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Wednesday, Nov. 5, 2008

Beijing has enough of its own problems

BEVERLY HILLS, Calif. — It would be a mistake to overestimate how much China can or will do to pitch in to the world dilemma as the roiling and unnerving global financial world proceeds apace.

Many people don't realize it, but China has a lot of monstrous problems of its own. It still has bad memories from listening to shaky financial advice in the past from the West. The government may make a few seemingly helpful moves in the economic world just to avoid appearing truculent or uncaring. But it probably won't do much.

It feels it can't. It's walking on the edge of a cliff right now and a bad wind — or a serious misstep — might just push it over the edge into calamity.

Since the late '70s, the Chinese economy has been growing faster and more boldly than perhaps any other in recorded time. Climbing out of the near-death experience of Chairman Mao Zedong's debilitating economic dogmatism and Machiavellian authoritarianism, the country has emerged to become the potential big superstar of the 21st century. It could well become the lead player in what history will someday label the "Asian Century."

Right now, however, China's growing gigantism is driven primarily by the sheer size, magnitude and willpower of its population. That's why its total national domestic economic product places it easily in the world's top economies. But there is another statistic we need to keep in mind: Its wealth per capita (total economic product divided by 1.3 or so billion mouths to feed, thus the average amount each person has) doesn't even make the top 100 lists of the world. China, in this sense, is both a rich and a poor country.

Yet almost everyone also agrees that China's political stability is dependent on its continuing economic growth. In recent years that rate of expansion has hit double digits. This economic performance is not only impressive but it is vitally necessary. Like a lumbering Boeing 747 jetliner, the Chinese economy took forever to take off, but once aloft, requires vigorous forward air speed to stay on track: Any rapid or sudden loss of velocity and forward momentum could bring the whole thing crashing to Earth.

The height of China's post-Mao glory was undoubtedly this summer's Beijing Olympics Games, but they may remain the symbolic high point for some time to come. In the current world economy, with Western demand for its exports waning dramatically, Beijing will be hard put to keep growth so high. A 7 percent growth rate — or even a little less — might be a more realistic forecast. At what growth rate might the gigantic China super jetliner stall and lose altitude precipitously? No one can say, but that is more the worry of Chinese leadership circles than the global community.

Many experts outside China are convinced that China will continue to enjoy a smooth forward-moving flight path. But this is not the case with one of America's most sagacious economic intellects. "Experts are typically more reliable in interpreting and explaining the past than in forecasting the future," writes Charles Wolf Jr., the renowned expert in international economic policy at the world-famous RAND Corporation, based in southern California. "In forecasting what will happen, rather than explaining what has happened, their testimony has frequently been wrong."

Wolf addresses, among many contemporary economic and political issues in Asia and the world, the dilemma of China — and Japan — in his new collection of essays "Looking Backward and Forward: Policy Issues in the Twenty-first Century," published by Stanford University's Hoover Institution. These analyses are razor-sharp, immensely valuable and written in persistently clear and nontechnical prose. He wishes no country ill, but has no time or comfort for analysts who don't really analyze and for dogmatic, agenda-driven political scientists who aren't wholly scientific.

China's 1.3 billion people (though not one has really counted carefully) are the bundle that worries this distinguished economist the most. RAND research puts China's actual unemployment rate at something like 23 percent (Current U.S. unemployment: about 6 percent, on a base of "only" 300 million people).

"The strains and stresses that will result from the persistent masses of China's underemployed and underemployed labor are difficult to assess but hard to overestimate," Wolf writes. "China's problems are a deeper, more long term, and potentially more serious challenge to economic and social stability than is the temporarily high temperature of its economy."

The capacity of the Chinese government (which is well aware of this reality) to develop better public policy for its own 1.3 billion people will go a long way to adding to world economic stability as well as its own. For starters, Beijing needs to erect quickly a new national safety net so that its people don't leer into the abyss of political chaos. The need for strong safety nets applies as well to wealthier countries, including the United States, which will need to cope with rising unemployment. But for China, that need may be approaching a national emergency. This will take a great bundle of its reserves to fix.

Syndicated columnist Tom Plate is a member of the China Study Group of the Pacific Council on International Policy. © 2008 Pacific Perspectives Media Center

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