The future is gloomy for the Chinese-style market economy, which rejects political reform and destroys the private sector economy.
Editor’s Note: Understanding the true nature of the Chinese Communist Party (CCP) has become more urgent than ever due to the global chaos caused by the Coronavirus, which originated in China. There are pessimistic suspicions that South Korea has already fallen victim to the CCP’s hegemonic efforts. VON News conducted three special interviews to gain an understanding of the CCP’s ideology, reality, past, present, and future. These interviews were conducted on August 3, 10, and 18. Kim Mi-young, the president of VON News, conducted the interviews with Dr. Yeon Sang-mo.
Kim: Phrases like the Chinese-style socialist market economy, socialist market economy, or reform and opening only seem to apply to China. There is curiosity as to whether there is a future for the Chinese socialist market economy and whether the Chinese-style market economy can become an alternative to the current Korean system, as it appears the current South Korean government seems to be transforming the country to become more like China. Dr. Yeon, is there a future for the Chinese socialist market economy?
Yeon: In my personal opinion, its future is not bright. If a country is to continue to develop, its economic power must have a strong base. Although the Chinese-style socialist economy appears to have become successful after Deng Xiaoping adopted some capitalist elements, it is now said that state-run companies are more important than private companies and that they are trying to destroy the capitalist elements of the economy. Also, China needs creativity for its economy to grow. If the country continues to move forward this way, the Chinese economy will stagnate.
For the economy to develop, political development must also occur. I think the future of Chinese socialism will be difficult, since it is moving toward dictatorship instead of any kind of political development.
Kim: Nevertheless, the Chinese economy remains a topic of great interest to us. You share your opinion previously that it is inevitable to live uncomfortably alongside China. There were some people who reacted by saying, “What are you talking about? We should cut ties completely.”
Yeon: Yes, there could be a misunderstanding. It is very difficult to be a neighbor of China considering the fact of how it is moving politically. However, China remains Korea’s biggest trading partner. We have no other option but to have economic relations with China, and there is a realistic reason– to prevent China from actively interfering in unification with North Korea or to prevent Pyongyang from conducting provocations. What I wanted to say was that I would like China to become a trusted neighbor in this manner, but it will nevertheless be a neighbor that is not easy to deal with and uncomfortable for us.
Kim: China has become the second-largest economy in the world recently, but when looking at the number of nuclear weapons per country, it raises the question of whether China really qualifies as a member of the G2. The category G2 itself seems to be fictitious. What do you think about this?
Yeon: China has some 260 nuclear weapons, and I think they have the power to destroy the U.S. mainland multiple times. Of course, military experts say China seems to be quite inferior when simply comparing the absolute numbers – 7,200 in the United States and 260 in China – but it still can actually threaten Washington. Although economic power and military power are not equal, China is second in terms of economic size. I think people are referring to this kind of concept.
Kim: Now I think it is time to recognize the truth about China that the country doesn’t want others to see. I wonder what position China takes regarding private companies. I was curious to hear the news that Alibaba’s founder Jack Ma returned to his hometown.
Yeon: I am sure that you heard a lot about the phrase “state enterprises advance, the private sector retreats.” This means that in China, state-run companies continue to expand, while the private sector is deteriorating. This trend has become exacerbated since President Xi Jinping took office in 2012.
Xi is moving in the direction that “it is state-run companies that support the sharing economy, the foundation of Chinese socialism.” So like you said, President Jack Ma of Alibaba retired two years ago at the young age of 52. Currently, private companies account for about 60 percent of China’s GDP, and state-owned companies account for about 40 percent. They are trying to have state-run companies dominate everything.
In particular, they are trying to have state-run companies takeover all of them by taking advantage of private companies suffering from financial difficulties due to various reasons, such as Covid-19. As you know, the economic development of any country is driven by creativeness and diligence, when led by either society or private companies. When the government intervenes like this, the economy never develops. However, the reason for this seems to be an obsession that if private companies expand too much, the dictatorship of the Chinese Communist Party will collapse.
Kim: The era of Deng Xiaoping started in 1978. Its key concept was strengthening efficiency and developing the economy rapidly by expanding reforms and opening up the country. Do you think they are trying to abandon the ideology of reform and opening?
Yeon: I don’t think they are giving it up completely. In the past, if the ratio of state-run companies and private companies was 50:50, Xi is trying to have state-run companies account for 80 or 90 percent of the total.
Kim: About a decade after China began reform and opening, the Tiananmen Square incident occurred. I would like to ask you to explain historically whether the Tiananmen Square incident was in a sense related to the corruption of the Chinese Communist Party. Also, it has been more than 30 years since the incident, but it did not lead to political development. Instead, China was able to develop its economy under the Communist Party system. I think this is an importanat phenomenon to consider.
Yeon: The Tiananmen Square incident happened in 1989. This was 11 years after the reform and opening began in 1978. The reasons for the incident are complex. First, it was true that corruption occurred when capitalist elements were introduced along with reform and opening. Second, as they reformed and opened, there was a certain trend of liberalization in politics. I think there also was anger among intellectuals who thought that politics should also have been reformed. Third, inflation become extreme during the reform and opening. Deng Xiaoping then suppressed the demonstrations of university students gathered in Tiananmen Square.
Even Deng Xiaoping never truly wanted political reform
Deng, in fact, never had any interest in political reform at all. After the Tiananmen incident, the Chinese economy grew rapidly at over 10 percent annually. As economic development expanded, I think the argument that political reform should accompany it has become less persuasive to ordinary Chinese people. So they have been lead this way up until now, but they have reached a dead end. It appears that China is strengthening its control over society to consolidate Xi Jinping’s dictatorship, while adopting many capitalist elements.
Kim: If this trend continues, do you think there is a way to solve the corruption issues related to senior officials in the Communist Party? How do you see the party’s internal problems, such as top party leaders’ excessive monopolization of wealth?
Even Hu Jintao criticized the fact that 90 percent of the wealth is taken by the children of Communist Party officials.
Yeon: Why are there relatively only a few extremely rich people in China? This is directly related to the issue of corruption. Fourteen years ago, in 2006, President Hu Jintao made a remarkable announcement, saying that 90 percent of the wealth created by reform and opening was taken by the children of Communist Party officials. In fact, I think almost 99.9 percent of the money was taken by party officials, not 90 percent.
I think the reason why Hu Jintao officially said this was that the corruption problem was so serious at the time and he was trying desperately to stop it. Still, the problem in China is the collective hereditary succession of high-ranking officials’ children. It is a problem because the children of party officials monopolize both power and wealth.
When an underdeveloped country first attempts to develop its economy, the government takes a major role in it and redistributes the wealth. Communist China’s current corruption problem occurred during this process. This is unconfirmed, but it has been reported that some 200 key Chinese Communist Party officials have about 200 billion Won to 300 billion Won in Korean currency.
They deposit money in banks in the United States using different names. President Trump said he would not allow Chinese Communist Party officials to enter the country and that he would freeze their U.S. bank accounts. This would be a great blow to all key officials, including Xi Jinping and Li Keqiang.
Kim: I am sure you have experienced this since you have worked in China, but why are most of the billion people in China now in poverty?
Yeon: Its population is about 1.4 billion, and there is statistical data that shows about 80 million people are considered to be middle class. Premier Li Keqiang said in May that 600 million people were in extreme poverty, and it was said that Xi Jinping hated this statement. People with power live very well. This is an act of treason to the supposed goals of communism, which they had originally advocated.
As I said before, in this situation, all of the Chinese people have to rise up against the government, but the country’s economy is growing by more than 10 percent and the economic pie has grown. Wages are gradually increasing, and this is why they are not rising up.
China is a country that lives on monetary expansion when an economic crisis occurs. The Chinese government maintains its growth rate by releasing money to meet the total amount, or macroeconomic indicators, rather than improving the economic status of individuals. With money released like this, companies are speculating on real estate, resulting in inflation, and housing prices are soaring sky-high. It should be said that the Chinese government is doing unconscionable things to the people.
Some say that the three major crises in the Chinese economy are the real state bubble, debt problem, and shadow finance. The real estate bubble came from the process mentioned earlier. To briefly talk about the debt issue, it is said that China’s debt is about 300 percent of its GDP. There are counterarguments that the country’s debt problem is not that significant, comparing it to Japan’s 370 percent, France’s 314 percent, and Canada’s 290 percent. But the problem is that China’s debt ratio is increasing much faster than that of other countries.
In the first half of 2020, it increased by about 800 trillion Korean Won. The Chinese government, which plans to spend 8,600 trillion Won by the end of 2020, said it had been very careful about quantitative expansion a few years ago due to severe inflation. However, China now has problems like Covid-19 and U.S. economic pressure, and it is in a position to choose between the two. It is pushing ahead with quantitative expansion even if it results in inflation.
Debt ratio near 400 percent
The third problem, shadow finance, is similar to private loans, instead of loans from official financial institutions. Reportedly, this makes up 30 percent to 40 percent of GDP right now, but it is frightening because it has not been officially calculated. No one knows whether it is 50 percent or 60 percent. I said China’s debt is 300 percent compared to its GDP, and the private loan figure is not even included there. Furthermore, there are very many fake statistics in China, so if shadow finance is added, the debt ratio could exceed 400 percent by now.
Kim: So it is almost certain that maintaining the status quo will be difficult under the communist system. In the future, what should Korea do to survive and succeed when it comes to the phrase that you used – “live uncomfortably alongside China?”
Yeon: It has been 30 years since the two countries established diplomatic relations in 1992. In the beginning, our businesses and industries were very excited. There was a big market of 1.4 billion people in China, and people had an optimistic view that we could sell 1.4 billion pairs of underwear if we just produced it. But the situation has changed now.
First, the Chinese political system will continue to be authoritarian. Second, the Chinese economic situation is not good right now. Workers’ wages have risen, China has fallen into the middle-income trap, its economic growth has slowed, and the unemployment rate is very high. Besides, the United States is also putting pressure on its economy. Our entrepreneurs should respond cautiously to these political and economic risks. I don’t know whether entrepreneurs have read the situation quickly, but didn’t Samsung Electronics recently withdraw all of its phone and computer factories from China?
China’s economic crisis could be an opportunity for Korea. The reason why we had such rapid economic development during the Park Chung-hee era might be because Chinese society was in total chaos after going through the Cultural Revolution. If it hadn’t happened, there would have been more cheap labor in China than in Korea.
When a high-ranking Chinese official meets a Korean, he would joke, “If it weren’t for Mao Zedong, the Korean economy wouldn’t have developed as it has now.” I think that if China continues to proceed in that manner, it will be a good opportunity for Korea to take a leap forward in politics, diplomacy, and the economy.
Kim: This is a bit of a different topic, but what do you make of people who respect Mao Zedong, who killed so many people, whether they live in China or Korea?
Yeon: They would be frightened if they traveled back in time and spent a day or two during the time of the Cultural Revolution, when the Red Guards were everywhere. I think they have a sense of mystique about Maoist China because they are not aware of its reality. There is a recent book titled “Sad China: People’s Democratic Dictatorship (1948-1968),” which was written by Professor Song Jae-yoon at Canada’s McMaster University. If you buy his book and read it, you will discover many interesting facts.
Kim: Please explain why the Korean government and those in power in Korea should be careful about China.
Yeon: Overall, I think China is a great burden to us, and it is hard to say that it is a positive thing. We have to protect our independence and self-esteem, but this is difficult because of the asymmetry in national power. I think we should always be vigilant about China and be careful about economic relations with China in order to protect our independence and self-esteem.
Above all, China and Korea are completely different when it comes to ideology. We are a liberal democracy and they are totalitarian. There is an argument that we should keep our distance politically but still have good economic relations. However, I think that we are obliged to lead China as a country that is walking ahead of it on the path of liberal democracy.
Kim: I think words like independence and self-esteem must be remembered when we look at the history of Korea’s existence as a tributary state of China for nearly a thousand years. We are a much stronger country when we look at China through the lens of liberal democracy and rule of law. In this dangerous era, it appears that we need to reaffirm our national core values and move forward to protect liberal democracy and the rule of law.
Yeon: China’s future is not bright. The reason is that it has been 40 years since reform and opening, and all five factors that have been able to maintain the economy are shaky to some extent. These are the five factors. First, economic development at a rapid pace; second, political stability; third, the Communist Party’s flexibility; fourth, the Communist Party’s control, and fifth, a world order favorable to China. Let’s see how these factors shape-up.
First, economic development can’t be rapid. No matter how well China tries to develop its economy in the future, its growth rate will be around 2 percent to 3 percent per year. Second, political stability will not be achieved. China appears strong through Xi Jinping’s dictatorship, but it is experiencing great political instability as internal power struggles occur. Third, there is no longer flexibility in the Communist Party. The party is moving toward greater dictatorship and totalitarianism. Fourth, party control also faces many challenges. The final and most important factor is the world order. In the past, the United States attracted China into the world’s free economic order and helped Beijing develop its economy.
Now the United States is thoroughly blocking this. The reason for this is China’s ideological rigidity. There is only a low possibility that China will loosen this rigidity. China is in a very difficult situation right now, and its future is not bright.
Dr. Yeon Sang-mo
Researcher at Sungshin Women’s University’s East Asia Institute and former Consul General of the Republic of Korea in Niigata, Japan
