August 31, 2011


The City: Beijing: Ai Weiwei finds China's capital is a prison where people go mad. (Ai Weiwei, 8/28/11, Daily Beast)

Beijing is two cities. One is of power and of money. People don't care who their neighbors are; they don't trust you. The other city is one of desperation. I see people on public buses, and I see their eyes, and I see they hold no hope. They can't even imagine that they'll be able to buy a house. They come from very poor villages where they've never seen electricity or toilet paper.

Every year millions come to Beijing to build its bridges, roads, and houses. Each year they build a Beijing equal to the size of the city in 1949. They are Beijing's slaves. They squat in illegal structures, which Beijing destroys as it keeps expanding. Who owns houses? Those who belong to the government, the coal bosses, the heads of big enterprises. They come to Beijing to give gifts--and the restaurants and karaoke parlors and saunas are very rich as a result.

Beijing tells foreigners that they can understand the city, that we have the same sort of buildings: the Bird's Nest, the CCTV tower. Officials who wear a suit and tie like you say we are the same and we can do business. But they deny us basic rights. You will see migrants' schools closed. You will see hospitals where they give patients stitches--and when they find the patients don't have any money, they pull the stitches out. It's a city of violence.

China's S-Curve Trajectory: Structural factors will likely slow the growth of China's economy and comprehensive national power (Gabe Collins and Andrew Erickson, 15 August 2011, China SignPost)

China faces costly internal and external challenges that are likely to ease the country onto a structurally-constrained slower-growth trajectory. For all its policy navigation, efforts to guide national development, and claims of exceptionalism, China is not immune to larger patterns of economics and history. As such, it will likely not be able to avoid the S-Curve-shaped growth slowdown that so many previous great powers have experienced, and that so many observers believe the U.S. is undergoing today. [...]

The S-Curve concept comes from a mathematical model that was later applied to other fields including physics, biology, and economics, to show how entities' growth patterns typically change over time. In his seminal work War and Change in World Politics, Robert Gilpin uses the concept of an S-Curve to describe how great powers rise and decline.[10] He argues that a state must inevitably decline because of an historical tendency for national efficiency to decrease as society ages, thereby creating a downward spiral of increasing consumption and decreasing investment that undermines the economic, military, and political underpinnings of a state's international position. A society or country experiences slow growth at its inception, then enjoys more rapid growth as more resources flow into the state treasury.

The process continues until the state reaches its maximum growth rate, an inflection point at which various countervailing forces begin to constrain expansion and set the economy onto a slower growth path or even a state of equilibrium. Domestically, social spending and rent seeking behavior may threaten productive investment and economic growth. Internationally, a hegemon tends to 'overpay' for influence in the international system because of the tendency for allies to 'free-ride,' and the inherent propensity toward technological diffusion may threaten to undermine a hegemon's economic and technological leadership. But differences in national system and circumstances may have profound implications for the creation and maintenance of national power. [...]

Many have argued recently that S-Curve-like factors such as explosive growth in healthcare and pension costs and military/overseas commitments threaten American prosperity and preeminence, but few have considered the possibility that similar factors could constrain China--and perhaps much sooner than commonly anticipated.

China's countervailing forces are not deterministic, but managing them will require major shifts in the country's economic, and perhaps, political structure. This may substantially constrain the country's potential economic growth and proportionately, its ability to invest in education, innovation, the military, and other factors that help determine a country's comprehensive national power.

This analysis divides key challenges that China faces into the following categories: political, demographic, structural, economic, and security. We follow this order because the political system's prior emphasis on 'growth first, other things second' helped produce a variety of the structural issues discussed below (such as high incidences of cancer and other chronic diseases), as well as the economic issues (such as local governments' use of debt), and because civilian and military officials decide China's military strategy and then have to find ways to pay for it, taking into account the financial environment in which they are, and will be.

A key point here is that these problems do not occur in isolation. Rather, they interact as a dynamic system and have real potential to be mutually reinforcing. For example, if the high local government debts end up yielding a large pool of non-performing loans that require the central government to liquidate them, that would effectively remove funds that could otherwise have been used to address chronic diseases or invested in value-accretive items such as education, research and development, or the Chinese military.

The brief rise and precipitous fall of an insignificant power.

Posted by Orrin Judd at August 31, 2011 6:34 AM
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