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Jewish World Review / July 6, 1998 / 12 Tamuz, 5758

Mona Charen

The China behind
the headlines

PRESIDENT CLINTON'S TRIP TO CHINA has offered Americans many occasions to oooh and ahhh over China's economic progress -- but little insight. We've been treated to scenes of bustling Shanghai life, to vistas of neon lights illuminating the Asian night, and to images of modern Chinese businessmen, chatting on cell phones as they speed from one appointment to the next.

These pictures will no doubt cement in many people's minds the belief -- already widespread among American businessmen -- that China is poised to become the economic powerhouse of the 21st century.

For a more balanced picture of China's strengths and weaknesses, open the July/August issue of the American Enterprise magazine, and put the Chinese economy's performance in context.

Sure, China has been growing at double-digit rates for many years. That's impressive. But China began from a point of such abject poverty that even robust growth rates do not bring her to parity with advanced industrialized countries. And the growth rate is slowing dramatically.

The average Chinese today earns 4 cents for every dollar earned by the average American. The U.S. gross domestic product is about two and a half times larger than China's. If China catches up, her people will still be much poorer, since the GDP will have to be divided among a population five times as large. Even if China does become "the world's largest economy" 30 years from now, most of her resources would necessarily be spent on food, fuel and providing the basics of a decent life to more than 1 billion people.

But whether China will ever catch up is by no means clear. China's despotic leadership has loosened the reins on the economy some, but the fundamentals of a free market are not in place. Property rights are not guaranteed. The rights of individuals are not respected. There is no tradition of the sanctity of contracts. And the government has its hands in everything.

If the rest of Asia is suffering the effects of "crony capitalism," China is under the sway of "crony communism." As Christopher Lingle observes, there are roughly 300,000 state-owned enterprises in China, and three-quarters of them are bankrupt, kept afloat by obligatory loans from state-owned banks.

The state-owned banks are also compelled to make loans to favored private enterprises -- one of the many corruptions inherent in the current system. The result is "a mountain of bad debt." Mark Groombridge, a China analyst at the American Enterprise Institute, estimates that bad loans comprise 40 percent of China's GDP. Chinese banks stay alive only because of the extremely high personal savings rate of the average Chinese.

Some sectors of the Chinese economy are quite strong -- like semi-conductor manufacturing -- but many others are backward. Whether China will move ahead depends largely on whether it follows a true free-market reform approach or some version of the crony capitalism common in the Far East. So far, the government has shown every signal of repeating the mistakes of Japan and Korea.

Besides, some of the policies of the communist government have already sown the seeds of future economic and social problems -- and there is little that can be done to reverse them. The one-child-per-family policy, for example, ensures that China will have an aging population and the attendant health, pension and other expenses long before it has achieved the wealth to handle the burden. The aging Chinese, the parents of today, will have only one child to call upon for help. And if that child is a girl, they will find themselves in the culturally disadvantaged position of having to compete against the claims of their son-in-law's parents.

The same one-child-per-family policy has resulted in an imbalance between males and females that will lead to a severe bride shortage. This will leave a significant percentage of China's young men permanently single -- a state unfamiliar to the Chinese but which has led to crime and disorder in other nations.

Widespread corruption, inefficiency, political repression and top-down economic organization -- not quite the China we've seen on the evening news but just as real and much more important than the neon lights and cell phones.

Correction: In a recent column, I reported that retired Adm. Thomas Moorer lives in a nursing home and "gets confused." That was an error. He is in full command of his faculties.