August 18, 2003
A clever RAND report makes the worst possible case
LOS ANGELES -- Behind the facade of the emerging giant, just how fragile is China? A provocative
book, published here, raises serious questions about China's future. And, one wonders, the
intentions of its authors.
On one level, "Fault Lines in China's Economic Terrain" is quite brilliant. At a time when
everyone and his investment advisor are singing China's economic praises as if it were the second
coming of '80s Japan, a Santa Monica-based RAND group strings together a lot of sour notes. What if
everything in China went wrong economically? How might China's remarkable 7-10 percent annual growth
rate evaporate and head into the red? What factors, in short, could bring China up short?
The authors--led by the internationally respected Charles Wolf Jr., with K.C. Yeh, Benjamin Zycher,
Nicholas Eberstadt and Sung-Ho Lee--posit eight major tectonic plates along which China could slide
backward big-time.
-- If unemployment, now running at a staggering 23 percent, worsens, it could knock China's growth
rate down by 0.3-0.8 percent.
-- Should corruption (already a big issue) become more prevalent, Beijing might expect another 0.5
percent loss off the growth rate.
-- If the AIDS epidemic continues to increase at an annual rate of 20-30 percent, annual growth
diminishes by something like 2 percent.
-- Overall, China has plenty of water, but not for the one-third of its population unluckily living
on its northern plain. If authorities don't address this water crisis in the next decade, shave
perhaps 2 points off annual growth.
-- Thirst for oil and natural gas is also growing. If China gets hit by even a ''moderately severe''
global energy shortage, it's down at least 1 percent growth-wise.
-- If the cancer eating away at China's banks (many bad loans and little willpower to clean them up)
turns out to be as serious as Japan's, the predictable financial and crisis squeeze could drain the
economy of 1 percent growth.
-- Consider the effect of a reversal of fortune with foreign direct investment (FDI), which since
1985 has helped fuel China's astonishing growth. Should foreign investors be frightened by negative
political developments, or increasingly attracted to other investment options (in India, Pakistan,
Indonesia, Russia, elsewhere), say hello to another 1 percent or so drop in growth.
-- And if the ever-present overhang of tension with Taiwan does trigger a cross-strait crisis, it
could cost Beijing up to 1.0-1.3 percent of growth.
The study's authors -- sophisticated scholars and economists -- readily admit that the probability
of all these disasters happening at the same time, sliding China into negative growth, is very low.
But they also hold that the probability that none of them will erupt is also very low. And even a
relatively small cluster of problems -- say, more unemployment and more AIDS, or a Taiwan crisis and
a consequent FDI slide -- could bring the much-vaunted Chinese economic miracle down to earth with a
globe-shaking
thud.
[...] In truth, China does have serious problems (without even mentioning the usual Western
obsessions -- issues such as human rights violations, iron-fisted management of Tibet, shakiness
with Hong Kong and ham-handedness over Falun Gong).
RAND has hung out for all the world to see China's dirty-laundry list. Whether or not the
provocative RAND study is read in China, few, if any, of the problems cited are going to disappear
on their own.
[...]
http://www.asiamedia.ucla.edu/TomPlate2003/08.18.2003.htm
Category: Falun Dafa in the Media
