Comment on another Gordon Chang "China collapse" article

Gordon Chang has posted another "China collapse" article as we enter 2016. In the comment section, as expected, he was widely ridiculed and criticized, with numerous dismissals of his long history of inaccurate doomsday forecasting. I added my two cents: 

Specific refutations of Mr. Chang's same old arguments should be presented, not just blanket dismissals of his bad timing. I always take his line of attack seriously, because these are indeed the deep structural problems that China must either overcome or somehow muddle through, or that simply are being overridden by larger and wider global economic trends anyway.

The old "Li Keqiang index" of measures such as electricity consumption, rail freight, etc., are less indicative of the overall economy than they are of the manufacturing sector specifically; these should either be growing very slowly if at all, and should in some cases be in outright contraction, simply because of the huge backlog of overcapacity in heavy industries and increased productive efficiencies. Rail freight, for one, should be in steep decline simply because bulk shipments of coal and metal ores aren't needed where there's already excess supply buildups.

Consumption and services are already more than half the economy; they are unlikely to gain a much higher share in the next 4-5 years, i.e. anything approaching two-thirds or more of GDP as in advanced OECD economies, but then China's per capita GDP of $8,000 is only a fraction of the OECD average anyway. Besides, this half of the economy has until recently been substantially undercounted to begin with, and it could be that the growth rates aren't really quite so good as reported officially, but that a lot of activity is simply being recorded for the first time.

The fact that capital is leaving the country is mostly an indication that a new international monetary cycle has begun in which the best returns are elsewhere, not that China itself is crashing. Everyone knows the RMB is overvalued - no longer undervalued as other China-bashers continue to claim (Trump) - and should capital controls be fully and immediately relaxed, a 30-plus percent devaluation is likely, which will simply not be permitted by the global financier cartel. China is in fact doing Wall Street, the City, Washington and Brussels a big favor by keeping the yuan so strong. They'd all be screaming if the party were to loosen its grip and actually allowed democracy and true market freedom.

Which leads to the main point: it betrays a very archaic view of the global economy to speak of China as becoming "dominant" at the expense of the West and the US. China has its role in the world, just as the US has its role. Neither is necessarily diminished by the growth of the other. In the last quarter-century, it has precisely been China's rise as the global manufacturing hub that has, among other factors, dramatically boosted Wall Street's unrivaled stranglehold on the entire planet. It's true China will probably never catch up to the advanced countries in the most important respects, but that doesn't mean it can't become increasingly the central player in its own hemisphere - not least because the other dominant players have decided to co-opt it, not contain it.

My blog, http://chinatransition.blogspo..., seeks to address the recurring themes, while also laying out the historic context of the PRC's present situation.

China's transition now at a critical stage

China Beige Book (CBB), which had touted the Chinese economy's resilience in the third quarter amidst bad headline numbers, has now done just the opposite: despite recent headline figures showing fourth quarter stabilization, it reports a comprehensive deterioration of conditions.

Tellingly, CBB's Leland Miller argues that the vaunted transition from manufacturing to services is stalling:

The survey shows "pervasive weakness," Miller wrote in the report. "The popular rush to find a successful manufacturing-to-services transition will have to be put on hold for a bit. Only the part about struggling manufacturing held true."

With manufacturing's percentage share of GDP in the low-40's and services' share in the low-50s, China has apparently hit a wall, but who seriously expected these figures to shift by more than 5 percentage points from 2012? With a per capita GDP of $8,000, China can and should remain a heavily manufacturing and investment-based economy; its program to create a social safety net to support a consumer-oriented economy has barely taken baby steps, meaning the savings rate should likewise remain very high.

That said, China's transition has reached a critical stage. This quote says it all (my emphasis):

"More concerning than overall growth weakness was degradation of two components of the economy that were previously overlooked as sources of strength: the labor market and the impact of inflation," Miller wrote. Given growth in input prices and sales prices slipped to record-lows while firm performance metrics fell, "it looked like firms were encountering genuinely harmful deflation," he wrote.

So after more than a year of fiscal and monetary stimulus, there's little confidence that much can be done to stimulate activity simply because demand is struggling as much as ever with crushing deflationary deadweight. In fact, as has been pointed out repeatedly throughout 2015, the so-called "stimulus" has mostly not been stimulus at all, but merely stopgap liquidity injections to counterbalance the vicious cycle of monetary tightness and high real borrowing costs, which the massive capital outflows since summer have only exacerbated.

So it's no wonder that "supply-side reform" is now the buzzword in Chinese economic policy circles. The Beige Book outlook confirms that it's now or never for Beijing to tackle the oversupply and deflation problem, because the downward spiral is on the brink of spinning out of control, forcing on the economy precisely the labor dislocations that the authorities have put off corporate reforms and restructuring in order to forestall. As of the start of 2016, the time will have run out. Either the government cuts the zombies down to size and lets them shed superfluous workers as they should have done in 2013, or the country will have to watch the living dead effectively devour the living living to keep living even though they're dead.

Red empire: the party state's inheritance of China's bureaucratic despotic tradition

Previous: Integrating "hydraulic despotism" with "circumscription theory" to trace the Chinese state's origins

Has the CPC established a new, modern version of Chinese empire? In 1957, just as Mao was consolidating his power via the anti-rightist purges, Karl August Wittfogel argued in "Oriental Despotism" that, in essence, the Soviet and Chinese communist parties made decisive breaks from the long imperial pasts of the Czars and emperors, respectively, but that this was as a practical matter of keeping up with the times, more than it was a matter of fidelity to socialist or communist doctrine. In both the USSR and the PRC, the essential modus operandi of the age-old authoritarian state - the monopolization of economic activity by a large centralized bureaucracy - was not only reinstituted by the supposedly revolutionary party, but dramatically augmented.

So while the People's Republic presented itself in the Mao years as a rupture from imperial China, from the start its fate was determined by a new version of the bureaucratic apparatus that had existed since time immemorial. From the start, it retained this key marker of Chinese statehood and even of Chinese political identity itself. The communist party's success to date cannot be explained solely by its violence and repression: as with the most successful imperial dynasties, it has been very calculating and deliberate in its application of such coercion, thus betraying a sounder internal organizational principle and foundation than is generally acknowledged.

In fact, the political history of the Maoist era (1949-1976) should be assessed primarily from the angle of the dictator's continuous struggle to establish, maintain, control, and purify by all means necessary the new party apparatus state of the CPC. Indeed, it was a continuation of what had begun before the communist takeover, during the Yan'an period (1935-1948).

The CPC party apparatus state attained its peak of absolute authority during the Great Leap Forward (1958-1962), when it blindly executed Mao's will with catastrophic consequences for the peasantry. It then facilitated an economic recovery engineered by the party's moderate leaders, only to be all but wiped out by Mao when the dictator made his stunning comeback in the initial stages of the Cultural Revolution (1966-1969), effectively smashing the apparatus state in order to rebuild it from scratch. By 1972, having reestablished unrivaled control of the instrument of rule, the Great Helmsman haltingly relaxed his grip, allowing the apparatus to begin its practical administrative rehabilitation years before many officials would finally be reinstated by Deng Xiaoping.

Needless to say, the party state has always had a love-hate relationship with chairman Mao: many apparatchiks who suffered at Mao's hands in the Cultural Revolution would nonetheless end their careers with a stoic acceptance of the leader's willingness to exact such disproportionate costs to retain an extremely top-down, one-man system of rule. When it really came down to it, at Tiananmen Square in 1989, the party led by Deng Xiaoping simply couldn't imagine giving up the authoritarian regime that Mao had bequeathed it: its decision to use lethal force was an unequivocal affirmation of its intent to preserve Mao's creation and legacy.

Built to last: why Chinese communism succeeded where Soviet communism failed

Today, at 66 years of age, the People's Republic of China is in far better shape than was the Soviet Union in its own seventh decade, in the 1980s. It may yet implode - the possibility has never been absent - but for practical purposes it is an order of magnitude healthier than the system that Gorbachev inherited in 1985 and tried, with spectacular failure, to save from itself. The question of why this is the case is arguably one of the single most critical ones for international politics and world affairs at present, when much of the world - Putinist Russia included - is striving to emulate elements of the "Chinese model" of authoritarian development. Unfortunately, the West as a whole is still waiting for China to finally collapse someday, and has made little effort to understand the history of the PRC which has determined its current state and trajectory.

1. A rural power base, even to the present

As a start, much like the Bolsheviks in Russia before them, the Chinese communists claimed to establish popular rule by empowering the underclass of disfranchised peasantry and urban proletariat; and also much like the Bolsheviks, the CPC in practice served the popular will only inasmuch as this advanced its own interest of acquiring and maintaining absolute power.

But critically, Mao broke with the Marxist-Leninist orthodoxy by positioning the rural peasantry, not the urban proletariat, as the backbone of communist revolution. While this clearly began as a practical concession to the revolutionary realities of China in the 1920s and 1930s - the level of industrialization was much lower than in Czarist Russia - this has had far-reaching consequences for the entire history of the People's Republic, which in the era of reform and opening (1978-present) has generally escaped notice.

Few observers and analysts of the 1989 pro-democracy movement in China have pointed out, let alone stressed, that despite the appearance given by the international media, the movement was largely confined to only a fraction of the total population: urban students and workers. The vast countryside in which nine out of ten Chinese still lived and toiled was largely untouched: had this not been the case, the central government's pacification of the insurrection would have been much longer and costlier.

In 1989, China was still very much an agrarian country and economic system: its boom of the preceding decade was built upon the disbanding of the Mao-era rural communes and the emergence of a public-private partnership system between farmers and local officials, who colluded to combine market mechanisms, new technology, and common sense administration to create, by the mid-1980s, almost unheard-of agricultural surpluses throughout the country, thereby creating a solid foundation for accelerated industrialization and urbanization.

What has escaped much Western notice is that this crucial phase of Chinese rural development was essentially state-driven. True, it was spurred initially by private initiative in rural communities, but the real turning point was when the bureaucratic apparatus state, still as firmly controlled by the party as ever, took it upon itself to oversee and coordinate the new market-friendly policies. Critically, there was no official sanction of private property in these early years of reform, and as yet little corruption in the rural party ranks; both the speed and equitable distribution of the agricultural expansion of the early 1980s was greatly facilitated by the centralized party apparatus state. This, in turn, was only possible because Deng Xiaoping had attained a degree of unrivaled paramount leadership comparable to, if clearly less than, that of Mao.

Rural China did not escape the economic distortions of the second half of the 1980s, specifically inflation and corruption, which became a major problem as officials for the first time had much surplus production value, notably in the new small village enterprises, to pocket for illicit personal gain. But as a whole, the condition of the peasantry in 1989 was incomparably better than it was only a short time earlier. For the close to one billion Chinese citizens in the countryside, there may have been incentive to demand cleaner and more efficient administration, but there was practically no widespread discontent that would have translated into calls for a radical overhaul of the communist system. In the spring of 1989, this made rural China, yet again, the CPC's bulwark of support against its virtually exclusively urban opposition.

Thus, from Deng Xiaoping and the CPC hardliners' perspective, the crackdown on students and workers in Beijing, executed ruthlessly as it was by a predominantly peasant conscript army, indeed had the appearance of a counterrevolutionary operation to root out a neo-bourgeois uprising.

One could argue that the stoic peasantry has remained the party state's power base even to the present day. In the 1990s and 2000s, the 150 to 200 million farmers who moved to urban areas for manufacturing and construction work formed the backbone of the nation's transformation into an industrial and commercial superpower. Despite countless protests against the official corruption which exploded in this period, the peasantry notably refrained from demanding political reform or democratization, settling instead for a gradual increase of their living standards. Local village elections were permitted, giving a limited measure of autonomy to rural communities - an indication in itself of the party's relative trust and confidence in the peasantry's pliability.

And of course, under the populist Xi Jinping, the rural masses have arguably reassumed their overt importance to the party's legitimacy: Xi has prided himself as having the heart of a poor farmer, in stark contrast to the urbane technocrats and wealthy businessmen of the reform-era party apparatus.

2. Complete control of the security apparatus

In 1989, clear divisions emerged within the CPC leadership and ranks. However, the ease with which Li Peng and the conservatives ousted Zhao Ziyang and the reformers from the party state's power structure was indicative of the vise-like grip that Deng Xiaopoing, Chen Yun, and the rest of the council of revolutionary "immortals" still retained over the security apparatus.

The student and worker demonstrators were especially confident as their swelling ranks were joined by numerous party intellectuals, journalists, and low-to-mid-level functionaries in the university, state enterprise, and various state administrative systems; it seemed as if their massive strike had brought the party leadership to its knees by pushing the state-run economy to the brink of a complete standstill. Their fatal mistake was to equate numbers and popularity with strength and power: in this respect, the old revolutionaries literally took them to school.

In such a crisis, the ruling regime survives by sharply tightening its grip on the security apparatus: the specialized security services, the police state (to include paramilitary forces), and of course the military. Every totalitarian or quasi-totalitarian system is designed such that its security apparatus, despite being a small fraction of the overall state apparatus and a minuscule portion of the population, has virtually unlimited rapid reach into every nook and cranny of both the state and the society. Hence even the loss of allegiance of a significant portion of the civilian bureaucracy - which seems to have taken place during the Tiananmen standoff - is not as severe a blow to the rulers as it would first appear, so long as they retain unchallenged control of the state's lethal arms. In any case, even in severe crises, practically all of the essential civic functions of the state must carry on normally anyway, leaving these authorities with little leverage against the ruling clique should they in fact sympathize with its opponents.

Deng Xiaoping deftly maintained a highly centralized control of the security state even as he loosened up the communist system's civil administration. He thus had the means to coerce the entire police, military, and paramilitary force into executing the party's will by violence. Throughout the 1989 crisis, this chain of command was not seriously threatened: though the citizens of Beijing managed to block the PLA's initial entry into the city in the first days of martial law (declared May 19), the party had no trouble shuffling out the reluctant commanders who had succumbed to people power, and merely withdrew the army to regroup and reinforce for the next, final thrust into Tiananmen Square, which it now knew must involve deadly force.

Thus, the failed 1989 democracy movement in China, contrasted with the successful revolutions in the communist bloc in eastern Europe later that year and the fall of the Soviet Union in 1991, proves that there technically isn't any such thing as a nonviolent overthrow of a dictatorship: even when the peaceful citizenry does triumph, it is ultimately not because the rulers are too conscientious to kill their own people, but because they realize that they must crack down on their own unwilling security apparatus first, with the likely result that the very guns meant for the protesters would be turned against themselves.

The rulers of Moscow's eastern bloc satellites could never be so sure of such unquestioning loyalty from their security men to begin with - they always relied implicitly on the Kremlin's invocation of the Warsaw Pact which made the Red Army the ultimate guarantor of state integrity behind the Iron Curtain. But from 1987 onward, with glasnost and perestroika Gorbachev systematically dismantled the totalitarian infrastructure of the USSR itself, complementing this internal policy by a deliberate deescalation of the Cold War and a mutual drawdown of nuclear and conventional forces with NATO. This left the Soviet satellites completely naked and without protection against the popular revolts of 1989. Two years later, with the Soviet security state in tatters and much real power having devolved back to the individual Soviet republics, the hardliner junta that briefly deposed Gorbachev in the August 19 coup found that it had virtually no control over vast swathes of the Red Army: it could not shoot pro-Yeltsin Russian demonstrators because it feared retaliation from disobedient generals, including airstrikes on the Kremlin itself.

By contrast, in China the party security apparatus proved its worth to the top leadership in 1989, and thereafter grew only stronger. In the Jiang Zemin and Hu Jintao years, even as the party retreated from micromanagement of the daily affairs of the populace, giving some room for civil society to grow, it seized every opportunity and pretext to beef up the security forces and infrastructure (notably including the crackdown from 1999 of Falun Gong). As China enjoyed a prolonged period of low threat of international conflict even as its internal social discontents intensified, the internal police state came to eclipse the PLA in prominence, reaching its height in the twilight of Hu's tenure (2009-2012), becoming almost a state within the state. The party's paramount leadership, however, easily reasserted absolute control over it during the Bo Xilai scandal, in which security czar Zhou Yongkang, Bo's ally, was sidelined by Hu via the Central Military Commission (CMC).

Xi Jinping, the clear beneficiary of the fall of the Bo-Zhou nexus (which some believe collaborated to derail his succession in 2012), has ironically relied heavily on the enhanced security apparatus left by Zhou to carry out the signature anti-corruption campaign whose highest-ranking victim has been none other than Zhou himself. As of early 2015, he appears to have replaced the highest echelon of the apparatus - the men charged with his own personal security - with his trusted personal confidants. The continued scale and intensity of the anti-graft crusade - after initial doubts that it would do so, it now appears to be sweeping the ranks of current provincial officials and state enterprise executives (notably finance and banking execs) - indicates Xi's increasingly confident hold on the instrument of coercion.

3. Fulfillment of the Chinese nationalist dream

Finally, the awakening of Chinese nationalism in the post-Tiananmen period lends incredible weight of legitimacy to the party state's project of continued total power. In fact, it may be the most significant of all three factors treated here, and though it is rather easy to dismiss or trivialize, it has very deep origins in modern Chinese history and is actually a culmination of that history. Its power to shape China's course in the 21st century, therefore, remains unmatched by any other single force.

When modern China was politically freest, it was also the most fragmented, decentralized, and therefore militarily weakest. This critical period of the so-called Warlord era (1916-1928) was defined by the May 4 movement of 1919, which aroused for the first time a universal consciousness throughout the Chinese world of the need for an effective central government and national institutions based on the Western model of Westphalian statehood. It was not enough to simply have an official Republic of China with a constitution and legal system, which had already been established in 1912: the humiliating betrayal which the Chinese people suffered at the hands of the Allied powers in the Paris peace treaty opened their eyes to the fact that they were disorganized, poorly led, and thus lacked the "hard power" in terms of economic and military strength to be taken as seriously as archrival Japan. And so, even as they enjoyed unprecedented personal freedoms in the 1920s, this was not pursued as an end in itself, but to build a strong modern nation-state.

The Nationalist (KMT) party, inheriting the leadership of Sun Yat-sen, was able to flesh out this yearning through the northern expedition (1926), and under its emerging strongman Chiang Kaishek, seemed destined to eventually unite all China under the republican banner. When the KMT turned against its communist allies upon unifying southern China, the CPC seemed like little more than a nuisance to its grand ambitions.

But the KMT's ultimate failure cannot be reduced to its unusual bad luck, namely the plunging of the world into the Great Depression, precipitating a Japanese invasion that prevented it from wiping out the communist insurgency; nor to its inferior military tactics and strategy; nor even to its corruption, which repulsed its Western supporters. In the final analysis, the KMT simply failed to inspire the rural masses of the vast Chinese hinterland to risk their lives for a new kind of nation.

Chiang Kaishek's regime envisioned a new China that would adopt Western science and technology while retaining its Oriental character; thus, even as it eagerly imported the best foreign advances it could handle, it sought to retain the conservative Confucian value system and social structure that undergirded the bulk of the vast population, especially in the countryside, which it naturally viewed as a bulwark of Chineseness against excessive Westernization or, conversely, Sovietization. This would have been the right formula to modernize China - had China and the world at large been at peace.

But China was no longer at peace when Japan invaded Manchuria in 1931. In those critical five years from the Manchurian incident (September 18, 1931) to the Xi'an incident (December 1936), Chiang Kaishek and the KMT correctly judged that Mao's communists were a greater threat to their power than the militarists in Tokyo; what they failed to update accordingly was their strategy of consolidating control of the countryside before either the Japanese or the communists snatched the window of opportunity away from them. The Nationalists woefully underestimated the scale of national mobilization that would be demanded of them, whether to stand up to the invaders or to crush the insurrectionists; their conservatism which would have been an asset in peacetime turned out to be a liability in war.

The communists, meanwhile, didn't exactly get off to promising starts, whether in the initial southern soviets of Jiangxi/Fujian or after their arrival in northern Yan'an at the end of the Long March (1935). Their brutality and contempt for the existing order quickly turned even many of their peasant supporters against them; but through their blunders and adjustments, they gradually perfected the art of running a ruthlessly efficient police state that successfully organized the masses of peasant labor for both economic and military purposes. Where terror and repression backfired, incentives and moderate land reforms were expediently pursued instead to keep both landlords and tenants on board.

Mao's true genius was his unswerving dedication to this agrarian state-building, and his gradual formulation of a strategy that incorporated the entire population of the countryside into a coordinated mass movement; this was his absolute priority during the anti-Japanese war, namely to surreptitiously rip the land away from the occupying power by building an alternate state right under its nose, all while giving an appearance of acceptance or even collaboration. It's not surprising, then, that he considered Peng Dehuai's "Hundred Regiments Offensive" of 1940 such a grave crime against the revolution to the day of Peng's death in the Cultural Revolution: Mao's whole strategy to seize power relied on what was effectively a strategic alliance with the Japanese and their collaborators.

And this was the winning nationalist formula, it turned out, that the Nationalists themselves failed to adopt. They sought to modernize China with a top-down approach whereby the Westernized urban and coastal elites would gradually transform the rural and interior by working with the existing social structures and hierarchies, that is the existing landed gentry-officialdom and its auxiliary merchant-guild classes. That this was in fact roughly the path of industrialization later taken by Japan, South Korea, Taiwan, and parts of Southeast Asia under the US nuclear umbrella of the Cold War, serves to underscore the point: to carve out a truly independent political development, Mao and the communists recognized that they would have to build a new Chinese state from the bottom up; to preserve Chinese autonomy, they figured, they would have to sacrifice Chinese tradition and the existing rural social order. It's as if they decided to destroy China in order to save it.

The efficacy of their approach took decades to play out, but the history of the Cold War bears testimony to it. With only limited Soviet assistance - given that Stalin was wary at the outset of Mao's growing power base of Asiatic communism - the CPC handily defeated the KMT, exiling the latter to Taiwan and establishing the People's Republic in 1949. The fledgling PRC was then baptized in the fire of the Korean War (1950-53), fighting the mighty US and UN forces to a stalemate under Moscow's incipient nuclear umbrella. Then, after about a decade of using the Soviet Union in a marriage of convenience, Mao broke away from Khrushchev almost as if he had become the senior partner of the communist bloc; Soviet historians particularly recount that by the start of the Cultural Revolution (1966), the nuclear-armed Maoist party state was aiming for nothing less than domination of the global socialist movement.

And to top it all off, when the opportune moment came, Mao himself pulled off arguably the greatest master stroke in modern geopolitics: striking a deal with Nixon in 1972 to box in the mighty USSR, directly contributing to the latter's reluctant opening to the West via Détente in the 1970s and, by extension, the Soviet collapse in the following decade.

This unmistakable history of China's dramatic return to greatness among the family of global civilizations is already etched in the hearts and minds of serious-minded Chinese who, while conscious of Mao's great blunders that cost millions of lives, also understand that the totality of his legacy is one of the Middle Kingdom's return to primacy. And it is a story that continues as these words are written.

The more things change, the more they stay the same

Today, in 2015, China retains the most salient features of ancient Oriental despotism. Corrupt officials still exploit poor peasants and laborers; private property still exists in subordination to the state, its size itself a function of its relationship with that apparatus; the central leadership still struggles in a constant tug-of-war with the regions; even Confucius has made a comeback in the official ideological lexicon, which increasingly emphasizes a "harmonious society" and the "Chinese" in "socialism with Chinese characteristics."

China is still a society in which individual rights and liberties seem to take a back seat to the welfare of the collective whole, its opposition to Western "universal values" very much a reflection of a longstanding state-centered belief that the individual has no existence at all apart from the broader community he is obligated to serve and uphold.

In short, China is still China. Its "hard power" is the absolute monopolization of violence by the central government, as it ever was in the imperial days; its "soft power" is the Confucian justification of societal stratification that places the officialdom at the apex of a pyramid whose wide base is formed by the masses. All the recent talk of China's desire and potential to develop a large middle class is highly misleading: the "middle class" that Xi Jinping and the CPC have in mind is very different from the middle class in Western connotation. It is a class that, like the upper class, poses no political ambitions to alter the essential structure and nature of the apparatus state (the party-state); in other words, a class whose material prosperity actually renders it more conservative and hostile to political reform.

If so, the West has much to be concerned about, but perhaps not so much the non-Western world, which generally has strong traditions of authoritarianism and despotism similar to that of China. The 21st century may well lead to the conclusion that liberal democracy was always an anomaly in human history, not its inevitable end; or it may yet see the evolution of most of the world to more mixed modes of governance that contain both representative and authoritarian elements, as some would argue is already the case even now. But one thing's for certain: the great battle of ideas in this century will be no less, perhaps even more foundational, to the character and nature of the global society than was the battle between communism and capitalism, between dictatorship and democracy, in the last century. More than any other single factor, China's rise under the banner of red empire has restarted the struggle for history that only a quarter-century ago seemed to have concluded with its much-celebrated "end."

What to make of Xi Jinping's experience in the Cultural Revolution?

According to Xi Jinping himself, the Cultural Revolution was a trial by fire of sorts, to prepare him for his eventual leadership role in the CPC hierarchy.

How is this to be believed? On one level, it seems utterly ridiculous that someone who endured beatings, insults, and ridicule at the hands of red guards, whose own older sister was driven to suicide, and whose party official parents were disgraced terribly, could emerge to support the system that caused his sufferings.

Yet on the other, it's an almost cliche story of a prince of the Chinese revolution being tested by his godfather, Chairman Mao, in order to become worthy of ascending the party ranks.

Xi has acknowledged the failure of the ideals that were pursued so passionately by young Chinese during the Cultural Revolution; yet he wears his personal experience of that period of hardship as a badge of pride, almost like saying, "I was forged in the fire of that ordeal, and that's what makes me strong today."

It's important to remember that the Cultural Revolution was not merely the handiwork of Mao: he succeeded only because he had millions upon millions of young, zealous, willing executioners. There were winners and losers; Xi counts himself a big winner, who emerged victorious because he learned how to fight.

And the real underlying subtext of his style of leadership, it seems, is this: men don't desire democracy and freedom; they want a good battle that wins them the fear and respect of their fellow men.

In the emerging post-post Cold War era, with autocrats like Xi, Putin, Erdogan, and even "illiberal democrats" now emerging in Europe, this is the greatest challenge to peace. Once more, men are inspired by those who brandish the sword and inspire dread and a desire for bloody combat (even if purely political), because they're sick and tired of a value system that preaches openness and toleration.

There's a lot of hatred and violence stored up in the hearts of men - and these new demagogic leaders are now urging it to be unleashed against the American-led liberal order that has prevailed since the Cold War.

In other words, ISIS is only the most severe and outrageous manifestation of this phenomenon.

Even Americans themselves - that is, older White men who form the heart of Donald Trump's supporters - are jumping on this bandwagon now: "I don't want to be nice; I WANT TO WIN!" To hell with Mexicans, Chinese, Asians, gays, liberals, Muslims, feminists, etc. I'm a White man and this world naturally belongs to me!

Sorry if this sounds racist...but I'm calling it out for what it is.

Men want power more than anything else - and they will even use freedom and liberty as tools to get that power (Hitler got elected, remember).

Hell, even I want China to teach Mr. Trump a lesson...his attack on Xi Jinping (saying he should get a Big Mac instead of a state dinner) was an attack on my Chinese heritage and yellow skin, and I am deeply offended by it.

If I were Muslim, I'd want to blow up Trump Tower.

China's recipe for dictatorship: absolute power for limited terms

China's recipe for dictatorship, which increasingly seems like a winning formula for the anti-Western democratic world, is essentially the following: a successful dictatorship is one in which absolute power is exercised by a single leader for only a limited time; a failed one is one in which such a leader tries to prolong his rule indefinitely, and hence progressively loses more and more real power.

Fu Zhenghua, the fast-rising star of the Chinese police state, has been leading the intensifying crackdown on financial corruption in the wake of the summer's stock market crash. Meanwhile, China's increasingly two-tier economy looks set to diverge even further in 2016 and beyond. The battle between reformers and conservatives is gearing up now that the IMF's inclusion of the yuan in the SDR has raised the stakes of Beijing's long-term bid to internationalize its finances. Xi Jinping is clearly on the reformers' side, if his official words are to be believed.

The crackdown on the finance industry just might succeed, and just might make the country a more welcoming place for international investors. This is clearly Xi Jinping's gambit. The danger in such a scenario is that he'll simply redistribute the monopoly interests to his own cronies. But he has a big limitation: he'll be in power only through 2022-23. And even if he tries to rig the succession by aggressively promoting his own underlings in the Politburo, his own experience tells him that trying to control someone else once you've handed over your post(s) to him is a fool's errand: that's why true dictators know they (or their immediate family) must stay in office as long as humanly possible in their respective countries.

By this criterion, China is less dictatorial - and hence more stable - than the dictatorships that fell in the Arab spring, or in the case of Assad's Syria, have been truncated to a shadow of their former selves. Indeed, by this standard China may even be more stable than Putin's Russia, which looks increasingly unlikely to emerge from that KGB man's shadow so long as he lives.

While he's still in office, though, Xi benefits greatly - and can make a strong case that the entire nation benefits greatly - from quasi-absolute powers and no meaningful dissent.

Interestingly, in today's age of ISIS, even not-so-stable dictatorships lose their urgency of redress.

This AP interview with Ted Cruz, the firebrand nationalist Republican presidential candidate who's the only realistic alternative on the hard right to Donald Trump, reveals a growing realism in the US that just because some leaders are bad and the world would probably be better off without them, doesn't meant that getting rid of them wouldn't actually exacerbate the immediate security problems and overall global stability:

“If you topple a stable ruler, throw a Middle Eastern country into chaos and hand it over to radical Islamic terrorists, that hurts America,” Cruz said.

Specifically on Bashar al-Assad in Syria:

While Assad is undoubtedly a “bad man,” removing him from power would be “materially worse for U.S. national security interests,” he says. He is unwilling to send more U.S. ground forces into the Middle East and rejects the idea that torture can serve as an appropriate interrogation tool.

Now granted, to have lost control of over half his territory, it's not quite correct to say that Assad was by any realistic standard a "stable" ruler before the Arab spring, and it's also well-established that he deliberately promoted the terrorist groups when it suited his interests to dilute the legitimate secular democratic opposition to his ruthless police state. But it's worked out for him - inasmuch as he still controls the chunk of Syria that he does - only because he was right that religious fanaticism would greatly weaken the cause of liberal reformists.

Those who question the legitimacy of CPC rule, then, should also consider the larger question: what would replace it? As a start, a lot of bureaucratic and corporate special-interest corruption would continue even in a democratic system with perfectly free elections: just look at Ukraine and Moldova, for instance, where after 24 years of freedom, it's still doubtful that any meaningful improvements in their civil service systems will be enacted.

In the latter's case, corruption has now gotten so bad that a substantial portion of the population now seems to be leaning toward Russia - that is, they seem to prefer strongman rule of a single undisputed leader (Putin) to the fecklessness of mediocre wimps they keep putting into office, who make huge promises to all the people to get elected, only to make sure their tiny clique of billionaire buddies get all the special benefits of their office first, last, and always.

Let's not forget that even Hitler rose to power by getting elected.

On the other hand, for those of us who view Xi in a positive or (like myself) mixed light, we must hope and pray that the man doesn't succumb to the temptations of indefinite unchecked power should his anti-corruption campaign succeed.

Integrating "hydraulic despotism" with "circumscription theory" to trace the Chinese state's origins

To be true to scientific objectivity, I wanted to find some arguments against the "hydraulic despotism" theory I presented in a long post earlier to explain the origins of the Chinese empire. The Wikipedia page on "hydraulic empire" cited some of them, and among the sources was a 1970 piece in Science, titled A Theory of the Origin of the State, by Robert L. Carneiro (link is a reprint of it on an independent libertarian website).

I found this particular article highly illuminating in Professor Carneiro's succinct presentation of the so-called "circumscription theory" for the origins of the state in the history of humanity. Basically, he posits that the initial formation of the state - defined as a political union of previously autonomous villages - was the consequence of competition (i.e. warfare) between villages within a confined (i.e. "circumscribed") geographic area, which resulted in stronger villages subjugating weaker ones in a process of conquest and consolidation. The state can be said to have come into being when the victor of a conflict, now monopolizing the use of violence in a given area, could force a defeated village to pay tribute, i.e. additional food production, as the price for its continued habitation of the same territory - if not outright annex it.

Professor Carneiro poses this theory as in opposition to Wittfogel's "hydraulic despotism" in Oriental Despotism, which he describes thus:

Another current voluntaristic theory of state origins is Karl Wittfogel’s “hydraulic hypothesis.”  As I understand him, Wittfogel sees the state arising in the following way.  In certain arid and semi-arid areas of the world, where village farmers had to struggle to support themselves by means of small-scale irrigation, a time arrived when they saw that it would be to the advantage of all concerned to set aside their individual autonomies and merge their villages into a single large political unit capable of carrying out irrigation on a broad scale.  The body of officials they created to devise and administer such extensive irrigation works brought the state into being.⁵

This theory has recently run into difficulties.  Archeological evidence now makes it appear that in at least three of the areas that Wittfogel cites as exemplifying his “hydraulic hypothesis”—Mesopotamia, China, and Mexico—full-fledged states developed well before large-scale irrigation.⁶  Thus, irrigation did not play the causal role in the rise of the state that Wittfogel appears to attribute to it.⁷ 

In fact, this is probably too generalized a view of Wittfogel. The German Marxist-Sinologist focuses more narrowly on the origins of the hydraulic or Oriental state, not on the state, period. For the purposes of Oriental Despotism, he conflates the general with the specific in a way that's admittedly confusing.

In fact, there's nothing in Wittfogel's theory to deny the existence of a more primitive state or proto-state in prehistoric (pre-Shang dynasty) China that, if one goes back far enough, was clearly not hydraulic; it's just that in China's case (as in Mesopotamia and Egypt), this has to be so long ago (probably before 3000 BCE) as to be irrelevant for the purposes of comparative study between East and West, and between the modern and pre-modern periods, which was Wittfogel's purpose.

That being said, both hydraulic despotism and circumscription theory have their role in tracing the origins of the Chinese state - as they probably have a combined role in the origins of the early Egyptian and Mesopotamian states. I will attempt to marry the two as follows.

By the fourth millennium BCE, farming had already been practiced in China for at least the preceding two to three thousand years; it had spread across the entire landmass on the eastern end of Eurasia that was temperate and reasonably fertile. These small neolithic (late Stone Age) communities were comprised of independent villages, as were their counterparts in other parts of the world.

Per Carneiro's circumscription theory, resource competition around the precious fertile banks of the Yellow river would have, at roughly this juncture, triggered the first glimmers of state-building:

With these auxiliary hypotheses incorporated into it, the circumscription theory is now better able to confront the entire range of test cases that can be brought before it.  For example, it can now account for the rise of the state in the Hwang Valley of northern China, and even in the Petén region of the Maya lowlands, areas not characterized by strictly circumscribed agricultural land. In the case of the Hwang Valley, there is no question that resource concentration and social circumscription were present and active forces.  In the lowland Maya area, resource concentration seems not to have been a major factor, but social circumscription may well have been.

That is to say, as soon as enough tribes and clans saturated the best areas along the Yellow river to take advantage of its seasonal floods for raising crops, competition and warfare naturally followed for riverbank real estate, leading the winners of these contests to swallow up the losers, who could keep their river access only by augmenting the manpower and production of their new masters.

Throughout the fourth millennium (4000 to 3000) BCE, this late prehistoric consolidation took place all along the middle to lower Yellow river valley; the new statelets increased in size and decreased in number, so that by the first half of the third millennium BCE, there were probably only tens of them where formerly there had been hundreds.

At this time, the immediate valley of the Yellow river was already cultivated to its limits; the crisis of population pressure now forced the innovation of primitive irrigation methods. Such methods had a twofold purpose: to reduce the destruction caused by floods along the immediate path of the river and to bring the river water further out to the dry tracts on either side.

Whichever state mastered these new techniques first would have gained an immense strategic advantage over its rivals. Most likely, multiple states began with basic constructions and a few of the better organized and ruled ones moved on to bigger and more complex ones. The wise kings and chiefs of this period would have understood that their investments in irrigation works were as important as territorial defense, and would have balanced the need for arms in an uncertain environment with the imperative for peaceful relations with neighbors so that more time and energy could be devoted to optimizing use of the arable landscape.

By about 2700, the date of the legendary huangdi or Yellow Emperor, perhaps one or a handful of rulers dominated the rest, but even if these legends had some historic truth, it is unlikely they actually exercised more than direct rule of their immediate territories plus some limited profession of fealty by lesser vassals in a loose federation. A true, centralized state spanning a large contiguous chunk of the Yellow river valley and north China plain would be at least the next millennium in taking shape.

Birth of the Chinese hydraulic state and the "Mandate of Heaven"

This long gap is where we can insert Wittfogel's hydraulic hypothesis: in the second half of the third millennium BCE, irrigation likely grew enough along the entire length of the Yellow river valley that it became the single greatest factor in Chinese social organization and economic activity. As the population continued to grow, ever greater demands were placed on effective diversion of the river to water the surrounding farmland and on more precise control of its often unpredictable flooding; though the heavily silted waterway defied all efforts to tame it with permanence, the entire civilization was now so dependent on the attempt to do so that the apparent long-term futility of the project only spurred ever more ambitious schemes.

It is no coincidence, then, that the first dynasty, the Xia (2070-1600 BC) was by tradition founded by a hydraulic engineer who finally devised a comprehensive solution to harness floodwater into a large network of canals and basins that would provide farmers with the water they needed even as they also adjusted the flow characteristics of the river itself. This coincided roughly with the start of the Bronze Age in East Asia.

This was a late development in China - Egypt and Mesopotamia had already devised such integrated water control systems about a millennium earlier - but the effects were as significant. With such a sophisticated, geography-altering technology, political development got its biggest boost since the neolithic villages first began merging into statelets. The economy began to take on an increasingly regional, as opposed to merely local character. With its superior organization and technical sophistication, the Xia dynasty increased its grain surpluses, manpower, and other resources, and was thus able to subjugate, through direct conquest or indirect vassalage and tribute, the central habitable portion of the Yellow river valley.

But there were clear limits to the efficacy of the nascent centralized Chinese state. Revolutionary as they were, the large irrigation systems were still crude and shoddy, and simply could not account for all the deviations of the Yellow river's flow, which thanks largely to the high silt content would periodically veer violently off in a new direction. The mobilization of men and resources for the large constructions and for their maintenance and operation required a degree of both technical and organizational competence and sophistication that were not yet common. Far worse, however, no sooner did Wittfogel's "agromanagerial" bureaucracy arise - the special corps of officials tasked with administering the water control network - did it begin abusing the enormous power it enjoyed, especially its prerogatives with the reigning sovereign, with the result that the irrigation system became a victim of the regime's long slide into moral decay.

For a hydraulic society, the effects of chronic mismanagement of the comprehensive irrigation system are strikingly apparent. Because agriculture depends on the right amounts of water being applied to specific plots of land at specific times, any failure of the water control infrastructure can trigger flooding or desiccating effects (sometimes both) that threaten many livelihoods. Not only would a competent agromanagerial bureaucracy reduce the likelihood and frequency of preventable disasters; but a clean and upright one would expedite the recovery from unavoidable calamities by such sensible measures as budgeting grain surpluses from good harvests to cushion food losses from widespread flood destruction.

It is therefore not difficult to surmise how only a few successive generations of corrupt misrule would have reduced the proud hydraulic infrastructure of the Xia dynasty to a shell of its glory days. By the time the Shang dynasty arose to replace the Xia, somewhere between the mid-18th and early-17th centuries BCE, there is good reason to believe the Yellow river valley had largely reverted to its pre-Xia, in some cases even late neolithic state. The virtually complete lack of archaeological evidence of Xia society coupled with the very primitive irrigation agriculture exhibited in the early Shang (circa 1750-1500 BC) points to a fresh start for Chinese civilization that could only be indicative of the degree of prior destruction and degradation. That is to say, as early as the first half of the second millennium BCE, Chinese society underwent an experience of dongluan or "chaos" precipitated by dynastic decline on an epic proportion.

But where the Xia failed, the Shang succeeded. By 1300 BC, central flood control systems had been reconstituted and augmented beyond its previous capacity along the Yellow river and its tributaries; superior tools, techniques, and increasingly the early writing system combined to streamline the administration of the irrigation networks to a level approaching, but still notably below, that of Egypt and Mesopotamia. This led to an unprecedented boom in grain production, population growth, and territorial expansion. The Chinese hydraulic state had arrived on the scene in a permanent way.

Along with it, the "Mandate of Heaven" was also born. As steward of the great river which was the divine gift of life itself, the Shang monarchy was nothing less than the earthly vicar of the celestial realm. Its legitimacy - that is, the legitimacy of the sharply stratified society it ruled - was one and the same with its continued ability to tame the waters, distribute them, and administer a sufficient or overflowing food supply for a large, growing, and ever expanding population; the fraying or loss of this stewardship would be a cataclysm of supernatural origin that would cause all hell to break loose.

Yuan SDR inclusion finally official

Everything has changed for the RMB, declares Business Insider. That is, for the long term:

In the long term, this means everything for China's economy. Here is Paul Mackel, HSBC's head of global EM markets FX research, on the long-term impact of the yuan becoming a reserve currency:

The significance of the RMB's SDR inclusion goes beyond the potential impact of inflows intoChina. It would encourage China to stick to a much needed financial and capital account liberalization. These would over time increase financial sophistication and improve the efficiency of capital allocation, facilitating the shift to a more consumption and service driven economy. It should give China confidence in making its exchange change rate even more market driven, which would free up its monetary policy. The SDR marks an important milestone of RMB internationalization.

But in the short term, as this article reiterates, the effects are muted:

Capital Economics states the matter clearly:

In practice, what determines whether central banks are willing to consider a currency a reserve asset is their confidence that they can sell that asset whenever needed into deep and liquid markets. Inclusion in the SDR basket could be taken as endorsement by the IMF that the renminbi and China’s financial markets meet this standard. But central banks are likely to come to their own judgement (as they have in their purchases of Australian and Canadian dollar reserves).

And of course, central banks worldwide have barely begun buying yuan-denominated debt directly; this largely symbolic decision doesn't change much on the ground in that regard.

The relatively high weighting of the yuan in the SDR - 10.92 percent versus 8.33 percent for the yen and 8.09 percent for the pound - is an acknowledgement of China's sheer size and heft, far more than its present status as an internationally used currency (still less than 3 percent of all global currency transactions and not even 1 percent excluding Hong Kong).

Quartz cites the RMB's chances of becoming a true reserve currency in the next 3 years at 0 percent, stressing that the recent increase in international yuan transactions has been driven by offshore speculation in Hong Kong. Still, the 1 in 50 estimate for the next 8 years seems too pessimistic considering Beijing's pledge to liberalize the capital account in 2020. I guess we'll have a better idea a year or two or now - at which point the yuan should be no higher than 6.8 or 6.9 to the dollar - just how much sway the reformers led by central bank (PBOC) governor Zhou Xiaochuan really have with Xi Jinping.

Still, this post is to mark another milestone in China's long march to integration with the global economy.

Meanwhile, there are finally some signs of life on the state-owned enterprise (SOE) reform front; I will be posting more about this in future.

The "Asiatic mode of production": imperial China as the world's principal example of "hydraulic despotism"

Previous: Marx's "Asiatic mode of production" in the context of China's rise: Introduction

Back when I was a freshman at New York University in late 1999, I did a term paper and presentation about China's water scarcity crisis for an ecology class; my professor expressed stunned disbelief when he asked me what percentage of Chinese agriculture is irrigation-based, and I answered about 70 percent. At the time, I didn't realize that this was an exceedingly high figure for such a massive country. Nor had I any inkling that mass irrigation itself is very peculiar to Eastern, i.e. Oriental economies; rainfall agriculture has historically predominated in the West.

Karl August Wittfogel's magnum opus, "Oriental Despotism", has uniquely contributed to the understanding of Chinese civilization as the world's principal example of "hydraulic despotism", which more or less means centralized bureaucratic administration of food production, notably through large-scale irrigation systems.

In fact, so distinctive and definitive is the water-controlling aspect of every large pre-industrial empire - notably China, India, Persia, and the entire succession of empires that have ruled the Fertile Crescent and Egypt - that for Wittfogel the term "hydraulic despotism" is synonymous with "Oriental despotism."

This reflects the obvious observation that these most successful instances of hydraulic despotism were of Asiatic, non-Western origin; just as telling, the only notable European adoption of this centralized hydraulic governance was via the Greco-Roman colonization of the eastern Mediterranean and Middle East in classical antiquity (circa 300 BC - 300 AD), which brought the longstanding hydraulic civilizations of the Nile and Tigris-Euphrates under their control, which lasted until the Eastern Roman (Byzantine) empire was pushed out of these regions by the Islamic Arabs in the late 600s.

Hydraulic despotism's poster child: imperial China

But China exceeded every other hydraulic empire in the combined measure of durability, size of territory controlled, and population administered. Needless to say, its distance and isolation from the other hydraulic empires contributed to the continuity of its contiguous core area of control; but scholars and historians have nonetheless found China singularly remarkable for its resilience as a politico-cultural unit through so many upheavals, be they internal revolutions or external invasions and even outright conquest at times by alien peoples.

It's not surprising, then, for Wittfogel to uncover the very deep origins of scaled irrigation agriculture and flood control in China: they apparently go back as far as the initial Xia and Shang dynasties of the second millennium BC along the middle to lower reaches of the Yellow river valley and the north China plain. Granted, this was actually later than similar developments in Egypt and Mesopotamia, but it appears that by the late Shang and early Zhou periods (circa 1200-800 BC), increasingly large and coordinated systems of irrigation and flood control infrastructure rivaled or exceeded those anywhere in the world, laying a formidable foundation for political centralization of an ever-growing magnitude. This was in the millennium before the first empire, Qin (221 BC).

The socioeconomic and sociopolitical dimension of extensive waterworks is quite striking. Wittfogel betrays a Western emphasis of concern for the obvious loss of personal autonomy that entailed participation in large constructions that necessitated top-down supervision - and concomitant coercion - of conscripted menial labor. From the Orientalist perspective, however, all this loss of freedom was a token price to pay for what back in those days was as great a miracle as would be chemically altering desert sand to make it fertile and arable today; it was part and parcel of Oriental society that bringing water to dry areas while simultaneously stopping destructive flooding was a quasi-divine, mythic undertaking that conferred an extraordinary legitimacy to its organizers and a strong implicit acceptance of hardship, toil, risk, and even abuse for the prize of a more habitable earth for one's posterity. Thus where the West sees the loss of individual rights, the East sees the foundation of generational stability in the formulation of a basic bond of respectful interdependence between ruler and subjects - the origins of the "mandate of heaven."

In any case, Wittfogel treats well the complex social-organizational aspects of the ancient hydraulic infrastructure projects. Not only labor, but also building materials, tools, supplies - and not least basic provisions for the workers themselves - had to be managed on an ever larger scale, demanding ever better coordination of interdependent or sequential sub-tasks that comprised the whole affair. Without doubt, as efficiencies and best practices accrued, the range, scope, and density of the hydraulic infrastructure all blossomed.

All this led to the rise of what Wittfogel calls the "agromanagerial" bureaucracy, the world's first true "apparatus" state - and, in fact, its only true apparatus state until the industrial era of modern Western bureaucracies (!). In all hydraulic empires, the power of the ruling sovereign became increasingly dependent on an elite group of these agricultural managers, whose principal task was to ensure proper irrigation; the efficacy of their administration was one and the same as the sovereign's own efficacy in enforcing his authority throughout the land, even as he sought various ways to curtail their inevitable political influence and ambition. The agromanagerial bureaucracy, then, is the very heart of hydraulic despotism: without it, even the sovereign himself is not so sovereign.

Wittfogel clearly lays out the enormous central power that naturally accrued to the organizers of the hydraulic infrastructure. With such a large and dispersed population dependent on irrigation, they pretty much ran the entire show; the fate of the people literally rested in their hands. The state became extraordinarily powerful; the society extraordinarily subservient. Through control of the nation's very lifeblood, the agromanagerial apparatus state naturally and easily performed such mass functions as censuses, land surveys and registrations, and - you're probably waiting for this one - universal taxation in such forms as surplus grain requisitions. Equally obvious, as Wittfogel points out, the universal conscription of labor and the organizational sophistication and discipline for large waterworks translated rather seamlessly into effective mobilization and supply of vast armies and the rapid construction of large defensive fortifications. The German Sinologist leaves little doubt: China's density and scale of hydraulic management was matched by its depth of study of the problems of warfare (including notably issues of logistics and supply), best exemplified by Sun Tzu's The Art of War.

China was actually a relative latecomer among the Asiatic hydraulic civilizations - it was, for instance, much later in entering the Iron Age than the Near East - but it more than made up for the slow start. By the Spring and Autumn period (771-476 BC), the ducal and other blood-vassal subdivisions of the Eastern Zhou crown had begun a process of consolidation into centralized territorial "hydro-states" in their own right. Fierce competition and warfare between these fledgling nations weeded out the weak from the strong, and a series of conquests and consolidations left only seven standing to confront each other in the Warring States period (475-221 BC), the twilight of pre-imperial China.

Thus, as Wittfogel observes, China, like other hydraulic civilizations, simply never had "feudalism" in the medieval Western European or Shogunate Japanese sense: the dukes and earls who ruled the large hereditary fiefdoms of the Eastern Zhou on behalf of their kin sovereign already had an agromanagerial bureaucracy they could rely on to run the regional and local administrations, with ever increasing experience and competence in the aforementioned agromanagerial functions. They thus did not have to parcel out land to lesser lords and nobles who would fray their central authority, but from early on such tracts were distributed as "office land" to state functionaries who, even if they did happen to be nobles, were completely beholden to their government service. By the time the fiefdoms reduced and consolidated into the Warring States, China had become a collection of just a handful of competing, increasingly absolute dictatorships. Unsurprisingly, this general period marked the zenith of Chinese societal and cultural development, including the Confucian philosophy - later peaks were attained through a combination of importation (i.e. Buddhism) and renewal or adaptation of the longstanding cultural base.

Again, we see the double-edged, East-West duality of this hydraulic civilizational expansion. On the one hand, by the 4th century BC the largest warring states of China could boast of cities and standing armies exceeding one million - figures that Western Europe would not match until the modern period. Such a boom of human life and activity was made possible by the agromanagerial bureaucracy of hydraulic despotism. On the other hand, the potential for further civilizational development and progress, particularly in the realm of ideas and systematic worldviews, was becoming increasingly constricted, even suffocated; the contrast between late pre-imperial China and its contemporary city-states of Greece, for instance, is quite glaring in light of the latter's strong advances in all manner of philosophy, reason, science and mathematics.

Perhaps China's fate was not inevitable even at this juncture, on the eve of Qin's ruthless campaign of conquest and unification in the 3rd century BC, which saw the western fringe state of the Chinese world push the limits of the agromanagerial model of governance to maximize economic and military power, merging this too with an outright barbarian mentality that had no qualms destroying much of the gentler and more universally humanitarian aspects of Chinese culture. But what's done is done...we are almost two and a quarter millenniums later, and the big question now is just how the world will deal with the new Oriental despotism of communist China - the new "Qin" - at a time when indicators abound that it is Western freedom and democracy which are in retreat, and the other Eastern autocracies of Russia and Islam look to Beijing as their guiding light.

The West - the only great civilization that arose and developed on a fundamentally non-hydromanagerial (non-agromanagerial) path of rainfall-based agriculture - may indeed have peaked by now in terms of hard military and economic power. But it has at least partly won the war of ideas; the Oriental despotism of today is not the worst of what it was in the 20th century under communism; at least some strands of Western thought and ideology seem too strong to be completely extinguished even in China or Russia should they truly turn culturally retrograde.

The next part of this series will treat the transition of hydraulic despotism from the pre-industrial era to its modern incarnation of totalitarian communism under Stalin and Mao, again referencing Wittfogel's great work.

Marx's "Asiatic mode of production" in the context of China's rise: Introduction

The "Asiatic mode of production", or more generally, "Oriental despotism", is an element of Marxist-Leninist thought that should be revisited today, in the early 21st century, in the context of communist China's dramatic rise to the forefront of the global economy.

Specifically, it will be argued here that the main continuity between imperial China and the People's Republic - namely, the all-pervasive bureaucratic apparatus state - is every bit as crucial to our understanding of modern China as the much more widely discussed discontinuity brought about by the communist revolution; in the final analysis, one can actually make the case that it is even more so.

As a start, China has been an empire since 221 BC, the date of its initial unification by one ruler, the first Qin emperor; indeed, the term "China" itself is derived from "Qin".

What is remarkable from a Western point of view is that practically all of the greatest innovations and developments in Chinese thought - notably the Confucian worldview - took root and matured around that date, that is, in the late pre-imperial (territorial states) and early imperial (especially Han dynasty) eras. In the subsequent two millenniums, Chinese civilization followed a very notable cyclical pattern of imperial rise, decline, and fall: while the dynasties varied in the degree of absolute political power they enjoyed as opposed to the civic strength of their subjects, their overall foundations for legitimacy were unmistakably little altered. In a nutshell, it boiled down to a so-called "mandate of heaven" of the reigning dynasty, based upon its ability to effectively administer and defend the imperial domain and thus preserve the exalted basic qualities of societal existence, namely stability and harmony.

In the modern age beginning around 1500, but especially since the industrial revolution about 1750, the stunningly rapid technological, socioeconomic, and ultimately political transformation of the West gave rise to an ever-increasing Western consciousness of the "otherness" of the East, i.e. the Orient, of which China among all the great eastern empires - notably Turkey, Persia, and India - appeared to be the representative par excellence. This otherness, in essence, was the apparently static and unchanging nature of Eastern society in stark contrast to the dynamism and progress of the West. Unsurprisingly, by the mid-1800s, as the industrial revolution accelerated to propel European Christian civilization into a position of unprecedented dominance over others, this awareness came to acquire an increasingly patronizing tone, and it would undergird the white man's imperialist colonization of most of the colored world in the closing decades of the 19th century and the early 20th.

It was in this context that Marx and Engels, among others, discussed what they termed the "Asiatic mode of production", or "Oriental despotism" per earlier Enlightenment terminology. Drawing from other Western thinkers, whether in their own day, such as John Stuart Mill, or from such earlier luminaries as Montesquieu and Hegel, they latched onto the central element of this peculiar form of non-Western autocracy: the seemingly all-powerful bureaucracy.

However, it was the 20th-century German Marxist/Sinologist-turned anti-communist, Karl August Wittfogel, who in 1957 published the definitive volume discussing this topic, "Oriental Despotism". Deeply disillusioned by the regressive autocratic retrenchment of both Stalinist Russia and Maoist China, Wittfogel laid the foundations for a systematic deconstruction of the pattern of continuity between Czarist Russia and the former and between imperial China and the latter; in doing so, he expounded upon the not insubstantial writings of the late 19th and early 20th century socialist thinkers - not least Marx, Engels, and Lenin themselves - to arrive at his critical conclusion that the entire theory of the "Asiatic mode of production" was deliberately abandoned by the Bolshevik revolutionary generation because it presented such a scathing indictment of the retrograde true nature of their supposedly progressive and scientific movement.

Today, as China is ruled by a party-state that continues to call itself communist but has obviously engaged in arguably the most blatant appropriation of public wealth for private interests in modern history, it behooves us to explore the possibility that, far from being an extraordinary deviation of the natural flow of human (specifically Chinese) affairs, it's more accurately a modern iteration of China's dynastic past of bureaucratic despotism.

What follows will be a multi-part critique on my own part of Wittfogel's aforementioned magnum opus on Oriental despotism.

Another flawed argument that Chinese communist rule is imploding

Minxin Pei's recent piece arguing that the CPC's rule in China is in its twilight recalls similar analyses earlier this year, perhaps most notably David Shambaugh's "The Coming Chinese Crack-up" in the Wall Street Journal back in March.

I disagree that the CPC is on the brink of collapse. I could be wrong, of course, but I'd like to point out that both Minxin Pei and David Shambaugh represent a strong strand of opinion that wishes, rather obviously, that the severe pressures apparently bearing on CPC rule will lead to a crisis that will give an opening for the reform and liberalization that have been absent since 1989; in this hope, they are misguided and have misread the meaning of the undeniable changes in the Xi Jinping era.

I think it's already obvious by now that the post-Tiananmen era - but more generally, what I call the "extended Deng Xiaoping era" (1978-2012) - has ended with the leadership of Xi Jinping. But this hasn't necessarily made the regime weaker and more brittle; or even if it has, China is so much wealthier now than back in the 1990s and even early 2000s that it makes the immediate threat of mass social unrest and revolution a rather distant prospect.

Granted, the evaporation of what Minxin Pei calls "elite unity" is troublesome for continued party rule. But this overstates the degree to which the elites were actually united during the Jiang Zemin (1993-2004) and Hu Jintao (2004-2012) eras to begin with. Whatever loss of unity at the apex of the CPC power structure has been a long time coming - and it has arguably been much worse at different points during the past decade than it is today, when Xi Jinping's single-handed authority seems rather impregnable, at least publicly.

True, there have reportedly been no fewer than 20 assassination attempts on Xi Jinping since he assumed office, most of which, it would appear, are connected to disgruntled or fearful officials caught in the crosshairs of the anti-corruption campaign. So yes, it goes without saying that discord within the party has potentially catastrophic consequences.

On the other hand, as Xi's power further entrenches and consolidates, much more than mere enmity, dread, or hatred of the top leader will be needed to mount any serious attempt to undermine, let alone overthrow him. As Xi locks down his control of the military and internal security apparatus - early this year, for instance, he apparently replaced his elite personal security detail with more reliable loyalists - his enemies must contend with slimmer and slimmer chances that they could seize power even if they do somehow eliminate Xi himself. This will alter all their calculations of risk and cost versus potential gain and reward with respect to any scheming to remove Xi, even as it heightens their awareness of the immediate danger to themselves should they be suspected of treason.

Even more significantly, in my opinion, the recent simultaneous crackdown by Xi against civil society, internal party liberals, and nongovernmental reform groups, far from being a sign of his regime's incoherence or paranoia, is probably itself a cunning CPC power play. It's Xi basically telling the party elite and even the rank-and-file apparatchiks, "I have every intention of keeping us in complete charge of the country, with no external limits on our authority; but that's exactly why you must support my harsh measures to clean up our own mess, because if you don't let me do it, you'll only empower those who hate all of us, clean or dirty alike."

Xi Jinping is no Jiang Zemin or Hu Jintao; neither is he a Deng or a Mao; he isn't many of the things that many of us wish he were. But if anything, he's an exceedingly gifted politician who has decades of practical knowledge of the actual (not merely theoretical) workings of power and statecraft. None of his prominent critics in the Chinese world have anything remotely rivaling the résumé he boasts in that regard.

That being said, at least for the time being, Xi also seems to be able to count on much popular support for his anti-corruption purge, as well. Coupled with his strong nationalism, this appeals to the very real element of jingoistic pride in Han supremacy that was strongly nurtured throughout the post-Tianamen era (1989-2012), and is now a driving societal force with increasing international significance in the post-post-Tiananmen (i.e. Xi Jinping) era.

And even here, he is cold, cunning, and patiently methodical, driven less by emotion than by colorless hard calculation: don't count on him to overreact stupidly to Western, American, and regional efforts to check Chinese assertiveness. Like any smart nationalist strongman, he'll wait until popular demands for aggressive coercion against foreigners reach such a boiling point that by the time he actually pulls the trigger, he can claim to have exercised remarkable restraint.

All of this, in my humble opinion, is more bad news for liberals, reformers, and Westerners fearful of China's rise than it is for the CPC itself.

China's response to ISIS and its own radical Islamist problem

China has censored social media discussion of the recent killing of one of its nationals by ISIS, apparently fearing too much discussion will make its inaction look bad to its own citizens. Meanwhile, it has reported killing 28 "terrorists" in Xinjiang that it claims were local Islamic radicals tied to a foreign extremist group, and took a swipe at Western "double standards" on terrorism even as it offered condolences for last week's Paris attacks.

How big is the radical Islamist problem in China, specifically Xinjiang? It's definitely worse than the official state media makes it out to be, and has become a chronic security issue since the big Urumqi riots in 2009, which now claims hundreds of lives annually. That being said, it's hard to think that this isn't a problem Beijing has largely brought upon itself. Its policies - jailing moderate activists, banning veils and headscarves, restricting Ramadan observances, and compelling Sinocentric education - are pretty much a wish-list for ISIS, Al Qaeda and other international jihadist groups to get young Uighurs to join their ranks. If anything, the minuscule number of Uighurs that have actually been seen with such groups in places like Syria and Afghanistan is an indication of the longstanding moderation of these Muslims.

Or, if China really messes things up with its heavy-handedness, this could be the early stages of something much worse: a far broader politicization of Islam in the Uighur population, including violent radicalization. That would be the opening for ISIS or Al Qaeda to actually establish themselves within Chinese borders.

The aspirant ISIS caliphate includes a good chunk of western China, including Xinjiang:

What does Xi Jinping's commemoration of Hu Yaobang mean?

Xi Jinping has lauded Hu Yaobang on the occasion of the 100th birthday of the famously fallen liberal party leader of the 1980s whose death in April 1989 triggered the Tiananmen protests. What does it mean?

Most likely, similar to his recent ploy in meeting President Ma of Taiwan, Xi is demonstrating ideological and political flexibility and practicality. The message he's sending to Chinese liberals is: "You don't have a monopoly on the legacy of our greatest reformers." Just like with the Ma meeting, he was telling Taiwanese: "Your fate ultimately lies with the Chinese world, not in drifting away from it."

These are subtle but politically astute moves for someone who has demonstrated a willingness to be tough and uncompromising on the fundamentals of CPC rule.

Perhaps Xi will one day reveal that he was privately sympathetic to the cause of political reform of both Hu and Hu's similarly disgraced successor, Zhao Ziyang, whose timidity during the 1989 Tiananmen crisis sealed the hardliners' triumph within the party before the June 4 crackdown. After all, his father had benefited so much from the bold reforms of the Deng era, which secured Xi Jinping's own political rise. Or maybe Xi wasn't too happy with his father when the elder Xi took a costly pro-Hu stance against the conservatives, effectively marginalizing himself within the council of "eight elders" that ruled China as the informal trustees of the revolution during Tiananmen.

Whatever the truth of the matter that can't be brought to the light yet, I encourage all Chinese liberals and China watchers hopeful of eventual political reform to grasp at the positive aspect of this commemoration of Hu by Xi: if we share a common figure of admiration and respect with Xi Jinping, that's a potential point of future accord.

Or to put it more bluntly, we should at least be thankful that the most powerful princeling of the current generation of leaders also happens to be the one most closely connected to the early reformers...considering how things nearly went awry with Bo Xilai, we shouldn't take this for granted.

What the yuan's SDR inclusion really means

A Financial Times piece lays out the true significance of the yuan's inclusion in the SDR, now all but a foregone conclusion. In essence, it says that this is indeed a watershed moment for the Chinese economy's global integration, even if the short-term effects appear muted.

Beijing's aspiration to dismantle capital controls by 2020 seems quite ambitious, but SDR inclusion strengthens the hand of those, led by PBOC governor Zhou Xiaochuan, who are officially committed to liberalization. On the other hand, it also raises the stakes: any major retrenchment from here on out will represent a severe breach of goodwill and trust, and that's assuming that the liberalization doesn't get bogged down to begin with.

Business Insider presents a Standard Chartered Bank matrix of how the different types of capital will be liberalized.

The CPC isn't in fact relinquishing control of China's finances; it's merely switching gears to do it with more efficient, repeatable processes, reducing the need for ad-hoc micromanaging. Further, it knows that an unfettered yuan is a requisite for the intensified regional trade and development competition that's heating up with the US in the Asia-Pacific.

Another assessment of China's GDP accuracy

Business Insider has published an analysis strongly suggesting that China is overstating its GDP growth, because its reported declines in imports, manufacturing, and investment (whether absolute decline or decline in growth) are too strongly decoupled from the overall GDP growth figure when compared against the lack of such decoupling in OECD economies (US, UK, Europe, and Japan).

However, a key paragraph is the following (my emphasis):

While there are considerable differences between China’s economy compared to other major OECD nations – the stage of economic development just for starters – the evidence uncovered by Artus suggests, in his opinion, that the government is overstating the true growth level of the economy.

Just one scratch below the surface, and this whole comparison between China and advanced OECD economies is completely unwarranted. $8,000 per capita GDP simply can't be compared to $40,000 or $50,000, can it? Might as well compare $8,000 to $4,000 or $5,000: in other words, between China now and China in 2011 or 2012, before its massive rebalancing began in earnest.

Let's take imports: they have been consistently down by double-digit percentages year-on-year, and a staggering 15 to 20 percent in recent months. But that's because of the crash - up to 50 percent in dollar terms - in commodity prices. No comparison with an economy like the US makes any sense.

Meanwhile, according to Bloomberg, despite a slowdown in 3Q, fixed asset investment growth is still up 10.3 percent on year through September (down rather slightly from 11.4 in 1H). This isn't anything remotely approaching a crash; neither is the slowdown of industrial production to 5.7 percent.

So the bears will always have their talking points; they'd just be a lot more credible if their assessments weren't so chronically full of holes, even if the official data is itself as patchy as they claim.

Yuan's SDR inclusion all but approved by IMF; gradual depreciation now the best outcome

IMF chief Christine Lagarde has given the yuan the go-ahead for inclusion in the SDR, paving the way for the RMB to join the dollar, euro, yen, and pound sterling in the international currency elite.

Days earlier, PBOC chief Zhou Xiaochuan delivered a sobering warning of what this actually means:

“To guard against and eliminating financial risks is a severe challenge for us in the next five years,” the Governor of the People’s Bank of China wrote in an article.

While it's true that Zhou has long been a godfather of reform in the communist hierarchy, it's still remarkable how strong this language is.

With the immediate danger of market and currency collapse seemingly contained, the decidedly uphill battle to open up the Chinese financial sector to global competition can finally begin. Beijing has precious little time to waste: it has been lucky and sufficiently adroit so far, but, as ever, it has no laurels to rest on and can't afford to mess this one up, not least because its monetary decisions now rival even Washington's, i.e. the Fed's, in global implications.

The most optimistic scenario is a gradual, smoothed-out depreciation over the next five years to a level of 7 to 8 RMB to the dollar. This will buy time for the wider global economy to readjust and retool in the wake of what Goldman Sachs has dubbed the "third wave" of the global financial crisis, by retaining high levels of liquidity in the real Chinese economy to support 6 to 7 percent real GDP growth per the 13th five-year plan.

For China, the desired end state is a 10 to 20 percent lower yuan that enables her to cement her position as the linchpin of the global manufacturing supply chain via the shifting of advanced component production from Japan and South Korea and the attendant increased automation of her vast plant. The three-way FTA with Tokyo and Seoul is the centerpiece of Beijing's strategy.

As this CBS news report points out, it's too early to speak of Chinese consumers saving the global economy. Believe it or not, China still needs lots of investment in infrastructure and manufacturing capacity, largely because so much investment since the financial crisis has been wasted, and as anyone who's actually lived or worked in China can tell you, even the heavily utilized investments are often anything but optimal. If you just take the heavy industrial sector, especially in the north, you're talking tons of horribly inefficient, highly polluting excess capacity that's being shut down, consolidated, and/or recapitalized with new, i.e. greener investment. That's untold billions of dollars quarter after quarter.

All this also sheds additional light on the end of the one-child policy. A whole slew of articles, including in Financial Times and Fortune, have called it "too little, too late" in terms of the looming demographic crisis, i.e. rapid aging of the population and shrinking workforce; but the more optimistic view that I took in my own earlier post was echoed here in Forbes:

... But the government can’t explicitly or effectively make its people consume. The solution? Apparently, it’s to allow the existence of more people. That is, China is allowing married couples to have two children to increase consumption (and probably also investment). And this is going to work. ... 

So, there you have it. Need an economic stimulus plan that will actually work? Un-restrain the number of children the country can have. Wait. I guess this will only work in China. 

The declining labor force isn't the issue: the shortage of consumers is the real threat to China's economic future. Babies and young kids are excellent consumers - entire services and consumer goods sectors revolve around them well before they're old enough to contribute their own labor. So it makes perfect sense to have a mini-baby boom; it just behooves Beijing to make children less costly in real terms, by (among other things) getting its currency and monetary policy right to unleash enough liquidity that doesn't end up further inflating real estate.

In this respect, the government's nascent efforts to create a nationwide social safety net will also be crucial: young families will only spend more at present if they don't have to save so much for retirement on their own, though this whole topic of social security and healthcare is for another post.