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Chinese Scholar: International and Domestic Opportunities and Challenges for China

[Editor’s Note: Qiushi Theory recently published a thesis by Li Shenming, who is the Deputy President of the Chinese Academy of Social Sciences. [1] Li discussed the opportunities and challenges that China faces in both the international and the domestic arenas and from the political and economic points of view. Li proposed specific strategies for China to undertake in responding to these challenges. He predicted that the global socialist movement will make more progress in the coming years and that, by 2050, “global socialism will once again shine brightly.” Some of the data that Li referenced are a few years old, but his points are still valid. The following is an excerpt from Li’s article.]

I. The External Situation

The era of imperialism is not yet over. China views its relationship with U.S. hegemony mainly as a contest with the U.S., although there is also cooperation. If one thinks that, because there is cooperation, it is not an era of imperialism and that capitalism is not declining, then one cannot clearly see the root causes of the current international financial crisis; nor can one foresee the tremendous destructive impact the crisis will bring. The superpowers will “fight to their deaths” when facing an extremely difficult situation. In the coming years, the international forces and, in particular, some large and powerful nations, will cooperate and compete, as well as have more intense contests on such fundamental issues as finance, energy, food, sovereignty, and even war. A superpower (the U.S.) might even try to repeat the way it brought down the Soviet Union and Eastern Europe in the 1990s and mobilize all of its power to destroy the country in power (e.g. China), so as to get out of the deep crisis that it is in.

The following is a detailed analysis of the opportunities and challenges that China faces in the international situation:

A. Opportunities

Currently our country has three huge strategic opportunities.

1. The U.S. led financial crisis in the Western countries is deepening and has not yet bottomed out.

The deepening of the international financial crisis is the inevitable emergence of a financial crisis that had been postponed many times and for many years. Although there may have been small recoveries in the process, the entire crisis is very likely to continue for a decade or even longer. The disaster is not yet over. It is still evolving, and this may be just the beginning. A deeper and more comprehensive world-wide economic and social crisis is very likely still to come.

2. The U.S. “ambition” to dominate the world has encountered insurmountable obstacles. It may have to postpone any further shifting of its strategic focus on the East.

After the collapse of the Soviet Union, the U.S. fought five wars. It won the first three easily. However, it did not expect to be stuck in the small country of Iraq, which directly or indirectly cost it more than US$3 trillion. In the end, the U.S. had to withdraw its troops. It can be said that the U.S. won the war, but it never received any benefits. Its withdrawal showed its lack of resources. The US$3 trillion in expenditures is one of the reasons for the financial crisis. The resources available to the Obama administration are very limited, but the problems the U.S. faces are increasing.

3. The worldwide revival of the left-wing movement, the socialist movement, and the anti-capitalist movement began after the low period of the drastic changes in the Soviet Union and Eastern Europe.

In a certain sense, the current deepening international financial crisis is the result of the proliferation of U.S. dictatorship-type politics and hegemonism, especially its financial hegemony and its neo-liberal policies and theories. The widening of the gap between the rich and poor and the deepening of the international financial crisis have further led to increased global turmoil. From developed countries to developing countries, from Europe to the Middle East, North Africa, Asia, and Latin America, social anxiety has spread. The general public in developed and in developing countries are dissatisfied with capitalism. Large-scale street protests are increasing, and extreme political events occur more frequently. The political situation in many countries is not stable. The risk of global social unrest is increasing. These have led to a notable bright spot–the doctrine of Marxism has again been the focus of worldwide attention. The Communist Party of each country combines Marxism with the practices of each country to actively carry out research and to respond to the international financial crisis. Communist Parties overseas are conducting a limited number of joint activities in certain regions, within a certain scope.

Regarding the revival of the left-wing and socialist ideologies, we must pay close attention and develop a comprehensive plan. Left-wing scholars in each country should use a variety of ways and forms to cooperate actively and to coordinate (with each other). This is an extremely favorable international opportunity for socialism to continue and develop.

B. Challenges

The following are four challenges we face internationally.

On television on May 9, 2009, Obama announced to the world that if the over one billion people in China had the same lifestyle as those in the U.S. and Australia, it would be a tragedy and a disaster for humankind. The Earth simply cannot afford it and the whole world would fall into a very tragic situation. The U.S. wants to limit China’s development. China faces the following four challenges in the international arena, which, in essence, are all related to the resources that Obama mentioned.

1. The strategic scheme of the U.S. is to lead Western countries to Westernize or break up our country. Their intention will never change. Our relationship with Western powers is one of both cooperation and competition, but it is fundamentally a strategic contest. The terms of the West are political, not geographical. The Western world is not all the same, but they have developed a close strategic cooperation to Westernize and break up China.

The U.S. used to believe in hard power. After World War II, the U.S. fought two of its largest regional wars around China: the Korean War and the Vietnam War. Why? Because socialism is the biggest threat to the U.S. If every country adopted socialism and insisted on autonomy and independence, then how could the U.S. profit from its ventures overseas? The U.S. use of hard power failed in both instances. After that, it tried the soft power approach, which led to its success in the former Soviet Union. An example of the soft power approach occurred when George W. Bush said in 2006, “Pressure China on finance, intellectual property rights, and freedom of belief.”

China is pressured on freedom of belief through the following seven strategies.

a. The use of traditional media to develop a full range, three-dimensional circumference enveloping China. This method played a very important role in the disintegration of the Soviet Union. It changed people’s values. It played a very important role in China’s “7.5 Event” in Xinjiang. The U.S. also set up Radio Free Asia in Afghanistan to incite the people in southern Xinjiang to riot.

b. The use of the new media – the Internet. Former U.S. Secretary of State Madeleine Albright said that China would not refuse to accept the Internet because it needs to modernize. This presented an opportunity for the U.S. to take advantage of the Internet to disseminate its values to China. There are altogether 13 root name servers around the world, of which 10 are in the U.S. The U.S. controls Internet content through secret screening and filtering mechanisms so that readers come to the conclusions that the U.S. wants them to have.

c. The use of the culture market. The books that we export to Europe and the U.S. amount to only 1 percent of what we import from them. Our concepts have changed a lot, but the U.S. view of history has not changed. It still has a Cold War mentality.

d. The use of a variety of foundations and non-government organizations (NGOs) to penetrate China. Obama’s National Security Strategy report on May 28, 2010, said that U.S. values should be exported through a variety of communication channels, including through business and NGO representatives.

e. Attacking the leaders of other countries. One very important reason for the collapse of the Soviet Union was the defaming of Stalin and Lenin. French philosopher Foucault said, “He who controls people’s memory controls the pulse of the people’s behavior.” “Therefore, occupying, controlling, and managing memory is vital.” This is the issue of discourse power.

For a long time Western forces have slandered Chinese revolutionary history and leaders. We should not take this lightly. Napoleon said that a pen was more powerful than 2,000 muskets. Eisenhower said that spending one dollar on propaganda was the same as spending five dollars on defense. Nixon said that three hostile newspapers were more frightening than 1,000 bayonets. News and the facts can be fabricated, and the fabrication can achieve whatever objective those in power dictate.

f. Fostering pro-Western successors within socialist countries. In April 2010, when China talked to Lukjanov, the former Vice Chairman of the Presidium of the Supreme Soviet, he quoted a speech word for word that stated that one month before the Soviet Union collapsed, (then U.K. Prime Minister) Margaret Thatcher said in Houston that the Soviet Union would disintegrate in about a month. How (could she make such a prediction)? Because they had secured their agents inside the Soviet Union. Through the support given to them, the Soviet Union soon disintegrated.

g. The contest for international influence through developing better strategies and tactics

2. The challenge for China after we joined the WTO. The central government’s decision to join the WTO was absolutely correct; the advantages outweighed the disadvantages. However, it had a major impact on China’s economic security. For example, our soybean industry is in a very dangerous situation. The soybean originated in China; it has a history of more than 5,000 years. Today, however, its production is controlled mainly by foreign companies. In the car industry, international investment is 40 percent of total investments, but foreign companies take 70 percent of the profits.

3. The issue of safeguarding national sovereignty and territorial integrity. I wrote a report on August 31, 1999, predicting that the disintegration of the Soviet Union and the Warsaw Pact would precipitate important changes in the world order. In the first two or three decades or even the first half of the 21st century, the world will not be at peace. China may face severe problems along its borders. After George W. Bush took office, the U.S. stepped up its military presence around our country. Obama continues this strategy. A RAND Corporation report said it would be better to use $700 billion to launch a war than to bail out the U.S. economy (In October 2008, Congress approved $700 billion for the Troubled Asset Relief Program (TARP)). The U.S. will not necessarily fight the war itself, but it might provoke China through its agents; for example, it might provoke a confrontation on the Korean Peninsula, between China and Japan, in the South China Sea, or between China and India.

4. Threats from external terrorist forces. This kind of threat was very obvious in the “3.14 Event” in Tibet and the “7.5 Event” in Xinjiang.

II. The Internal Situation

A. Opportunities

Since the reform and opening up, we have been upholding the banner of “socialism with Chinese Characteristics.” Without doubt, we have made great achievements. There have been many discussions on that. Here I just want to talk about the main challenges that we face internally.

B. Challenges

The internal challenges can be categorized as four big security problems and seven problems of inadequate resources.

1. The four big security problems center on economic security (especially financial security), societal security (especially unemployment and income distribution), industrial security, and ideology security. To a certain extent, the ideology security issue affects the first three security issues.

a. Financial Security. Money is the lifeblood of the national economy and the world economy. The international financial monopoly is the highest stage of imperialist development. After the Soviet Union collapsed, the Western hostile forces have viewed China as its greatest potential rival. Since the chance to solve the “China problem” by force is diminishing, (our enemies) are likely to switch to either culture and value infiltration or financial means. The U.S. approach of maintaining a high national debt and a high fiscal deficit will for sure lead to a large scale devaluation of the U.S. dollar and rapid global inflation. China’s U.S. dollar reserve has been losing its value. The U.S. is, in essence, defaulting on its obligations in a disguised way.

In our economically interdependent world, the U.S. acts as the heart of the world financial system, with vessels running to almost every country and every city and through which it drains their blood. The U.S. controls the prices of the stock market, the futures market, the exchange rates, and the international commodities exchanges. It makes the prices go up and down, because the bigger the gaps between the ups and the downs, the greater the profit it makes. The key behind all this is how international capital uses its monopoly to manipulate the market in order to obtain a huge profit. This presents a great threat to China’s financial security.

b. Societal Security. This includes income distribution, employment, and mass public (protest) events. These issues significantly impact society’s stability.

c. Industrial Security. According to the State Statistics Bureau’s Report Number Two on the Economic Census in 2005, the annual research and develop (R&A) spending on China’s industrial enterprises accounted for only 0.61 percent of its revenue. Even the large and mid-sized companies (which tend to have adequate financial resources) invested only 1.7 percent of their revenue on R&A. Only three out of every ten thousand companies owns indigenous intellectual properties on core technologies. 98.6 percent of companies haven’t applied for a patent. Investment in research in China is only 1.3 percent of its GDP, compared to 4.9 percent in Israel, 4 percent in Sweden, and 3.9 percent in Finland. Take the Nike shoes that China manufactures as an example. A pair of such shoes sells for U.S. $200. The foreign designer takes $100 and Nike (the brand owner) pockets $90, leaving the Chinese manufacturer with $10. The Chinese worker’s salary is therefore extremely low. When we produce a DVD player, we pay $18 to the foreign company for its patent and keep only $1 as profit. Many Chinese companies have only a 2-3 percent profit margin on their products.

d. Ideological Security. This is the most important. If there is a problem in this area, it is hard to safeguard the other three areas.

2. Even as China faces these big security problems, the seven major resources that it needs to resolve these problems are now much more scarce than they were 30 years ago.

a. Land Resources. During the past 30 years of reform and opening up, China’s arable land experienced a net loss of 200 million mus (33 million acres). If there is no major advancement in agricultural technology, it is unrealistic to expect that much more arable land can be earmarked for commercial use. Otherwise, China will face a fundamental conflict between economic growth and the strategic goal of safeguarding its food supply.

b. Government Investment. By October 2009, the total savings of the Chinese people was 25 trillion yuan (US$4 trillion). After the Asian financial crisis in 1997, China adopted an active fiscal policy to stimulate economic growth. Through issuing long-term national bonds and providing direct bank loans, most of the money has been loaned out, mainly on infrastructure construction. It may take 20 or 30 years for some projects to generate enough income to pay off the loans. Of course, the government’s spending on economic development is necessary, but this resource will be significantly reduced or limited in the upcoming years.

c. Material Resources. In the past, it was everyone trying to make money quickly. Individuals, group-owned companies, and state-owned enterprises (SOEs) all jumped on the bandwagon (of development). This had a positive effect on the development of resources and advancing economic development, but some of the development work was predatory exploitation. From now on, we will face a great shortage of food, oil, water, minerals, and other strategic resources.

d. Environmental Resources. China’s environment has been severely polluted. From now on, not only can we not continue polluting the environment, but we must also invest heavily to remove the pollution.

e. International and Internal Markets. Our GDP is made up of three parts. The first part is income from the international market, or foreign trade. The potential to maintain a high growth in exports is limited. The second part is government investment in infrastructure. In 2007, the infrastructure investment was 42 percent of GDP and consumer spending was only 48 percent of GDP. (Editor’s note: The author is stating that government spending made up too much of overall GDP.) In the first half of 2009, government spending was 33.5 percent of GDP. After adjusting for the declining price of resources, it was 41.2 percent. This kind of high government spending ratio is hard to sustain.

The third part is the internal consumer market. China has basically completed its reforms in retirement, healthcare, education, and housing. (Editor’s note: The reforms refer to a shift from “the government pays it all” to “the government provides a certain amount). Though people have some money, they don’t dare to spend it (because they need have money for their retirement, potential medical expenses, their children’s education, and housing down the road). This was especially the case for the 800 million farmers. (Editor’s note: After the reforms, the farmers received much less government help than city residents.) In the first half of 2009, individual consumption was only 15.5 percent of overall GDP.

Now China has overproduced 4 trillion yuan (US$630 billion) in products. For example, in 2009, crude steel production exceeded 700 million tons, but the market demand was for only 500 million tons. The oversupply of all products researched during the census stood at 70 to 80 percent. In a market economy, consumption (as determined by supply and demand) eventually determines production, which, in turn, determines GDP. If a product can’t be sold, who dares to invest in it? With less investment, a high GDP growth is hard to sustain.

f. Labor Resources. For the past 30 years, the monthly income of migrant workers (Editor’s note: farmers who move to the city to work) has remained at around 800 to 1,000 yuan (US$127 to $159) in China’s coastal regions. The abundant, cheap labor gave Chinese products a competitive advantage in the overseas market. China has now entered a quasi-aging society, though its people have not yet become wealthy. By 2015, the number of people of working age (15-64) will decline noticeably. When people born in the 80s and 90s become the main work force, many of them will need to support two children and four adults. (Editor’s note: The one-child policy was in place for Chinese born in the 80s and 90s.) By then, our cheap labor advantage will no longer exist. The products manufactured under China’s current economic growth model will suffer a sharp loss, and China will lose its competitive advantage.

g. Foreign Investment Resources. Because of attractive government policies and the abundance of the previously mentioned six resources, foreign investors who came to China were guaranteed to be interested. Thus, in the past, China kept setting new records in attracting foreign investment. For 17 years, China has been the leading developing nation with the most foreign investment. Over 50 percent of the volume of China’s total imports and exports can be attributed to foreign companies. The foreign money helped China to flourish economically and its GDP to grow rapidly.

Currently, there is still a relatively large amount of foreign investment continuing to flow into China. (From April to June 2009, U.S. $88 billion of foreign “abnormal money” came into China). Foreign investors came to China for the following four reasons: one, they believed the Renminbi would appreciate over the next few years and thus wanted to profit from the differences in the foreign exchange rate; two, they wanted to get into China’s real estate market and stock market to take advantage of a bigger bubble in these markets and gain huge profits; three, they wanted to buy China’s SOEs and private companies in key industries so they could either package them for Initial Public Offerings (IPOs) or even destroy them to maintain their monopoly position in China; four, they wanted to control our service industries, especially the finance, insurance, and culture industries. We should realize that the fundamental reason for foreign investment is to make money. If, in the upcoming three to five years, or eight to ten years, China’s other six resources face strict limitations or experience a large decline, which makes it harder to make money in China, the foreign investment resources will gradually or dramatically decline as well. Therefore, we need to pay extra attention to preventing and dissolving the potential financial and social risks due to a sudden, large-scale departure of foreign money.

The above seven resources have created rapid growth in four industries in China, including real estate, infrastructure development such as high-speed railways and airport construction, the automobile industry, and international trade. This, in turn, has led to the extraordinary expansion of over 30 industries such as steel, cement, chemicals, electricity, and construction materials. Due to the limitations of these seven resources, to a certain extent, these first four industries are becoming “sunset industries.” We therefore need to identify and develop new industries that can lead the economy to grow.

III. Coping Strategies

We must oppose two tendencies while seizing the opportunity to respond to the challenges. First, we should never overestimate the problem and lose our confidence in the future. We must continuously open our minds and adhere to socialism with Chinese characteristics. Second, we must stay vigilant in peacetime and never ignore existing problems. We must not be blindly optimistic and refuse to keep up with the new trends. As for the coping strategies, we can discuss two important areas, the international and the domestic.

A. Four Must-Do’s in the International Community

1. Cooperate. The Western-led economic globalization, in a certain sense, is not only a disaster for the Third World, but also an objective requirement and inevitable result of the capitalist productive forces’ development. In this regard, we have no other choice but to face it. We should face the serious challenge that the Western-led economic globalization, including financial globalization, presents. Meanwhile, we should also see the rare opportunity for development that globalization has brought us. We should actively participate in globalization and work out appropriate countermeasures so as to profit from the advantages and avoid any disadvantages.

2. Protect Our Rights. It has been mainly the Western powers that set up the international conventions and rules for international economic exchange and cooperation. There are a considerable number of extremely imbalanced and unreasonable terms in these conventions and rules that discriminate against, bully, and damage Third World countries. The WTO is the economic United Nations in today’s world. If most of the Third World countries can bravely and cleverly counter the existing unjust and unfair old procedures involved in the international economy, especially the financial and monetary system; actively call for and participate in the creation and modification of relevant rules; and gradually establish a truly reasonable and equitable international economy, especially a new financial and monetary order, it will then satisfy the economic interests of the Third World countries. They will then be better able to protect their long-term, fundamental national interests; maintain their independence in economics, politics, and sovereignty; and become increasingly powerful.

3. Make Alliances. With the increasing globalization of capital flows and domination, opposition to capital exploitation and domination is also growing globally. As the Western-led economic globalization spreads, the Third World countries face many common opportunities and challenges. The Third World has an absolute advantage in numbers of countries, population, and size of geographic areas, as well as strategic transportation routes, land and sea resources, and so on. The Third World has a good tradition of solidarity, cooperation, and mutual support. As long as most Third World countries can further understand their fundamental common interests and observe the principles of mutual respect for each other’s sovereignty, noninterference in each other’s internal affairs, equality and mutual benefit, and cooperation with each other, and can seek common ground while resolving differences, we will be able to properly resolve the problems that history has left us and become more unified; we will be able to further strengthen our position in the North-South Dialogue (Editor’s note: According to the U.S. Department of State website, “The North-South Dialogue refers to the process through which the developing and newly independent nations of the ‘third world,’ predominantly in Asia, Africa, and Latin America, engaged the industrialized countries of North America and Western Europe in negotiations over changes to the international economic system during the 1970s.” [2]); and we will be able to effectively promote the establishment of a new international order that is just and fair, in economics and politics (including finance). On the other hand, when Third World countries are embroiled in conflict among themselves, that is what the Western powers want to see and hopes to maintain.

4. Study. Needless to say, the Third World development movement is at a low ebb, just like the worldwide socialist movement. Theory work is to direct and guide our actions. To effectively curb the negative effects of West-led economic globalization and turn the Third World development movement into a self-motivated movement, we must further understand, predict, and respond to the dynamics of globalization; and we must provide scientific solutions to the major theoretical and practical problems that come up in the process of the globalization. A correct theory that conforms to the actual development of the Third World will never come from a Nobel Prize ceremony or the Western parliaments’ forums. Instead, it needs to be created by the diligent hard work of the Third World countries and their people. Then people of conscience, such as politicians, thinkers, and theorists in the developed and developing countries can summarize and improve it.

B. Four Must-Do’s in China

1. Transform the economic growth model and build an innovative nation. We should attach great importance to the strategy of building an innovative nation that subscribes to the scientific development concept (Editor’s note: Hu Jintao first propounded the scientific development concept. It is the CCP’s current official guiding socio-economic ideology. It “is recognized by observers as a comprehensive response to the ideological gap left by the social problems that resulted from China’s market economic reforms.” [3]). We should effectively increase our support for education, research, new technologies, new industries, and new product development. We should vigorously import core technologies, but we must first rely on ourselves to develop and improve these core technologies. The more we are self-reliant in developing core technologies, the easier we can import advanced technologies. Compared to several years ago, we have changed fundamentally. We are no longer short of foreign exchange reserves. When taking advantage of foreign investment, we must raise the bar and give high priority to the importation of new technology.”

2. Adjust the income distribution model. We should start from the allocation of income across the nation so as to give the greatest number of people a significant increase in income. To ensure the realization of a moderately prosperous society in the mid and long run, we must grow our consumer market, which means that the income gap between the poor and the rich cannot be too large. However, the income gap is continuing to increase instead of decrease, which is bound to constrain economic development and affect social stability.

We must transform the economic growth model and adjust the income distribution model without delay. That is the key to insure sustainable growth for our current economy.

3. Guard against and abate financial risks. When evaluating two Banking Acts in December 2003, the National People’s Congress Standing Committee proposed that we must consider the financial security issue on a broad and strategically high level during the U.S.-led financial globalization process. Of all of the new situations and issues we now face, how to prevent and abate financial risks is the most direct and practical overall problem that needs our immediate attention and early resolution. As for other issues, such as the widening income gap, the layoff and unemployment of urban workers, rural issues, corruption, and environmental issues, we still have time to deal with them incrementally. However, we must give serious and immediate attention to the possibility of the sudden occurrence of global financial problems.

4. Put a High Value on Ideological Security. We must take ideological security work seriously. It is essential to strictly determine and identify two different types of disputes in our ideological work. If we get the job done well, we can settle some internal conflicts among the people and even transform the conflicts into positive factors. On the contrary, if we cannot get the job done well, or do nothing at all, internal conflicts may turn into outright hostilities, having a serious negative effect. Meanwhile, there will certainly be big trouble if we leave problems involving the enemy unchecked. It may even add fuel to the flame. This is one of the important lessons from the Soviet Communist Party’s ideological work.

All in all, if major countries do the right things, the U.S. hegemony will gradually decline. However, the process of decline may take several decades. Of course, under certain conditions, it may even be possible for China, other socialist countries, and many Third World countries to have newer, greater difficulties in their development, but no matter what happens to the world order in the mid term, I firmly believe that, by 2050, global socialism will once again shine brightly.

[1] Qiushi Theory, “Li Shenming: Thoughts on the International and Domestic Situation in the Context of Globalization,” February 3, 2012.
[2] U.S. Department of State website, “The North-South Dialogue and Economic Diplomacy.”
[3] Wikipedia, “Scientific development concept.”