The absence of the rule of law in China has been a constant refrain. Beijing benefits from free global markets without making the necessary changes within. This self-righteous take-all stance is reaching a flashpoint.
This is the forty first part in the series The China Chronicles.
Read all the articles here.
The biggest problem when engaging with China is its unwillingness to deal with the world under the common and only currency that grants legitimacy: the rule of law. That works well politically — nobody is questioning the non-democratic nature of China’s system, the lack of citizens’ voices in its governance discourse, its clampdown on dissent, or even practices that in any democratic nation would be considered bad enough to vote governments out. Do what you want within your borders, the world seems to be saying.
Yet when it comes to dealing with other nations, China’s pretensions of glory through the creation of a new world order, whose sole goal is to stand on the economic carcasses of other nations, is slowly ending. The world is saying: enough. In strategic affairs, for instance, the looming presence of a bully smothering its neighbours, from aggression in South China Sea and Bhutan, to embracing the world’s terror-hub Pakistan to its West and supporting rogue nation North Korea to its Northeast is finally being taken seriously enough to combat it. The revival of the ‘Quad’ is underway, a decade after it was first proposed, with the US, Japan, India and Australia joining hands, earlier this month, for a “free and open Indo-Pacific” region. <1>
Economically, the government of Nepal seems to be abandoning a USD 2.5 billion to build the Budhigandaki Hydroelectric project dam with the Chinese state company China Gezhouba Group, ostensibly due to the lack of an open tender process. <2> In other words, the absence of the rule of law. This is alienating not only neutral nations like Nepal; even ‘friends’ are backing off. A week earlier, Pakistan had decided to pull out of a $14 billion deal to build the Diamer-Bhasha dam with China because it refused accept the “strict deal conditions”; it will now go ahead on its own. Such actions will increase as the reality of China’s seemingly economic but deadly strategic One Belt, One Road (OBOR) initiative begins to show its true colours.
China’s road to global dominance has been backed economically by the rest of the world. The greed of markets under an ideological rhetoric of ending Communism got developed nations to accept China’s economic mood swings, either in terms of foreign investment or market access. But three decades of what the West celebrated as China’s ‘economic reforms’ has ended only with what can be termed politely as a ‘socialist-market economy’ that functions on whims, not the rule of law. Since the Chinese government is a major player in its economy — mirroring the Pakistan Army’s role in that country — and its 150,000 State-Owned Enterprises (SOEs) account for about half its non-agricultural GDP, companies in other countries fight a power asymmetry in the market while dealing with them.
To get a sense of scale of China’s SOEs, look at their place in global listings. “Fortune’s 2016 list of the world’s 500 largest companies includes 103 Chinese firms (compared to 29 listed firms in 2007),” a 15 September 2017 report by Congressional Research Service titled, “China’s economic rise: History, Trends, Challenges, and Implications for the United States” states. “Of the 103 Chinese firms listed, Fortune identified 75 companies (73% of total) where the government owned 50% or more of the company. Together, these 75 firms in 2016 generated $7.2 trillion in revenues, had assets valued at $20.7 trillion, and employed 16.2 million workers. Of the 28 other Chinese firms on the Fortune 500 list, several appear to have financial links to the Chinese government.” <3> Essentially, the ‘market’ China works in has the power of its sovereign government fighting commercial companies of other nations.
What China has been doing and continues to do is in the best interests of the country and its people, it can be argued. “The over-concentration of SOEs in the strategic market seems to have served specific government purposes to bolster the nation’s economic growth,” write Xiao Geng, Xiuke Yang and Anna Janus. <4> But the absence of a rule of law based economy means the seeping of political power of individuals who head senior positions in the Communist Party into economic power, creating inequalities and leading to what is known as ‘credibility deficit’. Through a strange logic that it follows and ruthlessly implements, the development of a pluralistic society, a society where ideas and power are freely contested, is now further out of reach than it has been for decades. <5>
The absence of the rule of law in China has been a constant refrain. Beijing benefits from free global markets without making the necessary changes within, through a self-righteous take-all stance seemingly reaching a flashpoint. “As the Chinese economy grows in complexity, not only must rules and regulations evolve to reflect changing reality and emerging priorities, but they should be fairly and effectively enforced,” notes a World Bank report. <6> It continues, “If the enforcement of standards varies from sector to sector, region to region, entity to entity, and sometimes even person to person, then it will not only discourage innovation and lead to inefficient economic outcomes, it will also contribute to feelings of injustice.” <7>
China’s façade of ‘social stability’ — an elegant expression to silence or imprison dissent, particularly among Tibetans and Uighurs — too is wearing thin. True, this stability has lifted hundreds of millions of Chinese out of poverty in just a few decades; it has also placed China as a major global power. But now, it seems unable to manage its ambitions. By presuming that other countries owe it their sovereignty as much as their markets, China is standing on thin ice. The new world order it seeks to create and lead will not come. No democratic nation will allow it to happen. China may rave and rant but will finally be laughed out of the comity of civilised nations into an ideological and political isolation where such ideas belong: within its own borders and those hyphenated with it by the lack of the rule of law — notably, Pakistan and North Korea.
<1> Ankit Panda, “US, Japan, India, and Australia Holding Working-Level Quadrilateral Meeting on Regional Cooperation”, The Diplomat, 13 November 2017.
<2> Peter Guy, “Nepal and Pakistan pulling the plug on Belt and Road plans, casts spotlight on public tender issues”, South China Morning Post, 20 November 2017.
<3> Wayne M. Morrison, “China Economic Rise: History, Trends, Challenges, and Implications for the United States”, Congressional Research Service, 15 September, 2017, available at <https://fas.org/sgp/crs/row/RL33534.pdf>.
<4> Xiao Geng, Xiuke Yang and Anna Janus, “State-owned enterprises in China: Reform Dynamics and impacts”, in Ross Garnaut, Ligang Song and Wing Thye Woo (eds.), China’s New Place in a World in Crisis, (Canberra: Australian National University Press, 2009), pp. 155-178
<5> Susan Trevaskas, “China’s party-led rule-of-law regime”, East Asia Forum, 2 October 2017.
<6> “China 2030: Building a Modern, Harmonious, and Creative Society”, The World Bank and the Development Research Center of the State Council, the People’s Republic of China, (Washington DC: World Bank, 2013).
<7> Ibid.
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Gautam Chikermane is a Vice President at ORF. His areas of research are economics, politics and foreign policy. A Jefferson Fellow (Fall 2001) at the East-West ...
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