Friday, December 30, 2016

BWorld 99, China insecurity and belligerence

* This is my article in BWEconomicForum last December 14, 2016.


ON OCCASION, a fraternity gets big enough such that its members begin to establish cliques of their own, causing disunity in the organization. This, in turn, prompts the officers to initiate a “rumble” with another fraternity. As a result, cliques are set aside and the frat moves as one in protecting their brods or beating up members of the other fraternity. This same logic may apply to China. 

One of my dormitory roommates, a member of a fraternity, told me that anecdote while we were both students at the University of the Philippines in Diliman. While fraternities would seldom or never admit publicly that they initiated a rumble, it nevertheless is common knowledge to some members.

The same strategy may have been practiced by China in its continuing belligerence, particularly over secessionist regions and territories that it presumes to claim. The government in Beijing is increasingly becoming insecure with its more informed, more assertive citizens who dislike central planning and government-led intimidation. Some irreverent or potentially secessionist regions keep asserting their aspirations so it acts belligerently and court regional or global fallout in the process.

During the BusinessWorld-PAL ASEAN Regional Forum held last Nov. 24, one of the sessions was “The South China Sea or West Philippine Sea: The Economics of Competing Territorial Claims.” Speakers were Bonji Ohara of Tokyo Foundation, Thanh Hai Do of Diplomatic Academy of Vietnam, and Dindo Manhit of Stratbase-Albert Del Rosario Institute in Manila.

The three speakers talked about non-military, non-confrontational schemes to resolve the territorial dispute. Rightly so. An insecure government like the China Communist Party (CCP) that bullies its own citizens will have no hesitance to bully other countries with smaller military capabilities.

What are the sources of insecurity by the CCP? First and foremost are the vocal and assertive potential secessionists.


Insecurity driving China’s hostility in territorial rows, secessionist areas

The election of Ms. Tsai Ing-wen (DPP) in Taiwan last January has temporarily jolted the CCP and sounded another round of belligerence. Hong Kong pro-independence activists never went away, as shown by the Umbrella Revolution two years ago to the recent election of young legislators who are openly campaigning for HK independence from China.

The Uighur activists have figured in violent and fatal attacks in recent years. XUAR shares borders with five Muslim countries — Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, and Pakistan. And there are other potential rebel areas too like Macau and Manchu.

Second, a debt-fueled economy propped up by cronyism and dictatorship. As of 2015, China’s debt (government household + corporate debt) has reached 280% of gross domestic product (GDP).

Two papers have made the following observations:

“Unsurprisingly, the lion’s share of the money has been funneled into China’s immense state-owned enterprises, which largely explains why they hold an outsize share of the country’s corporate debt,” John Minnich said in a piece entitled “China’s economic problems will come to a head in 2017,” published in Market Watch on Nov. 23. “(State-owned companies account for over 55% of that debt, despite contributing only 20% of GDP.) It also explains why, by comparison, China’s central government has an unusually low level of debt. (Beijing’s debt equaled only 22% of GDP in 2015.)”

Similarly, in a May 10 piece for Fortune Magazine entitled “China’s Government Says It’s Over Debt-Fuelled Growth,” Scott Cendrowski said that: “[C]redit ratings agency Moody’s noted that China’s total debt has climbed to 280% of gross domestic product, including China’s state-owned company liabilities that totaled 115% of GDP at the end of last year. For comparison, in Japan and South Korea, which also have large government-owned sectors, SOE (state-owned enterprises) liabilities were 31% and 29% of GDP in 2014.”


Insecurity driving China’s hostility in territorial rows, secessionist areas

Third, rich and intelligent people are leaving China, with a potential to come back as new reformists or outright becoming members of the opposition.

There was one survey in 2015 showing that more millionaires leave China than any other country in the past 14 years.

Here is another observation from the Wall Street Journal, two years ago: “China’s culture of corruption and abuse of power is a major reason so many of the country’s rich want to leave. A Barclays survey released Monday found that 47% of Chinese with more than $1.5 million in assets are planning to emigrate, and this is consistent with past research. Developed-country programs that allow investors to essentially buy residency continue to attract waves of Chinese,” Hugo Restall said in a piece entitled “China’s Unhappy Rich” for the WSJ’s Sept. 17, 2014 edition. “Many of China’s brainiest young people also want out. According to the state-run Xinhua news agency, the annual number of students who go abroad for study and don’t return reached 70,000 in 2012….”

The CCP’s insecurity should rise through time because their own citizens inside and outside China hate heavy restrictions and dictatorship. To hide or temper this insecurity, China will try to be belligerent to hype up nationalist sentiments from its people.

China imploding someday, perhaps in one or two generations, will be a welcome news for the world. China may also break up into many new countries and governments. The main country may remain under the communist party, similar to what happened in the former USSR. But the newly formed countries will be more democratic.
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See also: 
BWorld 96, Free trade means more investments and people mobility, December 19, 2016 
BWorld 97, Direction of trade of Asian economies, December 21, 2016
BWorld 98, Asian stock markets and the Duterte administration, December 30, 2016

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