05/08/2003
(Clearwisdom.net) Crowds are forming across China. Some people block roads; others surround
and invade government buildings and destroy property of the state. Provincial and local authorities
defy Beijing's edicts. Is the central government losing control of the People's Republic?
Commentators have praised China's new president and premier for finally taking decisive steps late
last month to combat Severe Acute Respiratory Syndrome or SARS . What is not said is that they acted
only after Chinese doctors and nurses openly contradicted their government and made the continuation
of the cover - up, which had lasted almost half a year, untenable. Leaders in the Chinese capital
were, for the first time in a decade, left with no real choice but to tell the truth, since health
care professionals were already telling all they knew to the foreign media and the World Health
Organization.
Ordinary people then took matters into their own hands. In the week following the announcement of
the government's new campaign against the disease, about a million people fled Beijing to get away
from the contagion. Administrative edicts to prevent departures did not work and stringent controls
were not effective either.
The Health Ministry knew that the mass migration out of the capital would lead to a health-care
catastrophe but could not move itself to act. "The government held meetings for hours with no
decision and meanwhile, everybody left town," said Bi Shengli, a virologist who worked for the
now disgraced Zhang Wenkang, the former health minister.
As a result of government paralysis, people, some carrying the disease and others driven by panic,
fanned out across China and the rest of the world. Many of those who didn't leave shuttered
themselves in their homes and thousands of others were quarantined by authorities.
The Chinese people at first appeared dazed, but as the panic subsided fear turned to anger. Anger,
in turn, has led to a new assertiveness. Today a few openly call for the leaders to resign and
others -- in Zhejiang, Henan, Tianjin and Beijing -- take to the streets, sometimes engaging in
violent protest. Villagers establish their own roadblocks, hoping to prevent outsiders from bringing
SARS into their homes. Across China, some ordinary folk have now decided that they are indeed the
masters of their own destiny
and don't need the Communist Party to tell them what to do.
A month ago -- before the mass quarantines, blanket closures of businesses and official resignations
-- China's population was pliant and the regime on a roll. In the space of a few years, the
Communist Party had managed a remarkable string of achievements: the country joined the World Trade
Organization, won the 2008 Olympics for Beijing and the 2010 World Expo for Shanghai, delivered high
rates of economic growth and racked up stunning trade surpluses and foreign reserves. Gross domestic
product for the first
quarter of this year increased by 9.9%, which is the highest quarterly growth rate since 1998.
Virtually every analyst was predicting that 2003 would be another banner year for Beijing. The
People's Republic, it appeared to almost everyone, had finally arrived.
A few weeks later the country is in distress and its leaders are losing their ability to direct
events. The "first global epidemic of the 21st Century" is ravaging not only the Chinese
people but the nation's growth as well. J. P. Morgan Chase predicts that the economy will shrink 2%
in the current quarter, while other analysts talk of the economy coming to a
standstill.
At this early stage it's not clear if the effect will be that severe. But it is evident that the
current period will be the worst since at least the downturn that followed the Tiananmen Square
massacre of 1989. For one thing, the emerging service sector, perhaps the fastest growing component
of gross domestic product, has been knocked flat by the mandatory closing of places of entertainment
and other public venues, the restrictions on travel and,
most importantly, people's unwillingness to leave their homes.
Next to suffer will be exports, which provided almost three-quarters of last year's growth. China's
sales to the world will be relatively unaffected during the current quarter, but plant closures, a
slowdown in investment and cancelled trade fairs will have an adverse effect in the second half of
this year and perhaps the first quarter of 2004. Observers are correct when they say that the export
sector doesn't yet show any effects from the epidemic. But what they don't say is that, although the
Chinese economy may take a
long time to cool off, it will also take an even longer time to get started again. Like SARS,
recessions have long incubation periods.
Yet there's an even more important problem for Beijing's technocrats. Central government leaders
have managed to produce impressive growth in the past, but they have done so with tactics that are
ultimately unsustainable. The government's inability to cope with SARS highlights how economic
planners skimped on education, health care and other essential social services.
Now, in the face of discontent, the central government will have to spend much more to provide basic
services. In addition to setting aside $725 million to fight the epidemic itself, the nation's new
Health Minister Wu Yi recently announced the allocation of $423 million for the establishment of a
health network for the nation. That amount is just a down payment to rebuild the system that has
eroded after decades of neglect. The Chinese people, post- SARS, will demand more health care, more
education, more of
everything.
Beijing's swollen budget deficit grew at 27% a year during the past half decade and will increase
even faster as officials are now forced to pump money into previously-neglected basic services. Then
the world will begin to appreciate the precarious nature of China's finances. The cost of the
current fiscal stimulus program, now in its sixth year, has already pushed the deficit-to-GDP ratio
well into the danger zone, far beyond the 3% level claimed by the nation's statisticians.
When growth stalls because of SARS, Chinese leaders will lose the ability to paper over the problems
inherent in "market socialism." Government spending will not make the Chinese people
return to the shops or force foreigners to visit the ground zero of this disease. At that point, the
cost of postponing structural, as opposed to cosmetic, reforms will become apparent: China will
still have a half-reformed economy, plagued by problems left over from the Maoist era and even a few
created during the reform period. And there may be no way to stimulate growth short of implementing
wrenching changes such as withdrawing support for uneconomic state enterprises and recapitalizing
insolvent state banks.
For the past decade, many in the business, diplomatic and China-watching communities have managed to
ignore the unsustainability of the regime's policies, as if in a trance due to years of accelerating
economic activity. However the current epidemic has forced a reexamination of our critical
assumptions about the future course of the People's Republic. SARS exposes the weakness of both the
Chinese economy and the regime itself. And the disease tells us something else: the nation has a
population that can no
longer be ignored.
As economic growth rates come down this year and possibly next, a government that bases much of its
legitimacy on delivering prosperity will be in trouble. Then the challenges of ruling an
increasingly complex nation will test Beijing. As the SARS epidemic reveals, leaders are still stuck
in the old way of thinking. "China's Communist party once ruled a very simple society,"
says Zheng Yongnian of the National University of Singapore. "Now, with globalization and the
market economy the whole society is mobile and the old methods don't work anymore." As the
world is now learning, SARS is marking the end of China's cycle of good fortune. We are now
witnessing a turning point in the history of the modern Chinese state.
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