The China Quandary – Balancing Economic and Social Order

Introduction and History

“A spectre is haunting Europe, the spectre of Communism. All the powers of old Europe have entered into a holy alliance to exorcise this spectre: Pope and Czar, Metternich and Guizot, French Radicals and German police-spies.”(1) The quote is the opening sentence to The Communist Manifesto written by Karl Marx and Friedrich Engels in 1888. The book was the beginning of communism as a world economic system. At the end of the book Marx and Engels give a direct order to the Proletariat, “Working men of all countries, unite!”(2)

Communism was embraced after the Russian revolution in 1917. It was adopted by Vladimir Lenin as an economic means of feeding the peasants and workers, who languished under the Czar’s rule. Upon Lenin’s death in 1924 and a deadly power struggle, Joseph Stalin became the Russian Premier. As a means to control the populace, Stalin conducted purges. Anyone who did not follow the Communist Party line was sent to gulags in Russia’s Siberian Republic. Many were either re-educated or never returned home.

In 1920, prior to Lenin’s death, China formed its first communist organizations by setting up local communist groups across the country. On July 23, 1921, in a brick house in Shanghai’s French Concession, a dozen representatives convened the Chinese Communist Party (CCP), and thus the CCP was founded. Mao Zedong was present at this meeting. On October 1, 1949, after World War II and a bloody civil war, Mao proclaimed the founding of the People’s Republic of China. What followed after 1949 were the bloodiest decades in world history. Mao’s Great Leap Forward led to famine and death to millions of Chinese citizens. Also, Mao’s Cultural Revolution led to “Red Guards” tormenting anyone suspected of disloyalty or bourgeois tendencies.

Toward the end of the Cold War, communism was no longer seen as an economic answer to capitalism, but an unrelated consequence encompassed a penchant for dictatorships and strict government rule over its citizens. Today, China embraces communism as a means of suppressing the largest population in the world and is faced with a dilemma. Can the Chinese people endure under a communist totalitarian regime and still enjoy the benefits of a free economy?  

Two Faces of China In The Global Economy

China population exceeds 1.4 billion people, and yet, only 95 million are members of the CCP. The CCP dominates every aspect of China. The government, the legislative body, the judiciary, and the military, are all organs of the CCP. Membership in the CCP means privilege and opportunity. A Chinese citizen is just that, a person residing within China, but membership into the CCP is power and authority.

Today’s Chinese Leader, Xi Jinping, has made it very clear in his 2017 landmark speech that laid out his political doctrine, “Xi Jinping Thought,” that the CCP is supreme. Xi has also made it clear that the party has, and shall maintain, complete control over Chinese society.

Yet, China is opening markets and experimenting with the idea of free enterprise. They are experimenting with a capitalistic economic system. In an attempt to do so, China is vastly becoming a world economic powerhouse. China is no longer embracing the communistic system of Lenin, Stalin, and Mao and realizes that communism as an economic system perished with the Soviet Union in 1989.

President Jiang and President Clinton

In his book, The Clinton Tapes: Wrestling History with the President, Taylor Branch writes about a somber President Clinton after he spoke to President Jiang Zemin of China during the 1993 G-7 Summit. President Clinton told Branch that he had conceded to President Jiang the possibility of a very different G-7 Summit in 50 years.  President Clinton told President Jiang that some other Chinese leader might try to cajole a U.S. President to reform the U.S. Constitution and laws along Chinese lines.

President Jiang then told President Clinton how Chinese rulers have ruled over the populace of China. President Jiang said, “Chinese rulers believe in discipline for their people, not from them.” President Jiang then posed a rhetorical question to President Clinton that every American should ask. “It’s wonderful that you have all the freedom, and all this money, but what do you do with it? You have 33,000 homicides by guns. Your cities are uninhabitable. Your schools don’t work. You have rampant drug use, and you can’t control your population. Who is to say that your freedom is worth it?” (4)

Is our freedom worth it? A look at China’s quandary will help us answer this very important question for America.

The Quandary

First lets be clear, communism, like capitalism, is an economic system. It was invented by Marx and Engels to draw distinctions from the Proletariat and the Bourgeois. Capitalism as an economic system has but one creed, private ownership of property. Under communism, private ownership does not exist. All property belongs to the state.

Democracy, dictatorships, and socialism are types of government. They are not economic systems. In a true democracy, one is free to do as one pleases. They can vote for who they want, or not vote if they so desire. They can work for any company they so desire or not work at all. Under socialism, the citizens forfeit some of its rights to the government. Some of these rights include: managed healthcare, transportation, food distribution, education, etc. However, the citizens under socialism are free. They vote for their party leaders and often vote on key referendums involving their country. They are free to work or not work as under a democracy. We see this type of government in many European countries. Under a dictatorship, the citizens have no rights. and are subject to the will of the ruler or rulers.

History has shown us the communist economic system has never worked and thus it befalls to a dictatorial system of government (the U.S.S.R., Cuba, Venezuela to name a few examples). When China established the CCP, it was determined to follow the Marxists and Leninist economic system; the communist system, separating the Proletariat from the Bourgeois. However, China has shed its economic mirage of communism and is attempting to open up markets and have more free enterprise. Could this be why it maintains it current dictatorial government?

Milton Friedman, the well-known economist, once said, “It is possible to have economic arrangements that are fundamentally capitalist (free) and yet political arrangements that are not free.”(5) This is the position that China is betting on. China believes that it can keep 1.4 billion people in line while maintaining a free economy.

A Former Treasury Secretary’s Look At Today’s China

In his book, Dealing With China, Former Treasury Secretary Hank Paulson wrote about China’s need to have a free economy. However, because of its large size and population the CCP also has a need to maintain order and control. In September 1997, after the 15^th National Congress of the Communist Party, President Jiang laid the tracks for economic and social reform in China. President Jiang told Secretary Paulson, “Even if the state-owned sector accounts for a smaller proportion of the economy, this will not affect the socialist nature of our country.”(6)

See the below link and watch a short 40 second video of Former Secretary Paulson’s warning regarding a financial cold war with China.

https://www.cbsnews.com/video/hank-paulson-we-need-to-find-common-ground-with-china/#x

Secretary Paulson noticed the following two paths between economic and public policy evolving out of China. “China’s concern for political stability allowed its people little latitude to discuss human rights issues or civil liberties, much less argue the merits of the Chinese system of government or one-party Communist rule. But the pragmatic Chinese leadership tended to take a different view of economics, and public discussion or criticism of government economic policies were more tolerated.” (7)

Secretary Paulson conclude that the CCP made a deal with the people of China. The CCP would provide prosperity in return for continued political power. The Chinese leaders’ credibility was strictly rooted in economic opportunity, job creation, and a continued improving standard of living.” Paulson noted, “it was glue that held the party together.” (8)

And Now the Numbers

The best way to measure a country’s economic strength is by looking at the country’s Gross Domestic Product (GDP). GDP is the monetary value of all finished goods and services made within a country during a specific period (usually provided annually). The GDP includes all private and public consumption, government outlays, investments, additions to private inventories, paid-in-construction costs, and foreign trade balance. China is the world’s second largest economy based on the GDP.

1985 – $310 billion

Table 1: China’s GDP (Current Market Exchange Rates) from 1985 to 2020 in U.S. Dollars (9)

Table 2: China’s Exports and Imports Compared to United States (10)

Where Do We Go From Here?

Li Hongzhang was a general in China during the Qing Dynasty. Unfortunately, he dedicated his life attempting to reform a dying empire. He was compared to Otto Von Bismark attempting to unify Germany. However, Li attempted to quash the threat of groundbreaking geopolitical and technological transformations seen in the rest of the world. His belief was that these transformations would expose the Qing Dynasty to decline. In 1872 in many of his correspondence, Li penned a line that has been repeated by the Chinese people from generation to generation. He wrote China was experiencing, “great changes not seen in three thousands years.” However, Li failed to transform and modernize China and the Chinese people saw only a, “Century of Humiliation.”(11)

Is China seeking a global economy or global dominance? It is a new cold war, however, it is very different from the U.S.-Soviet one. This cold war is a war of trade and capital, between China and the rest of the world. It is a given that the world needs China’s trade. Equally so, China needs the world. Today, the world continues to experience both geopolitical and technological shifts. In 1872, while Li foresaw tragedy, today President Xi foresees opportunity. One can only look at the economic numbers coming out of China to conclude they are on a path to become an economic powerhouse. In the past, we would often look at economic numbers from China with suspicion and question their accuracy. Today, we need to only look at the economic progress they have made to know China’s economic dominance is real.

However, there is still fear and untrustworthiness regarding China’s human rights violations and practices. The CCP is adamant that the political freedom of China’s citizens should never be questioned by the West. The economic freedoms of its citizens, however, are putting the West on notice that China is experiencing, to paraphrase Li Hongzhang, “great changes unseen in a Century.”

Endnotes:

1. The Communist Manifesto, Karl Marx and Friedrich Engels.
2. Ibid.
3. The Wall Street Journal, Is China’s Communist Party Still Communist?, June 30, 2021.
4. The Clinton Tapes, pg. 109.
5. The Wall Street Journal, Was Milton Friedman Wrong About China?, June 28, 2021.
6. Dealing With China, An Insider Unmasks The New Economic Superpower, pg 55.
7. Ibid. pgs. 119-120.
8. Ibid. pg. 192.
9. Table 1: https://data.worldbank.org/indicator/NY.GDP.PCAP.KD.ZG?locations=CN
10. Table 2: https://ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republic-china
11. https://asianpolyglotview.com/2021/08/chinas-grand-strategy-to-displace-american-order.html

SELECTED REFERENCES

• AsianPloyglotview.com.
• Branch, Taylor, The Clinton Tapes, Wrestling History With the President, Simon and Schuster, 2009.
• Mark, Karl, and Engels, Friedrich, The Communist Manifesto, 1888.
• Paulson, Jr., Henry, M., Dealing With China: An Insider Unmasks The New Economic Superpower, Hachette Book Group, Inc., New York.
• The Wall Street Journal, June 26-27, 2021, An Anxious 100th Birthday for China’s Communist Party.
• The Wall Street Journal, June 28, 2021, Was Milton Friedman Wrong About China?
• The Wall Street Journal, June 30, 2021, Is China’s Communist Party Still Communist? by Chun Han Wong.
• United States Office of Trade Representative.

https://oll.libertyfund.org/page/friedman-on-capitalism-and-freedom