The Agony of China’s Reforms

Few reforms succeeded in China’s thousands years of history mainly due to the agony caused by the reform. Shang Yang’s reform was the greatest. It made the State of Qin strong both economically and militarily and finally able to unify China.

However, due the agony caused by the reform, Shang Yang was cruelly killed by conservatives. Fortunately, in spite of strong conservative opposition, the sovereigns of Qin wisely carried on the reform. Pressure from other powerful states was one of the major factors that forced the sovereigns of Qin to gain the strength through the reform to counter the threat from them, especially its powerful neighbor, the State of Wei to which the State of Qin had lost quite a large part of its territory.

In a sense, Qin should be grateful to those states for the pressure placed on it by them.

The situation is being repeated in China’s current reforms.

Due to the agony caused by the reforms, major reform leaders Hu Yaobang and Zhao Ziyang fell into disgrace.

Due to the agony caused by the reforms, there was mass protest in 1989 that almost overthrew the communist regime.

Jiang Zemin led the new generation of talented intellectuals with moral integrity to exploit the panic caused by the mass protest and carry out a silent peaceful coup d’etat to substitute intellectuals’ dominance of Party and state for uneducated workers’ and peasants dominance. (See my book Tiananmen’s Tremendous Achievements Expanded 2nd Edition). He was thus able to carry on Deng Xiaoping’s reform.

However, the reform seemed to be at a dead end. It seemed that no one knew how to conduct the trickiest reform of China’s state owned enterprises. There were the popular predictions that China will soon collapse so that American Chinese writer Gordon Chang’s book The Coming Collapse of China became a best seller in early 2010s.

I said in my book that Gordon Chang knew China well and his prediction was well founded. He saw the problems China faced at that time, especially the trickiest problem in China’s state-owned sector. No one in the world has ever resolved the problem satisfactorily. The Soviet Union tried to solve the problem by privatization but collapsed as a result.

However, Jiang’s talented assistant Premier Zhu Rongji smoothly carried out the reform of China’s state-owned sector and turned it from a source of huge losses into a lucrative sector.

I said in my book that Gordon Chang failed in his prediction because he underestimated Chinese talents.

While carrying on Jiang’s reforms and economic development, Hu Jintao saw the problem of corruption, pollution and over-reliance on export and investment and put forth the Scientific outlook on development as a remedy. He had to conduct another round of economic reform for thorough economic liberalization, but he was unable to overcome the resistance from vested interests and conservatives.

Hu left Xi Jinping a legacy of rampant corruption, a stagnant economy with overinvestment and excessive local government debts and fierce power struggle between conservatives and reformists.

I have described in my book how Xi launched his anti-corruption storm, put an end to the power struggle and was happy that economic slowdown facilitated his thorough economic reform.

Now, seeing the economic slowdown, quite a few China watchers have predicted the coming collapse of China again. A typical article is Linette Lopez’s “ANALYST: China’s ‘Long-Awaited Day Of Reckoning’ Is Almost Here” at Business Insider (it can be viewed at http://www.businessinsider.com/credit-drying-for-chinas-soes-2015-1).

Ms. Lopez does not know China so well as Gordon Chang. She failed to see the huge assets Chinese central and local governments have for resolution of the debt problems. However, if Xi’s thorough economic reform fails, economic slowdown will be a prolonged reality.

Xi and his assistant Premier Li Keqiang repeatedly said that China’s reform is now in deep water due to the strong resistance of vested interests. The State of Qin successfully carried out Shang Yang’s reform as its sovereigns were able to overcome the resistance from powerful aristocrats. Now, China’s problem is whether Xi and Li are able to overcome the resistance of powerful vested interests. (As described in my book Xi has overcome powerful conservatives’ even greater resistance.)

Xi and Li are now carrying out their thorough reforms step by step smoothly. When Jiang Zemin met Henry Kissinger, he told Kissinger that China needed a strongman and Xi was strong enough. He was happy Xi was the right choice as China’s leader.

Xi has proved himself as a sufficiently strong leader by his mass line campaign and anti-corruption storm. However, according to Chinese history, a leader has to master the art for being the emperor, in which discovery, wise use and creation of bondage with talented assistants is the key for a Chinese emperor’s success. (I have described in my book that China’s current political system is the CCP (Chinese Communist Party) Dynasty with a core like an emperor.)

Only when Xi has found and appointed to high posts his loyal protégés can we be sure he is able to carry out his reforms successfully to make China the richest and strongest nation in the world.

The following is the full text of Reuters report today on China’s economic slowdown:

China’s imports slump, capping dismal January trade performance

China’s trade performance slumped in January, with exports falling 3.3 percent from year-ago levels while imports tumbled 19.9 percent, far worse than analysts had expected and highlighting deepening weakness in the Chinese economy.

Largely as a result of the sharply lower imports – particularly of coal, oil and commodities – China posted a record monthly trade surplus of $60 billion.

The data contrasted sharply with a Reuters poll which showed analysts expected exports to gain 6.3 percent and the slowdown in imports to slow to 3 percent, following a better-than-expected showing in December. The poll had also forecast a trade surplus of $48.9 billion.

The slide in imports is the sharpest since May 2009, when Chinese factories were still slashing inventories in reaction to the global financial crisis. Exports have not produced a negative annual reading since March 2014.

The dismal trade performance will increase concerns that an economic slowdown in China – originally considered a desirable adjustment away from an investment-intensive export model toward one based on domestic consumption – is at risk of derailing.

The government is expected to lower its GDP target to around 7 percent this year, after posting 7.4 percent in 2014 – the slowest pace in 24 years.

Chinese economic indicators in January and February are typically viewed with caution given the distortions caused by the shifting week-long Lunar New Year holiday, and while the analyst median estimate was for a rise, the range of estimates was extremely wide.

However the data – in particular the import data – is worrisome even after accounting for cyclical factors; last year the new year holiday idled factories and financial markets for a week in January, but this year the holiday comes in late February and January was a full month of business as usual.

“It’s a very strange data print,” said Andrew Polk, economist at the Conference Board in Beijing, noting that exports tended to be less effected by the holiday than other indicators, but added he was more concerned by the implications of the startlingly negative import figure.

“The import data suggests a substantial slowdown in the industrial sector. The first quarter looks to be pretty horrible.”

Investors had hoped that the announcement of domestic stimulus spending plans, combined with moves to ease monetary policy, including a reduction in banks’ reserve requirement ratios on Wednesday, would restore confidence and boost demand in China’s struggling manufacturing sector.

However, many analysts believe measures taken so far to boost yuan liquidity are insufficient to do much more than offset surging capital outflows. Advocates of more aggressive action will seize on the weak January trade data to support their case.

Chinese imports have fallen every month since October, seen as reflecting weak domestic demand, and the scale of January’s drop was mostly due to an across-the-board fall in import volumes of major commodities.

For example, coal imports dropped nearly 40 percent to 16.78 million tonnes, down from December’s 27.22 million tonnes, and China also appeared to cut back on its strategic stocking of crude oil imports, which slid by 7.9 percent in volume terms.

Imports from Australia and the Russian Federation, both major fuel and commodity suppliers, slid by 35.3 percent and 28.7 percent, respectively.

EUROPEAN HEADACHE

Chinese officials had predicted that monetary easing measures in Europe would boost demand for Chinese goods, and analysts polled by Reuters had also been optimistic that signs of economic strengthening in the United States would support exports.

However, the data showed that while exports to the United States rose by 4.8 percent year-on-year to $35 billion, exports to the European Union slid 4.6 percent to $33 billion in the same period.

Exports to Hong Kong, South Korea and Japan were also down, with exports to Japan slumping over 20 percent.

During 2014, China’s total trade value increased by 3.4 percent from a year earlier, short of the official target of 7.5 percent, and some analysts have raised questions about whether export data was inflated by fake invoicing as firms speculated in the currency and commodities markets.

Source: Chan Kai Yee Tiananmen’s Tremendous Achievements Expanded 2nd Edition

Source: Reuters “China’s imports slump, capping dismal January trade performance”