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Nov. 17, 2011 - Freedomain Radio - Stefan Molyneux
16:36
2035 China is Sliding Back into Totalitarianism - Stefan Molyneux Interviews Gordon Chang
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Hi everybody, it's Stefan Molyneux of Conversations with Casey.
I'm talking with Gordon Cheng, author of The Coming Collapse of China.
Thank you so much for taking the time.
Well, thank you very much. So, you made some great points in the book.
One of the ones I thought was most interesting was dispelling the myth that people have that rebellion or change comes after a worsening of conditions.
Because, as you point out, in a lot of cases, It's when things improve that you start to see a really strong desire to loosen the bonds of tyranny.
Could you talk a little bit about how that applies to China?
Revolutions occur under many conditions, but especially when political institutions do not keep up with the social forces unleashed by economic change.
We have to go back to Tocqueville.
Tocqueville noted that peasants in pre-revolutionary France detested feudalism more than their counterparts in other portions of Europe where conditions were worse.
And discontent was highest in those parts of France that had seen the most improvement, and the French Revolution followed an economic advance.
You know, and Chinese leaders, they shouldn't say, well, Tocqueville was 18th century France, another continent, another century, because we saw all these same trends play out in late 20th century Thailand, and more important, in the Confucian societies of South Korea a mere two decades ago, and in the Chinese-dominated society of Taiwan a little bit later.
Indonesia, you know, there we saw economic advance, and then when there was a slight slowdown, Suharto was gone.
So really the problem is that Chinese society now is very dynamic.
It's changing faster than any society on Earth.
And essentially what's going on right now is that most Chinese people believe that a one-party system is no longer appropriate for a modernizing society.
That's very dangerous for the Communist Party because although people are intimidated, it also means that when fear is gone, for whatever reason, then the regime can't last.
Yeah, it's also struck me that after the liberalization of the economy, you get a multiplicity of choice in Chinese society which does not match the one-party political system.
You have so many choices about what to buy, what to build, what sort of entrepreneurial activity to pursue.
But then you got this one-party system that no longer fits.
You have no choice about the political system, and that really is a problem.
Nicholas Kristof, the New York Times columnist, said he went to some backwater city in Manchuria, and he saw that there were like 15 different types of coffee that people could buy, but they only got one Communist Party.
You know, people say, for instance, places like North Korea have to be unstable, and in a certain sense they are.
They don't have the means because they're spending all their time just trying to survive.
So I think the North Korean regime, as bad as it looks, is probably more stable than China.
And China is obviously so much more profitable and so much more dynamic and rich and prosperous.
than poor North Korea, but I think that China is less stable.
And that's because in China, people are starting to get into their minds that they got choice.
One of the things that I've always been curious about is, according to classical Marxist theory, Marxism was supposed to take root among the disaffected and disenchanted proletariat of the industrialized West.
Didn't happen at all.
Of course, it tended to infect the most rural, the most agrarian, and in some ways the most backward societies, at least philosophically and economically.
Do you think there was something in China that, or in the Chinese culture, that led it to be more susceptible to Marxism than other places?
I actually don't know.
I mean, that's a terrific question.
It goes to the heart of so many issues.
The real problem is that China was a turbulent society in the 20th century.
They had their first revolution in their history 100 years ago, in 1911.
And that just sort of destabilized society.
Chiang Kai-shek's nationalists, the Republic of China, couldn't hold society together.
So China was inherently unstable at that point.
And I think that, yes, there may be certain things to that argument, but the problem really is that China was just so unhinged about a hundred years ago, and it just never recovered.
So that's why I think it's no coincidence that the two revolutions in Chinese history occurred very close to each other, 1911, 1949.
And so essentially we're due again, I think, for another Chinese revolution, but for very different reasons than we saw the first two times.
Right. Now, of course, it's everyone's hope that China can make a transition, like some of the other Asian nations, to a more peaceful and stable quasi-democratic kind of country.
But you've written that you feel that Marxism is too strong a virus to allow for that transition.
What do you mean by that? Well, the regime in Beijing is resistant.
What we saw, for instance, in Taiwan, which I think is a great example, because Taiwan also had a Chinese element in society.
But what there is a small country and the United States really midwife democracy there, as it did in South Korea.
Well, the United States can't do that in China.
China is too big, too powerful, too resistant.
And so essentially, the Communist Party is going to hold on for as long as it possibly can.
And because of that, I don't think that we're going to see the nice peaceful transitions that occurred along the periphery of China.
South Korea, Taiwan, Thailand.
I think it's just a different dynamic that's going on there.
Part of it is because it is a Marxist and especially a Leninist society.
It's no longer totalitarian because it doesn't control everything, but the state still maintains totalitarian mechanisms of control, which it does impose every once in a while, as we saw, for instance, in the SARS crisis in 2003 and in some other events.
So essentially we're dealing with a government which is much more resistant than the ones that we saw in other places where we did see this nice gradual transition to liberal democracy.
I've heard some commentators about China talk about the ruling party in China Being basically a gang of criminals with an ideological cover, that they're not specifically dedicated to Marxism in the same way that of course the original revolutionaries were.
And with that comes some glimmer of hope that when they see the society begin to collapse around them, or at least the justifications for the one-party system, that they might take their bag full of money and an airplane ride to some other place.
Do you think that might happen at all?
It certainly is going to happen for many of the cadres.
I live in New Jersey, and if you go to 25 miles south of where I live, which is Princeton, you will see the perfect American family.
It's got the beautiful home, it's got the wife, the two or three kids, the Mercedes, actually a couple cars in the driveway, and undoubtedly everything is paid for.
It is perfect except one thing is missing, and that's dad.
And Dad is an official in Beijing who is stealing as much money as he possibly can.
And you know that the first sign of real trouble, Dad is going to be on the United flight to New York to go back to home.
And home isn't in China.
Home is in Princeton, New Jersey.
So I think the regime could fall apart very fast.
Clearly what we see right now in China is a lot of corruption.
Enormous amounts of money.
We know that because Macau is now the world's largest gaming destination, not Las Vegas.
And Macau has just a few casinos.
Well, what's going on there is that the cadres go down and they launder their stolen money in Macau at the high stakes tables.
They turn it into chips, which means they turn it into cash.
It goes out of the international banking system.
It becomes untraceable.
That's why Macau is doing so well at this moment.
It's because there's so much corruption.
And it's, you know, it's not like the corruption in the first part of the reform era, where corruption really sort of greased the wheels to permit business to occur.
What's happening now is very short-term corruption, where people are stealing tons of money, very short-term perspective, just like the guy who's on the plane to Princeton.
That's what's occurring. And that's really the problem for the regime right now.
You could make the argument that the end of a regime can be predicted by the amount of predation that is occurring.
It's like an Indiana Jones when he's got this room full of treasure and the door is starting to come down.
He just grabs whatever he can and runs out.
You'd originally written that, or your original estimate for the collapse of China was by 2011.
I know we still have a couple of months, but how accurate do you feel that was?
Do you feel it's relatively close?
I think it is very close when you see what's going on right now.
I might be off by a month or two.
That's pretty good, though, still. But I think it's going to be close.
Because what we have right now is, first of all, the economy is starting to turn down.
If you look at year-to-year figures, there is still growth in the single digits.
But if you look at month-to-month figures, the economy is contracting or flatlining.
But what's the real problem is that we see the protests in China increasing.
Last year, according to one report, there were 280,000 mass incidents.
That's well up from what we saw about five years ago, which were 80 to 90,000.
Mass incidents? Being protests and demonstrations.
These numbers, you know, we don't know if they're accurate, but we can see the increasing numbers of protests.
But this is not just a numbers game.
What is really worrying for the regime is the increasing violence of protesters.
So we not only have demonstrations and strikes, we have basically mass insurrections, bombings, and many of these bombers, these protest leaders, are really the heroes in Chinese society.
That's a real problem for the regime.
So it is the increasing violence.
It is the social disintegration.
And when you put that with perhaps an economic failure, which could easily come because the Chinese economy is in real trouble right now.
It's very fragile. Anything can happen and I believe that we will see a failure of the Chinese regime in a very short period.
The lag of information, at least to the average Westerners, is quite high, and so everyone thinks that China is still growing like gangbusters, but there seems to have been a shift over the last decade from allowing people to operate in the free market to traditional socialist big project malinvestment, you know, the ghost cities and all that kind of stuff.
Is that where you think the source of the economic dislocations is going to come from, just that inevitable Austrian correction for malinvestment?
Yeah, there's definitely this going to happen.
At the end of 2008, China's leaders, to avoid this downturn that you can see around the world, decided to spend a lot of money.
Their stimulus program, my back of the envelope calculations, $1.1 trillion into a then $4.3 trillion economy.
So yes, they did create growth, but they also created the imbalances and dislocations, and it really made It just postponed the problem, it made it bigger, and so therefore much more difficult to solve.
And right now, they don't know what to do with inflation, which is their number one problem.
They got the property bubble, and they've got a very volatile stock market right now.
But essentially, their problem is that the world is going into the second part of a double dip downturn, and China, which still has a very heavy exports component to its economy, is going to suffer.
Last year, 149.2% of China's overall trade surplus related to sales to the United States.
You know, if you look at the United States and think that consumers aren't going to support the Chinese export industries, I think you're probably right, because this time we really are tapped out.
And that's why this is Christmas season right now in China, but cargo volumes are well down, cargo rates are off.
This is a real problem because the export industries in China right now are suffering.
That is going to, I think, spread throughout the rest of the Chinese economy.
Let me ask you a question which I think is really the heart of the issue because we're all interested in the future a little bit more than the past, but we need to look at the past to learn about the future.
Where is China in terms of its understanding of the free market?
Is there libertarianism in China?
When the change comes, is China going to go forwards or is it going to be tempted, as all societies are in times of change, to go backwards?
Well, China is going backwards right now.
Hu Jintao, the current leader, has Really presided over an era which is, on balance, marked by the reversal of reform.
What we saw really beginning in 2006 was Hu really sort of going back on Deng Xiaoping's policy of reform and opening up, which is the way we sort of see China.
And so what Hu Jintao has been doing is really been trying to close the country down.
So, for instance, in the middle of last decade, we saw them trying to really prevent acquisitions by foreign companies.
But renationalization started to pick up steam when we saw the National Social Security Fund and China Investment Corp., which is the sovereign wealth fund, Actually go into the Chinese stock market and buy up shares that once were held by private parties.
So this is the renationalization started and then at the end of 2008 with the stimulus program, all of this state money, whether directly or indirectly through the state banks, went to into state enterprises and a state-sponsored infrastructure and the private sector has really really been hurt so what we have is a re-nationalization of the Chinese economy and I believe that that will continue because there's really nothing to stop it what we have right now is a political system that has become almost frozen because they have a political transition at the end of next year I don't think they'll actually make it till 2012 in October when they're supposed to have their 18th Party Congress,
which is in the fall. But you can see, no one is going to be there arguing for liberalization.
Liberalization has been off the table now for about three or four years.
It's really hard to see them going back to it unless they think that they're going to lose power.
But by that time, it's going to be too late.
They will not be able to liberalize fast enough to sort of create the economic growth which has been underpinning the Communist Party.
These guys are gone.
Well, I would argue, though, that the key to change in the future is the general population's perception of what is causing the problem.
So, of course, here in America, you get enormous amounts of propaganda that the economic collapse was caused by the free market, was caused by deregulation.
In China, is the general population's view that, like when economic collapse hits, is their view, do you think, going to be that it was the government that caused it, or is it this was the result of us playing around in the free market?
We really don't know what the Chinese people think because the Chinese government doesn't allow us to think.
We can sort of show, though, what the Communist Party is trying to do, which is blame everybody else.
And they've done that already, talking about what's going on around the rest of the world, the global downturn.
My view of the global downturn is that, yeah, regulation failed in the United States, but we have to ask why it failed.
And it failed because there was too much money, which overwhelmed Regulators.
And that has always occurred, if you go back through history, regulation has always failed when there's been too much liquidity in the international system.
And I think there was too much liquidity, you know, in 2007, You could see Wall Street and others, they were creating funds for Zimbabwe.
You know, there was just too much money in financial assets.
And I think what happened is, you know, it just overwhelmed regulation everywhere, but especially in the United States.
Part of it is because China had to recycle its trade surpluses.
And the reason why they had trade surpluses was because they were manipulating the value of their currency.
The Chinese are not the only culprit for too much liquidity three, four years ago, but they certainly were the new factor.
So if people want to find out more, and I would highly recommend, you've got great thoughts about China, and it's an underexplored area for, people don't underestimate, I think they underestimate the degree to which the modern economies are intertwined.
Where can people go on the web to find out more about your writings and your thoughts?
Well, I archive my columns and my writings at www.gordonshang.com, G-O-R-D-O-N-C-H-A-N-G.com.
I write a column for Forbes.com weekly, usually on Sundays, and I write for The Daily, which is the iPad publication of News Corp, and other places as well.
Thank you so much for your time.
It was really fascinating. We appreciate it.
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