Pei — China’s Trapped Transition

[cross-posted on Albion’s Seedlings]

Pei, Minxin, China’s Trapped Transition: The Limits of Developmental Autocracy, Harvard Univ Press, 2006. 294pp.

As much as the end of the Cold War, the big story of the tail end of the 20th century was the movement toward economic liberalism in mainland China after 1979. After twenty-five years on a new compass heading, how are things going?

For the interested general reader, business, foreign policy, and military websites provide deeply contradictory news. On the one hand, China seems to have dramatically increased its per capita wealth and changed its peoples’ lifestyle faster than any other nation in history. On the other hand, the vast majority of Chinese are stuck in unproductive state-owned enterprises (SOEs) or subject to the whim of central authorities when it comes to the pricing of agricultural goods. That translates into hundreds of millions of people with little hope of climbing the Chinese ladder of prosperity in their lifetimes. China, according to the demographers and “best-case” economists, will still grow old before it grows rich.

On the military front, China appears as the most likely candidate for super-power status with a central autocratic government, a growing economic engine to fund military purchases, a massive population, a compliant diaspora funneling international secrets homeward (Time article [subscription] from early 2005), and a chip on its shoulder lovingly nurtured for centuries as a substitute for an effective political theory. The naysayers, in contrast, claim that China is fortress with no one manning the walls … an army, navy, and air force more effective on paper than in reality, and a billion people dangerously dependent on potential enemies for the raw materials and consumer markets that would subsidize any military modernization.

Which is it?

While the wonks can debate the half-full, half-empty argument endlessly, Minxin Pei, a senior associate and director of the China Program at the Carnegie Endowment for International Peace in Washington DC., has given us a book that explains to the lay person how China is actually run today … who makes the decisions about rural and urban life, about justice and banking, about domestic and foreign markets. This overview is written smoothly enough to keep a general reader’s interest but it does take the time to translate the literature from Chinese, and to set the Chinese quandry in a theoretical context, comparing the nation to other (typically much smaller) nations that have made the jump from communist to free-market economies.

Ten years after beginning its modernization drive, China responded to the end of the Cold War, and the Tiananmen massacre, with a conscious shift in focus to “gradualism” … on loosening central control over economic activity while reducing any latitude for political liberalization. The collapse, and criminal or kleptocratic trajectory, of the Soviet Union and its satellites was seen as a sober warning to Chinese leadership of the perils of letting democracy loose at the same time as market economics. The peril, of course, would be the Chinese Communist Party’s (CCP) complete loss of power. Serious internal lip service was, and is, given to modernizing the political apparatus of the Chinese state, but the slim and often vague initiatives that resulted now meet a grim social reality.

The Chinese program of “gradualism” decentralized party decisions, but not surprisingly, it vastly increased the potential for party apparatchiks to successfully siphon off public funds. As China monetized its national assets (agricultural, cultural, industrial), and absorbed vast quantities of foreign direct investment (FDI), it created a dual economy … one was subject to the rigours of the marketplace and created a Chinese incentive to rationalize protection of foreign property and contract rights. The other economy was woefully managed, and hugely leveraged into debt. In order to maintain its control over money and the tools of patronage, the CCP kept control over the areas of the economy least transparent to foreign investors. A deeply corrupt banking system allows systematic looting of both state subsidies and any emerging market opportunities (typically in real estate development). As a result, key domestic economic segments are profoundly corrupt, inefficient, and effectively bankrupt.

Corruption, rather than being an end-game to foreign emigration by party and Army members (or their families) as it was in the early days of liberalization, became a “group sport.” Bureaucrats, businessmen, and increasingly Mafia, co-operated in the methodical looting of public and private funds. Not only was China’s growing wealth providing greater opportunity and scale for corruption but corrupt officials now have more, and safer, places to abscond to when they are discovered. And as for discovery and punishment, that leads to another point made by the author.

Pei claims that the CCP has now established a stasis — a decentralized predatory state:

  1. It cannot enforce accountability of its cadres without highlighting its lack of power and supervision over the hinterlands and vast bureaucracy.
  2. It cannot wean itself from its inherently predatory behaviour because the captured money, and associated party advantage, is all that it has left to offer adherents.
  3. It cannot address the catastrophic drop in party morale because the majority of cadres are now convinced that socialism is a lost cause. The best strategy therefore (individual and communal) is to take as much out of the system as possible before it collapses.

It is in the unique combination of two features of the Chinese state (decentralized, predatory) that the “trapped transition” occurs. We have historical references for centralized predatory states. We know that they have an inherent threshold of mass terror and repression beyond which they cannot operate if they want a functional economy. Similarly, we know that centralized predatory states can monopolize resources (and corruption) to a large degree, and keep the subsistence economy of the masses relatively equitable.

But China’s has released both its people and its cadres to develop the economy at a maximum rate, without the cultural and political elements of supervision, of governance, that would keep the nation from developing big dislocations in the economic and social spheres.

China now, according to Pei, suffers from a profound “governance deficit.” It can no longer provide “law and order,” health care, education, infrastructure maintenance, or many of the other necessary functions of the modern nation-state … too much of its time and financial resources are spent in simply keeping itself afloat. The resulting gap between citizen expectations and bureaucratic announcements can be extreme and is leading to increasing social unrest — riots as the only way to induce governmental change.

By the time Pei has finished his overview (with generous, careful, and thorough presentation of the “half-full” arguments at each stage), one comes away with both a better understanding of how China has managed its economic “miracle” and how shaky the governmental underpinnings now are. This is a nation that’s riding the tiger but in no way is successfully directing it. Governing China effectively would require weaning the party from its parasitic role in the Chinese economy. And it cannot do that without relinquishing authority to a democratically elected government that would eliminate the need for the CCP.

Pei’s book certainly doesn’t qualify as light summer reading but it reads smoothly and logically as a high-level summary of political and economic science. For someone wanting to brief themselves in detail on the Chinese future, I feel it can be read to great benefit in tandem with W.J.F Jenner’s The Tyranny of History: The Roots of China’s Crisis (an assessment of the cultural/linguistic constraints on Chinese modernization) and
Richard E. Nisbett’s The Geography of Thought: How Asians and Westerners Think Differently … And Why (summarizing cognitive differences between regions of the planet that impact individualization and innovation — reviewed here).

Read as a set, these three books provide insight into the hurdles facing cultures that want to duplicate the success of the Anglosphere and European continental nations.

Table of Contents

Introduction [1]
Why Transitions Get Trapped: A Theoretical Framework [17]
Democratizing China? [45]
Rent Protection and Dissipation: The Dark Side of Gradualism [96]
Transforming the State: From Developmental to Predatory [132]
China’s Mounting Governance Deficits [167]
Conclusion [206]

8 thoughts on “Pei — China’s Trapped Transition”

  1. Wow the price on this book was steep at Amazon but I bought it anyway. It is just the type of the book I have been looking for. Along with “Five Years A Dragoon”, that should make for some good summertime reading.

  2. I think China is largely a paper tiger. Its military has never demonstrated any ability to project power beyond its own borders and it hasn’t fought a war in over 30 years (with Vietnam and it lost badly).

    More importantly, China doesn’t have that large of an economy in the absolute sense. Its total GDP ranks its between Germany and the UK while its per capita GNP ranks it just behind Panama and just ahead of the Dominican Republic. Even given all the explosive growth in the last decade China is still a very poor country albeit a very large one. They simply don’t have the excess wealth to field a powerful military.

    I think China is far more likely to implode long before it tries any kind of military adventure.

  3. I would suggest that there is a way to inject political competition into the PRC system, legalize the KMT in exchange for unification with the ROC. The KMT has nowhere near the personnel necessary to run a nationwide political party. It will depend on massive defections from the CCP cadres to staff its mainland operations for years and years. You end up with the clans running the CCP still running the politics of the China but from a two party system and with the tremendous nationalist prestige of peacefully unifying the nation.

    All that is needed is the KMT to win a free election. For them, unification and legalization would be a dream come true and their financial and power interests would be immeasurably enlarged while they provided the acceptable face to US Republicans. There would be no question of military intervention and it would happy smiles all around except, perhaps, at Pacific Command and the big platform US defense contractors who would have a major downgrade of influence and income respectively.

  4. The Chinese people are an ancient, noble culture which has suffered predations on a scale that most of us cannot even imagine. Eventually, the history of the Chinese experience in the 20th century will be written, and some attempt to judge her catastrophic experimentation with totalitarian collectivism will be formulated and openly debated.

    To be blunt, the current bankruptcy of academia and, especially, the professional writing of history, precludes any definitive analysis at this point. Still in thrall to many of the basic assumptions underlying collectivist thought, and the post-modern emphasis on the evils of “western capitalist imperialism”, we are just starting to see attempts to describe the mess that these destructive ideological systems have made of the societies which adopted them as operative organizational theories.

    It is the extent of their rejection of communist/socialist principles which determines how far along they are in modernizing their societies. The examples of N.Korea and one of the Baltic states are in stark contrast. One starving, the other rapidly entering the world economy. Ireland is also on this latter road, after decades of heavy socialist retardation

    And that, when a future, more objective look is taken at these systems, will be, I predict, the final, non-ideological judgement on the effects of collectivist policies on societies—they retard normal development without any redeeming features.

    China is facing enormous challenges, some of which are intrinsic to its underlying culture, but many of which are so embedded in the day to day workings of a collectivist society that they will continue to cause difficulties for decades on a scale that those of us living in reasonably non-collectivized societies cannot easily comprehend.

    Some very important fallacies of collectivism have been exposed, however, for all the world to see and learn from, if the ideological blinders that so many wear can be penetrated: rigidly regimented and controlled societies are not more efficient, more conducive to personal or environmental health, nor are they more powerful economically and militarily, than the more open, chaotic, seemingly disorganized societies of the relatively non-collectivized Anglosphere.

    Let’s not kid ourselves. In the final analysis, it is the wealth and military power of the West that draw a great many who wish to emulate our successes, not any theoretical devotion to individual liberties or constitutional government.

    Rand made the point long ago that the initial reaction of the collectivist is to imagine that if he mimicks certain aspects of a free society, he can have the rewards without all the bother of things like rights, liberty, representative government, etc.

    It is only when the realization hits that it’s a package deal, that you don’t get the goods without the appropriate currency, that any true chance to jettison the dead weight of collectivist ideology occurs.

    They simply aren’t there yet, but that day will come. Reality requires that any lunacy which rejects facts, cause and effect, and reason so completely as collectivism does will finally meet with a day of reckoning.

    I just hope I’m there to see it, and rejoice.

  5. Is China closer to imploding today than it was five years ago? Why has the implosion yet to occur? What about the growing role of private enterprises in China (by this I truly mean private enterprise, not State Owned Entities)? Cannot they be China’s salvation? Will their growth have any impact on the doomsday scenarios? Is it disputed that there is a huge amount of support for the present government from the people in China who matter most — the approximately 400 million who are making money?

    I would need to see good answers to at least some of the above before I start buying into the China is going down school.

    Most of the China doomsayers (and I have to reserve judgment on this book becuase I have not yet read it) usually just set forth a litany of scary facts and figures about China, many of which can be applied to most any large country.

    To quote from Thomas Barnett’s view of an article Pei previously wrote on China:

    “I would need this account of the intransigence of Party hacks to be balanced against the stunning rise of the entrepreneurial class and civil and commercial law in China. Pei paints a “Deadwood”-like picture of rapacious capitalism and official corruption, but he seems to judge it from a historical standard that doesn’t take into account that much of current Chinese capitalism comes closest to late 19th century America, which was amazingly corrupt and rapacious. The big questions are missing here on trajectory, pace, fluidity, correlation of forces, etc., so I am left dizzy with stats but not much understanding or expectation.”

    It is the context I am seeking.

  6. China Law Blog,

    …much of current Chinese capitalism comes closest to late 19th century America, which was amazingly corrupt and rapacious…

    The US in the 19th century also suffered a major depression roughly every 20 years or so, often triggered by the widespread collapse of banks due to mismanagement or corruption. The US was diverse enough and robust enough to recover rapidly each time. The consequences of a depression in an era when most people live on farms and grow their own food is not as severe as when most people live in cities.

    China has little transparency in government and only rudimentary rule of law. That makes everyone nervous because history has shown that without accountability economic collapse is only a matter of time. Look at what happened in Japan in the 80’s and 90’s. Weak accountability led to a collapse of the banking system and capital markets that resulted in a recession that lasted nearly a decade.

    Japan was rich enough to survive such a major collapse but I fear China is not. If a similar problem strikes China people will begin to starve rather quickly. The resulting political instability will not be pretty. Perhaps China will evolve fast enough to avoid major problems but even in liberal democracies matters often have to reach a crises before governments acquire the will and the mandate to affect major change.

  7. In this post I quoted one scholar thus:

    For half a millennium autocrats, absolute rulers, and dictators in Russia (and elsewhere) have been picking and choosing from the Western technological and cultural package in hopes of surviving, maintaining independence, or overtaking and surpassing the West. The lesson would seem to be that anything less than the entire package will yield disappointing results in anything other than the short term.

    Will China be able to continue its advance with major omissions from the full toolkit? I hope so, for their sake and ours, and that they evolve away from autocracy.

    Shannon is right to point out that the analogy to the USA in the 19th Century is not completely apt. The Chinese government is strong enough to protect weak banks and businesses, which Shannon notes was not true in the USA. Furthermore, we had well-established property rights and protection against government takings, which the Chinese people do not have. Moreover, the political system allowed the public to influence policy and to get its grievances heard. There is little or no such outlet in China now.

    No one in their right mind wants anything for China but continued development. But China has a lot of work ahead, and it is missing some important features to get that work done in a peaceful, orderly and efficient fashion.

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