Globalist Paper

Vulnerable China and the Trade Surplus: Part III

How does China’s trade surplus affect its role in the global economy?

Read Part II here.

Takeaways


  • China needs to sustain dizzying rates of economic growth simply to absorb the surplus labor that is continually arriving in urban areas from the countryside.
  • The imperial court lived in mortal fear that their Han subjects would revolt. So they did not dare to properly equip and train a Han army.
  • The Co-Hong saw that their interests aligned more closely with that of their trading partners than that of the suspicious central government.

China of the Qing dynasty was technologically advanced, administered by a strong central government, and the most populous nation on Earth, to boot.

Given all that, how could China have been so militarily deficient that it could not stand up to a handful of British warships in the early 1840s?

Brent Ranalli:
Chinese Trade History

China’s Great Trade Surplus
Then and Now
Vulnerable China

To be sure, that is an odd fact that requires some explanation. Even taking into account the emerging opium epidemic and opium-induced fiscal crisis, how could the Chinese military have been so completely outmatched?

It might appear that the imperial court had been complacent in military preparations on account of arrogance — unable to imagine that the scruffy, pale barbarians from the West could pose a serious threat.

Arrogance may have played a role, but another factor was even more important. The Manchurian Qing were a foreign dynasty, not ethnically Chinese (Han).

The imperial court lived in mortal fear that their Han subjects would revolt. So they did not dare to properly equip and train a Han army, and never even attempted to build a navy.

For the same reason, the Qing had sought to restrict contact between the Han and foreigners. The Qing instituted the strict “Canton” system that kept European traders at arms length, not because they disliked foreigners or did not value trade (as some Europeans assumed) — but because they did not want Han Chinese to fraternize with outsiders.

But all the precautions the central government took (including restricting foreigners’ movements and their opportunities to learn the Chinese language) could not prevent such fraternization.

The Co-Hong, the small college of Chinese merchants permitted to deal directly with the foreigners, saw that their interests aligned more closely with that of their trading partners than that of the suspicious central government, and even the local Canton officials collaborated to keep the Qing in the dark.

With the advent of the opium trade, illicit contact between Han and foreign traders reached vast proportions. Ironically, when the native revolt against the Qing finally came (the 1851 Taiping Rebellion), it was centered far from Canton, and it was strongly anti-opium.

Here, the parallel with the present is remarkably apt. Like the foreign Qing, the ruling Chinese Communist party lacks legitimacy and distrusts its own population.

For decades, Communist China was a closed society, as the government sought to ward off all foreign influences. Much like the Qing, today’s Communist regime is walking a tightrope, trying to do business with the outside world while excluding potentially “seditious” influences.

Concern with “foreign” values like human rights, minority rights and environmental protection is too often labeled subversive by authorities. Media, free speech and free assembly are restricted, and internet use is monitored.

The Qing learned at their cost that there is no escaping a globalized world. If isolation was impossible for China to maintain then, it is even more difficult now, in an era of cell phones, satellites, and the World Wide Web.

If modern China’s one-party system is to survive, it will need to adapt. Recent years have seen China opening up somewhat in this respect, and we may hope this positive trend will continue.

The Qing maintained a pretense of invincibility, and it is certainly easy to paint modern China as an economic miracle. But there are vulnerabilities beneath the facade. Corruption and the problem of keeping order in a far-flung empire were challenging for the Qing, and they are challenging today as well.

Today, in addition, China has a commitment to ameliorate poverty and reduce unemployment, is facing ever more serious environmental problems, and has to cope with unimaginably fast rates of urbanization and social change. China needs to sustain dizzying rates of economic growth simply to absorb the surplus labor that is continually arriving in urban areas from the countryside.

Ironically, the export-driven growth model and trade surplus policy that have made China so wealthy over the past two decades have also made China more vulnerable in some respects.

As foreign markets shrink in the global recession, domestic markets are not nearly prepared to take up the slack. A nation of savers can’t be turned into a nation of spenders overnight. So, vast reserves of Chinese labor and capital will sit idle during this recession, rather than being put to work to raise the nation’s living standards.

Sic transit gloria mundi — “thus passes the glory of the world.” There was no security for the Qing in their trade surplus. The Qing declined with the ebb of silver and the flood of opium, and were ultimately swept away in the early twentieth century. The British, in turn, were left stripped of empire and saddled with debt barely half a century later.

Today, the debt-ridden United States may already be past her superpower prime, despite President Obama’s optimistic oratory. Communist China appears to be on the ascendant, economically and geopolitically — but no one knows better than the Chinese, who have experienced and chronicled the rise and fall of empire for over 2,000 years, that good times don’t last forever.

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About Brent Ranalli

Brent Ranalli is an associate at The Cadmus Group, Inc. and a member of the IBM Network Science Research Center.

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