.

      Its instruments to do so include the physical infrastructure of the Belt and Road programme as I mentioned. That's the Silk Road on steroids.

      They also include a lot of resources through its three-decade investments into Africa.

      Arguably China is now more influential across the world in diplomatic influence than any other country at the moment.

      But most powerfully it will include RCEP. This trade deal excludes the US and unifies China and India as markets. In this new decade, this is the international deal to watch. It's the play that truly relegates the US to taker not maker. That's a whole article in itself.

      In terms of population and worker ratios, the play for China is to turn India, Pakistan and Bangladesh into what China was two decades ago. China will become for them the new USA; the client so big they can bank their own multi-factor productivity growth into the long term.

      China's got plenty of vulnerabilities, and as I was at pains to point out, so its continued rise is not inevitable. But what is larger in the reckoning is this much consistent growth and sustained stable change over these many decades.

      • RedLogix 1.2.1

        In this new decade, this is the international deal to watch. It's the play that truly relegates the US to taker not maker.

        The RCEP is certainly an important deal, but as I keep pointing out, the USA just doesn't care. At best it's exports are only 12% of GDP and much of their trade is now confined the to NAFTA zone.

        China faces some very big problems with their visions of global hegemony. The overt jingoism and frank racism implicit in the 'Middle Kingdom' idea will be a constant irritation. Unstable flash points like Taiwan (that Xi Xinping has committed to invading by force), Hong Kong and North Korea have no obvious solution. The South China Sea annexation will never be looked on warmly by Vietnam, Malasia, Indonesia or the Philippines.

        Also I note that just recently India most pointedly pulled out of the RCEP negotiations. As hostile neighbours engaged in low level military confrontation, both in the Himalayas and now recently in the Indian Ocean, they are going to be very reluctant participants.

        Then there is Japan. The Chinese frankly hate them, yet the substantial Japanese navy and permanent presence right inside their First Island chain represents a fatal flaw. How can this ever be resolved?

        But perhaps most telling of all, this is 2020. The world has moved on from the immediate post-WW2 years in which the USA had enough moral authority to impose a global peace on their own terms. Inevitably in this era an expanding Chinese hegemony will ethically bankrupt itself (if not first fiscally), long before the Americans managed.

        • Ad 1.2.1.1

          Does China have a vision of global hegemony? I can't see where's it's seeking to replace the United States. It has no Munro Doctrine.

          I agree there's tensions all around China. The Japanese tensions are caused more by their governmental ego being unable to apologize to China for the atrocities of WW2. I don't see historic national memory moving on from that any time soon.

          But increasingly as China actively supplants Japan as the primary east Asian leader it will look pretty similar to the UK declining in the face of the rise of the US in the 1950s. It’s's expected. And I see even less will by the US to get into a war to defend any of its old allies there. Obama's 'pivot to Asia' is dead.

          Maybe we will see a blowup the size of the Suez Canal event, and national pecking orders in the region will readjust.

          But don't you find it amazing that with all this tension growing across Asia, we haven't had a major war since the USA left Vietnam? There's always adjustments, the tensions are growing, but they appear to be managed ok.

          I see a pretty good chance that India will come back into RCEP. In the pharma and IT industry access to China issues that Modi is really worried about, I have good confidence that Xi will get around to it.

          • RedLogix 1.2.1.1.1

            But don't you find it amazing that with all this tension growing across Asia, we haven't had a major war since the USA left Vietnam?

            Mainly I think because just one of the ten US Navy carrier task forces has more firepower than almost all the rest of the world's navvies combined. Until very recently calling that bluff was something no-one sane wanted to do.

            But given China's aggressive military build up, and highly expansionist rhetoric, I think it's only a matter of time before Xi Xinping feels it has become necessary to back up words with action.

            In the pharma and IT industry access to China issues that Modi is really worried about

            Maybe. But the Great Chinese firewall really does bifurcate the world into two barely connected zones. India may well want to do IT business in China, but will find all manner of impediments. Just as Fonterra found when it tried selling something as relatively simple as powdered milk.

            • Ad 1.2.1.1.1.1

              I would suggest that China understands that growing wealth through trade is more effective than military threats that aren't effective even when they are enacted.

              The direct action occurring already is in fish. Fishermen are the victims on the front line of territorial disputes. It's a losing battle against China.

              https://www.ft.com/content/fead89da-1a4e-11e9-9e64-d150b3105d21

              As noted in the Financial Times a few days ago:

              "Vietnam says the clashes threaten a core resource on which at least 1.4m of its 96m population depend for their livelihoods. The South China Sea accounted for about 12 per cent of the world’s fishing stocks, according to one 2015 estimate. But Vietnam’s wooden fishing boats, working the country’s more than 3,200km of coastline, are little match for China’s steel-hulled fleet — an apt metaphor for Beijing’s rising might in relation to its militarily and economically weaker neighbours. “In remote waters, especially in areas near the Paracels and Spratlys, Vietnamese fishing boats are often obstructed, harassed and threatened by Chinese ships,” said Pham Anh Tuan, vice-president of the Vietnam Fisheries Society (Vinafish), in an email reply to questions. “Vietnamese fishermen fish for their livelihood and to affirm the sovereignty of Vietnam.”

              China's most forceful diplomacy is simply: trade with us and be absorbed in all but name. No one else is coming.

              Looks like they're right.

              • RedLogix

                trade with us and be absorbed in all but name. No one else is coming.

                And it most certainly will be on terms that advantage China. Which goes a long way to explaining the repeated expressions of resentment against 'big chinese money and corruption' I encountered while I was working in SE Asia a few years back.

                That's largely my point; great power hegemonies really only survive if the subjugated peoples make the rough calculus that on balance they're better off keeping quiet and putting up with it, as contrasted with rebellion. And the Chinese are not starting with much moral authority in the bank at all. They may be able to buy loyalty for a period, but eventually the piper will demand paying for that tune too.

                If you look at the broad historic pattern over the past few millenia, empires seem to be suffering from an ever shortening half-life. The Romans lasted 2000 years, the Americans will barely manage 100. The Chinese may well claw their way to the top of the greasy pole … I just don't see them staying there all that long.

                • Ad

                  China has been around for a bit. It's got written records going back 4,000 years, and a unified country also going back a while. It's not going anywhere.

                  China doesn't have "moral authority in the bank" as westerners conceive it because China's government carries none of the big liberative movements and mechanisms that came out of the Christian-Roman Empire nexus, including the Enlightmenment, democracy, complex moral codes from the Judeo-Christian-Muslim foundation, free speech tolerance, accountability of the ruling class to the common demos, fully intellectually free universities, and the like.

                  All they expect and proffer is: obey without question and we will deliver prosperity. Seems to be a simple deal that works pretty well.

                  I don't see any sense of China's rise being exhausted. Sure, a lower GDP growth rate for the foreseeable future. But that's by no means heralding a collapse.

                  • RedLogix

                    It's got written records going back 4,000 years, and a unified country also going back a while. It's not going anywhere.

                    Much of that is myth making. A quick glance at the big arc of their history shows them to be no more a 'unified country' for much of that 4,000 years than say modern Germany. Various dynasties arise for while, with often unstable borders, interspersed with long periods of warlordism, invasions and and general chaos. In this the Chinese carry no special virtue, their history is as ever bit as turbulent as any other place on the planet.

                    (The Western world would have good written records going back many thousands of years too, except the Muslims destroyed almost all of them when they sacked Constantinople. It was one of the most traumatic episodes in our cultural history, so much so we barely talk about it even today.)

                    obey without question and we will deliver prosperity.

                    A simple formula indeed, but one with a big fat Archilles Heel. What happens when the prosperity stops? The CCP can see it coming, and their response is to ratchet up the control-freak authoritarianism. In my experience the Chinese people are just like you and I, and while they may take longer to react against it, they're not some mass hive-mind. Rebel they will.

                    Good conversation though, I'm not sure which one of us is going to be proven right by events … but its' worth thinking them through.

  2. You_fool 2

    Nit-picking I know, and maybe just ambiguous word choices… but Chinese New Year is already here, it is happening… your article makes it sound like it is still to happen… Also, Taiwan us a territory of China in name only, whilst most of HKs development occurred pre-1997, with Chinese government influence being minimal from hand-over to about 2012

    The real test of the new pandemic will occur after CNY when everyone returns from China, or wherever they are, back to their home cities…

    • Ad 2.1

      "Do yourself a huge favour and go to one of the many Chinese New Year
      celebrations on now."

      The countries who still recognize Taiwan's sovereignty are:

      Belize, Eswatini (little territory inside South Africa), Guatemala, Haiti, Honduras, the Marshall Islands, Nauru, Nicaragua, Palau, Paraguay, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines and Tuvalu.

      The Solomons and Kiribati switched to China's full recognition over Taiwan last year.

    • A 2.2

      Hey guys, this is the latest from calm and level headed Chris Martenson a couple of hours ago – he says we have ALL the signs of a pandemic here.

      Those Chinese holidays are being extended out of necessity. Overall a bad time for China regardless of leadership, although their leader has balls and is going to visit Wuhan.

  3. millsy 3

    Everywhere I go, I see rhetoric about how Chinese have been lifted out of poverty. Biggest fake news ever.

    In 1978, the average steel worker in Guangdong had free healthcare, cheap subsidised and secure housing, free education for his kids, generous wages and working conditions, and overall, a comparitive standard of living to his fellow workers in Detroit, Sheffield, Kursk, Marsellies, Newcastle and Glenbrook. Now that same worker has probably lost all that, and probably has to pay thorough the nose for private healthcare, education for his grandkids, high rent, and probably his pension has been halved, if not chopped altogether , but hey,don't at least he has a smartphone and a flat screen TV now. I don't consider that 'progress' at all.

    And the Chinese government still want to reform. When Deng Xiaoping came to power in 1978, he saw the introduction of market reforms as a tool to increase living standards. 40 odd years later, it seems that reform has become an end of itself. Perhaps it is to merely preserve the party's position?

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