China: Empire of Illusion

From soaring skyscrapers, bullet trains, new airports, and endless motorways to military parades and flyovers. The People's Republic of China projects an image of stability and mites, but the country's powers routinely overestimated in the West, leading to strategic confusion and haphazard responses. As Beijing signals its growing intent to forcibly reunify with Taiwan and assert its clout as a global power is imperative that we better understand China for what it is, rather than what we imagine it to be. In 2001, the US helped bring China into the World Trade Organization, hoping that the country would become a responsible stakeholder, possibly even a thriving democracy based on the rule of law. But time and again, its leaders have made it clear that they will never adopt a separation of powers and the multi-party system with the checks and balances that are so fundamental to a democracy. They excoriate judicial independence, view any opposition to the Communist Party as a national security threat and continue to curtail basic freedoms. People in any democracy take for granted not this freedom of speech, of religion, and of association. Despite more than two decades of membership in the WTO, China still does not have a real market economy. In fact, its leaders never tired of denouncing capitalism, praising instead the socialist economy over which they resolved. But what exactly is a socialist economy? It is an economy in which the state owns or controls all the means of production. Not one single farmer in all of China owns a plot of land. It all belongs to the state. Energy is controlled by state companies as are raw materials. How about capital? The key ingredient of capitalism, you can find it in banks, but in China, 99.5% of all bank assets are in government hands, and you 0.5% belong to private banks. The Communist Party, in short, remains openly committed to Marxism-Leninism. Of course, it can be tempting to disregard this as mere ideology or even as empty sloganeering, but it invariably leads to serious policy mistakes for an investor's poor money into a socialist economy, only to find out that they cannot get it back. Governments engage diplomatically on the assumption that political reform is just around the corner, only to see the regime turn even more authoritarian. And what about the economy? There's been tremendous growth under the WTO, no doubt, but not all is as it seems. How for starters, do we even assess growth in a one-party state where obfuscation is the norm, and statistics are routinely falsified at every level of government? GDP in China is not a monetary measure carefully calculated by a nonpartisan institution. It is a state mandate, a quota which must be fulfilled. The result is massive investment in infrastructure and overproduction as local officials rush to meet their assigned quota, resulting in empty trains, empty airports, and even entire empty cities. Even China's high speed rail network, often invoked as evidence of an advanced infrastructure, operates at a huge loss weighed down by massive state subsidies. China Rail has an estimated debt of 900 billion US dollars. In fact, debt is everywhere in the People's Republic, although even its leaders do not know its full extent. Since so much of it has been carefully hidden by one estimate, it is well over 300% of GDP. The propaganda machine in China not only inflates the economy, but also projects an image of great military prowess, much as the Soviet Union did during the Cold War. Not a day goes by without the spin factory in Beijing heralding this or that. Military breakthrough from stealth fighter jets and hydrogen bombs to entirely fictitious drone motherships. It is part and parcel of the cognitive warfare that the regime has been waging for decades as it tries to convince the world that China's on the rise while the West is in terminal decline. All too often, we fail to see through the propaganda. It is, of course, dangerous to underestimate an opponent, but overestimation can cause equally damaging miscalculations. All the huffing and puffing over Taiwan can lead to a sense of inevitability or even resignation. This is precisely what the regime wishes to accomplish: to deter other countries from intervening in a Taiwan scenario. As tensions rise around Taiwan and in the South China Sea more generally, we need to see through the regime's hubris and seek strategic clarity. This starts by assessing Beijing's Clouts in a more realistic way. Strengthening alliances between democracies and investing in democracies, not dictatorships.