The Inevitable Rise of China

Many experts would write me off within one microsecond of seeing the title. "There're so many potential dangers in China, in every aspect of the sociopoliticoeconomic landscape," they'd say.

True. And it's been true for every significant country throughout human history, including US. But humans thrive on instability, a necessary condition for adaptability. A society with most things figured out and solidified faces the greatest danger of all: total elimination by the changing world.

At the fundamental level, two reasons underline the long-term rise of China ("long-term" meaning at least roughly two decades).

First, Chinese culture has always been very pragmatic, contrary to the common misconception stemming from the fanatical revolutionary fervor in Mao's era, which in fact had more to do with nationalism than anything remotely related to Marxism. China is the only surviving ancient civilization with a clearly identifiable and persistent cultural identity. (India as a cultural identity is quite hard to establish and track, and modern-day Greece/Egypt have little to do with their glorious past as labels of civilizations.) It's also the only one that's never produced its own organized religion nor relied on organized religions as the basis for social identity. The two observations are hardly coincidental. A pragmatic culture may not be the best soil for awe-inspiring breakthroughs and ideologies, but it can be surprisingly stable because it's less prone to fanatism and suicidal grandiose social experimentation.

Secondly, this deep-rooted pragmatism has been reinforced and re-expressed since the 1989 Tiananmen Massacre. It's ironic, sad, and reassuring all at the same time. The liberalism movement of the 1980's in China was a swing away from the Cultural Revolution, but actually a continuation of the same ideological fervor. Right after the massacre, the government tried to start a mass political movement similar to past ones, forcing people to report any and all who participated in the protests. The effort was met with silent but almost overt and universal resistance. And the same apathy and polite refusal was given to pro-democracy force ever since. The 1.3 billion people have enthusiastically turned into the ancient, pragmatic question of the day, the year, the millennium, the eternity: how to survive and thrive.

Chinese people never lost hope. Not under Chengis Khan, not under Mao. But now, for the first time in at least 200 years, there appears a tangible way to reach the hope and it doesn't even require chopping heads -- well, not literally: money.

Desperate people become revolutionaries, heroes, suicide bombers. People with stakes and hopes to lose are the stabilizing force. In China, there's never been such a strong stabilizing force since at least the late Qing Dynasty.

Also, the deep-rooted entrepreneural spirit and emphasis on education in Chinese culture provide long-lasting drive force once the society got on the right track.

OK, three reasons. Apparently my parents didn't emphasize on math education.

At the short-term, technical level, there're many reasons to believe that China will be able to navigate the countless minefields, avoid disasters, and continue to grow.

First of all, the Chinese government has established a framework for governing and power transition. Despite of all its ills and evils, the Chinese government today has practically nothing to do with Communism and is much more puritan capitalism in many aspects than even US. They're basing the legitimacy of power on two pillars: nationalism and economic well-being, which has worked out quite well so far. Within the power elite circle, there's widespread and earnest consensus building on all important decisions, contrary to the common misunderstanding stemming from the simpleton "dictatorship/communism" label. The technocrat leadership has proven to work well in East Asian societies. And they've managed two smooth top-level power transitions with remarkably consistent policies -- the Archille's Heel for non-democratic governments everywhere -- since Deng.

Secondly, the bizarre mix of free market and government control in China has, much to the surprise and dismay of economists, proven very robust and efficient. Had China taken the prescription by World Bank (as Russia did), there's little doubt that the 1997 Asian financial crisis would've taken down China. Also, according to economists, the massive bad chain debt in the Chinese banking system should've caused implosion a long time ago. But the reality is the solution to the problem has been a slow but steady and remarkable success.

The modern finance system is based on the jungle model where everyone is driven by greed and greed only, governed by explicit rules and explicit rules only. In such a system, players are forced to be greedy and relentless since anything less would be subject to exploitation by competitors, or at least so they must assume. For example, if a bond issuer pays interest one day late, it's a default by standard definition and bond holders have to demand default treatment; otherwise the bond holders would have to answer many questions and expose themselves to various grave tangible and intangible risks. While the issuer's Failure To Pay may be due to a minor cashflow glitch in an otherwise perfectly healthy and profitable company, such vigorous prosecution by bond holders may well result in the total collapse of the issuer.

The Chinese system, perhaps more so than other East Asian ones, are a collaborative system where explicit rules are dynamic and driven by necessity as well as convenience. In such a system, if the above scenario were to occur, the bond holders will predictably sweep the little delay under the carpet, after either meeting with the issuer or intermediation from some government agency. The disruption and cost to the macroscopic system is therefore avoided.

In theory, the collaborative system's main disadvantage is its vulnerability to disastrous mistakes, as the collaborative character allows more corruption and secret dealing. But in practice, it's at least a possibility that this structural instability may be remediable.

But more important than government, the Chinese society in general, and the economic system in particular, has shown remarkable maturity, resilience, and rational behavior in recent years. The worldwide sanction after the 1989 massacre forced China to start developing its domestic market. In several industries, they're successfully migrating up the value chain, and slowly but steadily integrating into the international system.

Of course, "inevitable" is a bit too strong as nothing is inevitable in life except death and tax. (And, with the rapid development in bio-tech, I'm not sure about the former.) There're two fundamental risks in China that may cause catastrophe at any time: economic disparity and environmental pollution. However, barring unforeseen large-scale external disruptions, the case for China's continued growth is very strong.