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Clouds over the 'China Dream'

By GLENN CARBERRY

Publication: The Day

Published February 23. 2014 4:00AM
Two inescapable aspects of life in China's cities: construction cranes and smog. AP PHOTO

China's president, Xi Jinping, uses the phrase "China Dream" to describe his nation's aspirations for world leadership and prosperity. Last spring, I visited China for several weeks and had the opportunity to observe some of the challenges the dream faces.

I came away deeply impressed with the perseverance and accomplishments of the Chinese people. In the locations I visited, China has modernized its infrastructure dramatically in only three decades, lifting several hundred million people out of subsistence living into modest comfort.

Yet structural flaws threaten China's institutions, as do the tragic compromises China's leaders have made to pursue growth.

China's economic bubble

China's policies have created an economic bubble that may burst. Government owned banks provided easy credit to local governments, state-owned enterprises and private companies for commercial ventures and construction projects. As a result of these lending policies, total outstanding debt in China reached 182 percent of GDP in 2012, and is projected to rise to 275 percent by 2016. In comparison, the ratio in the United States is now 73 percent.

Excess debt will be a difficult problem to solve in China. Lending standards and repayment terms on new loans are lax, and state-owned enterprises have virtual monopolies over key industries. Meanwhile, some Chinese firms use questionable accounting practices and provide incomplete disclosures to securities investors that fall short of international standards.

There is an imminent sense of insecurity about the future among the Chinese people. During my recent visit, malls in Beijing were full of luxury retail stores but few shoppers. In Hong Kong, however, jewelry stores were full of locals and visiting Chinese converting their cash into gold. Chinese investors have purchased over $500 billion of property and other assets outside of the country, and many working people I spoke with said their "dream" would be for their child to go to college in the United States.

Environmental damage

China's leaders must also confront the environmental practices that threaten to make their cities unlivable. Whatever you have seen or read about pollution in China, the reality is much worse. Beijing car owners are restricted to driving on alternate days of the week on crowded highways because of smog. I was stunned to see apartment complexes being built a stone's throw from billowing power plants at several locations, while traveling on the high-speed train between Xi'an and Luoyang.

A recent study forecast that emissions from autos and coal will make air pollution 70 percent worse by 2025. Urban Chinese families are reacting to dangerous pollution levels by keeping their children indoors, while some western executives are now turning down assignments there or receiving hazard pay.

Water pollution and food quality also compromise public health. The food safety practices I saw throughout China in outdoor food markets resembled those that shocked American author Upton Sinclair a century ago. It was widely reported in China last spring that more than 20,000 dead and diseased pigs were dumped into the Huangpu River north of Shanghai. The incident was attributed to black market meat traders.

Limited resources

The third problem faced by Chinese leaders is the lack of critical resources that are essential to continued economic growth. Energy is one key deficiency. While the United States is finally heading towards energy independence, about 50 percent of China's oil is imported from unstable countries in the Middle East or Africa. Similarly, liquefied natural gas sells for $15 in China, compared to $4 to $5 in this country. Despite efforts to expand trade with energy exporting nations and claim oil deposits in waters controlled by other countries, China is in an unsustainable position.

China also faces a pressing water shortage that could lead to conflict with India and other neighbors. Asia has 60 percent of the world's population and only 35 percent of the fresh water. Canals and dam projects have diverted rivers to serve China's cities, leaving local farmers and fishermen stranded.

Corruption

China suffers from widespread corruption and the restraints placed on its citizens by the Communist Party. After 65 years there is little ideological fervor left. Instead, the hard working middle-class waits for its share of the China boom and seems to be increasingly frustrated by the favoritism that protects party elites.

The extent of state control is striking. On a May day in 2013, while out for a walk in Beijing, I noticed many people looking at their cell phones, shaking them and talking excitedly. I found out several hours later that a crowd of 1,000 workers had begun a spontaneous demonstration at a wholesale mall nearby, protesting the alleged police cover up of the murder of a young female clerk there. When the demonstrators proposed marching towards Tiananmen Square, 3,000 police and several cannon were deployed to block their path. Equally important, cell phone service and some websites were temporarily blocked that afternoon.

The architect of China's economic rise was Deng Xiaoping. He rose to power after vanquishing the infamous "Gang of Four" that opposed his reforms. It is unlikely that Xi Jingping will be able to so easily conquer the forces that confront China's aspirations of greatness.

Attorney Glenn Carberry of Norwich, an attorney practicing in New London, frequently travels and periodically contributes commentaries on international affairs.

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