The Great Fall of China

Discussion in 'China' started by nrj, May 8, 2012.

  1. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    Qi hu nan xia, goes a Chinese proverb: When one rides a tiger, it is difficult to dismount. For the leaders of China’s 1.3 billion people, the import is clear. Stay on the tiger’s back, issue commands, and hope like hell the beast doesn’t turn on you. Over the last quarter-century that approach has served the mandarins of the Communist Party well. China became an economic marvel and staked a claim as the world’s next superpower. Civil liberties, social development, environmental husbandry, and political transparency were subordinate to the imperatives of growth. Increasing complaints about the avarice and gangsterism of government officials could be dismissed as local problems as long as an enlightened elite was thought to be guiding the state with a steady hand. Even when under pressure to reform, China’s leaders could reassure themselves that their grip on power remained secure.

    Not anymore. The Communist Party faces the most serious threat to its authority since the Tiananmen Square uprising of 1989. The case of Bo Xilai alarms China’s leadership precisely because it weakens the impression of strength and competence they have labored so hard to maintain. A tough-on-crime princeling about to be welcomed into the ruling elite is suddenly accused of being corrupt; his wife is implicated in the murder of a British business associate; the family’s fortune, totaling over a hundred million dollars, exposes the wealth high-ranking bureaucrats have amassed at the public’s expense.

    These episodes have revealed to the world—and to a sizable portion of the Chinese people—a culture of greed, violence, and deceit at the highest levels of government. The Communists’ power is not in imminent danger, but their legitimacy is.

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    Already on the defensive, China’s leadership was left sputtering with indignation on May 2 after a blind dissident, Chen Guangcheng, left the protection of the U.S. Embassy in the company of Ambassador Gary Locke. Chen has suffered years of persecution for challenging forced abortions and sterilization. In another era Chen might have disappeared the moment he left the embassy, where he sought refuge a week earlier. The circumstances of his departure from U.S. custody remain murky, and it’s impossible to know whether Chen and his family will be protected from harassment in the future. But China is in the spotlight now. Secretary of State Hillary Rodham Clinton, visiting Beijing for the the annual Strategic and Economic Dialogue, announced that China had committed to let Chen “pursue higher education in a safe environment.”

    For China’s partners in commerce, this is a time of confusion and risk—and also opportunity. Western companies such as Hewlett-Packard (HPQ), Caterpillar (CAT), General Motors (GM), and Siemens (SI) have bet big on the continuation of China’s economic miracle. No sensible CEO dares to kick the Chinese leaders when they’re down. With the outcome still uncertain, no one wants to pick sides, either.

    Finesse is called for, along with a clear focus on what really matters. Western governments and businesses benefit if China moves in the direction of free markets and democracy. They lose if China’s leaders try vainly to keep the lid on the pressure cooker. While Western leaders don’t have much influence over what happens next, they can at least keep the lines of communication open while quietly appealing to the enlightened self-interest of China’s would-be reformers. “Thinking people understand the need for change,” says Duncan Clark, chairman of Beijing-based consulting group BDA China. “China is the Pragmatic Republic of China; ultimately pragmatism drives everything.”

    All of which is to say that it’s a mistake to stop doing business with China. Just as it’s a mistake to think this is business as usual.


    The Bo Xilai case is rocking China and shaking the West because it has revealed the breakdown of a contract between the leaders and people of China. The unspoken deal is that the colorless chiefs of the Communist Party will deliver prosperity, keep low-level graft under control, and ensure a smooth transition of power every 10 years. In return, the Chinese people will work hard and tolerate their lack of say in how their country functions.

    Until recently the skids appeared well greased. This fall the 18th Party Congress is expected to name the reform-minded Vice President Xi Jinping, 58, as president and Party secretary. Li Keqiang, 56, executive vice premier in charge of the economy, is in line to be premier. Those appointments are still on track. What’s now in play is who else will sit on the nine-member Politburo Standing Committee, the group that collectively runs China. Bo won’t get his once-expected seat. Who ascends is the subject of a multi-directional struggle among forces including those of current President Hu Jintao and of his 85-year-old predecessor, the still-active Jiang Zemin. The 2,000 or so delegates who will vote are being selected now in backroom bargaining that’s undoubtedly brutal.

    Bo’s disgrace has thrown into question the leadership’s ability to groom its successors, a key aspect of its promise to the people. For China’s rulers, the scandal comes at a bad time. Touting their stewardship of the economy, the sine qua non of Party legitimacy, is no longer an easy sale. They’re caught between trying to deflate a real estate bubble and trying to prop up the real economy, whose 8.1 percent rate of growth in the first quarter was the slowest since 2009. Even after a recent rally, the Shanghai Composite stock index remains 60 percent below its frothy 2007 high. (America’s Dow Jones industrial average is just 6 percent off its 2007 high.)

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    For China and its foreign investors alike, there’s a risk that a fearful leadership will retreat further from democracy and free markets. “People are trying to save themselves. Nobody wants to have their flank exposed during this period, so there tends to be a move toward conventional policies, conservative policies,” says BDA’s Clark.

    Such a retreat would buy China’s leaders only a superficial calm. So-called mass incidents—riots, strikes, and protests—doubled in five years, to 180,000 in 2010, according to Sun Liping, a sociologist at Beijing’s Tsinghua University. Last year’s Wukan village uprising over land grabs and the death of a protester suggested that local party officials are losing control over their jurisdictions. “They have kept society stable by bribing the society, in effect by buying the people,” says Jean-Pierre Cabestan, head of the department of government and international studies at Hong Kong Baptist University. “But how long is that sustainable now?”

    China already has inequality comparable to the Philippines and Russia and is far less egalitarian than Japan, the U.S., and even Eastern Europe, according to Li Shi, an economist at Beijing Normal University. The top 10 percent of urban Chinese earn about 23 times that of the poorest 10 percent, according to official figures—which are almost certainly understated. Even those whose lives have improved resent those who have climbed even higher by milking the system.

    The country’s political order resists change. Hu’s “Harmonious Society” campaign, which he initiated in 2005, has curdled into something unwholesome. Harmony has become a synonym for uniformity, obedience, and censorship. In a dig at Hu’s slogan, Chinese whose electronic communications have been blocked or bleeped joke that they have been “harmonized.”

    Repression works, until it doesn’t. In a new book called Why Nations Fail, economist Daron Acemoglu and political scientist James Robinson predict that China’s economic miracle will fade because the security-obsessed government will continue to resist the creative destruction that is crucial to innovation, and because the concentration of power at the top will produce spasms of instability as factions fight for victory and its spoils.

    Western investors care less about political repression in China than about state encroachment on private enterprise. Guojin mintui, the expression goes—the state advances, the private sector retreats. Some firms with full or partial state ownership are world-class, like China Mobile (CHL), the world’s largest mobile phone company in terms of subscribers, with 660 million users. But too many mediocre state-owned enterprises still beat out private players with below-market-rate financing and special access to government contracts. “How do you compete on big deals if your competitor is one of China’s favored children?” asks Howard Chao, a senior partner in the Asia practice at law firm O’Melveny & Myers.

    That’s not foreign executives’ only peeve. Of about 300 U.S. companies surveyed last November and December by the American Chamber of Commerce in China for its 2012 annual report, 79 percent said enforcement of intellectual property rights was ineffective, up from 70 percent in last year’s report. Some of their complaints were beyond the government’s control: 89 percent said China was losing competitiveness because of rising costs, up from 78 percent in the 2011 report.

    Investors are starting to act on their words. In March, foreign direct investment into China fell about 6 percent from a year earlier, the fifth straight month of decline. That was the longest streak of monthly declines since 2009, when the financial crisis caused multinationals to slow overseas investment. China doesn’t depend on money from abroad, but it does require the technology and know-how that foreign multinationals bring.

    China and its investors need each other. Ford Motor (F) Chief Executive Officer Alan Mulally has built Chongqing into Ford’s biggest manufacturing center outside of southeastern Michigan. Ford’s latest foray was announced after Bo Xilai was ousted as Chongqing’s Party secretary. In a visit to Bloomberg Businessweek on May 1, Mulally said, “I really enjoyed working with him.” But he made clear that Ford did not rely only on Bo. “We maintain productive relationships with the present leaders and future leaders,” he said. “China is very supportive of the auto industry and of our partnerships.”

    Bo, son of a Mao-era revolutionary hero, had cast himself as a neo-Maoist in opposition to officials pressing a capitalist agenda. In Chongqing—a heartland city of 30 million styling itself as the Chicago of China—he favored a strong government hand and redistribution to the poor. Seen in that light, his downfall should be good for foreign investors.

    But Bo was also that rare character in China who was willing to challenge the status quo by trying new things, a valuable quality in a country suffering from leadership sclerosis. In Chongqing, Bo was reforming the hukou, or household registration system, which controls rural-to-urban migration. He was also experimenting with a property tax, a rarity in China, as a way to raise more revenue from the rich and suppress real estate speculation. His fall could stall those initiatives.

    On a more elemental level, Bo’s fall may have sent a message to other would-be disrupters: Lie low. “The biggest victim of what is happening now is any notion of systematic reform,” says Northwestern University political scientist Victor Shih. “This has sent a very strong signal to all in government that any attempt to carry out systematic changes that harm the interests of other interest groups and factions will result in serious political trouble for the instigator of those changes.”

    The optimists’ case is that the scandal could catalyze change. “The reformers have the upper hand now,” says Alaistair Chan, an economist who covers China with Moody’s Analytics (MCO) in Sydney. “The reformers hope this whole Bo incident shows the downside of having the government too much in the economy.”

    With the downfall of Bo, Wang Yang, now Party secretary of Guangdong, is seen as having a better chance to win one of the top spots in Beijing. His record in China’s southern export powerhouse is encouraging to many. Wang has opted to rely mainly on private businesses, encouraging their growth with tax breaks and by squeezing out lower-margin industries with tighter labor and environmental regulations—what Wang has dubbed “emptying the cage and changing the bird.”

    This isn’t the first time China’s leaders have seemed vulnerable. The government survived the turmoil of the Tiananmen crackdown in 1989, and then made it through the big restructurings of state enterprises in the 1990s without serious problems. “Remember, this is a society that between 1994 and 2001 laid off 60 million workers,” says David Zweig, a professor in the social science division of Hong Kong University of Science and Technology. “They laid off the population of France. And they managed it.” Huge numbers of Chinese are happy members of the ownership society, with cars and title to their homes.

    Still, China’s leaders are making a mistake if they conclude that purges, repression, and state capitalism will work again. When the People’s Liberation Army retook control of Beijing’s Tiananmen Square in June 1989, the protester who blocked a column of tanks was captured by a single Associated Press photographer named Jeff Widener. He had to smuggle the film out of a Beijing hotel in his underwear. China is far less isolated today. Despite Hu’s attempts at “harmonization,” repression cannot hide.

    Democracy and openness are values Western governments and business leaders need to press for, however tactfully. Lacking democratic legitimacy, China’s leaders retain support only by delivering a steadily rising standard of living. Jason Mann, head of China healthcare equity research at Barclays (BCS) in Hong Kong, updates the tiger-riding proverb to surfboard-riding. “As long as you stay in front of the wave,” he says, “it’s fine.” The flip side is that you are in constant danger of being swallowed up. That’s no way to live, or to run a country. —With reporting from Bloomberg News

    The Great Fall of China - Businessweek
     
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  3. Drsomnath999

    Drsomnath999 lord of 32 teeth Elite Member

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    THE title of the thread was sufficient for me to press the like button ,no need to read everything:laugh:
     
  4. ice berg

    ice berg Senior Member Senior Member

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    Best post of the day. I think it sums up pretty well the indian sentiment regarding China and why such "articles" are so popular in this forum.

    Thank you.
     
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  5. Avenger

    Avenger Tihar Jail Banned

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    both parts of your reply are correct.
     
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  6. Sakal Gharelu Ustad

    Sakal Gharelu Ustad Detests Jholawalas Moderator

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    Definitely hard times ahead for China.

    Unlike Russia, China did not begin with glasnost but would be great to see how things unfold. The sooner they start opening up the politics the better, economic might of the Chinese economy would assist in this transition right now. It would be suicidal to wait like USSR for economy to turn hostile and force political transition on them to end up into a mess.
     
  7. no smoking

    no smoking Senior Member Senior Member

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    Hard times ahead? Always! If you live long enough in China, you will find a very interesting thing: the beginning of each year, CCP would tell its member and people--"we may face a most difficult year since reform".

    Political reform, well, if majority of people is still focusing on how much they are going to earn and what kind of material life they should have in the next couple of years. It is really hard to expect them to put enough pressure on CCP for any significant political reform.
     
  8. Sakal Gharelu Ustad

    Sakal Gharelu Ustad Detests Jholawalas Moderator

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    That is why I said its a good time to start. Because when people have to force for change, then things turn ugly due to sudden transition. A smooth transition is the best option.
     
  9. kickok1975

    kickok1975 Stars and Ambassadors Stars and Ambassadors

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    China needs reform, no doubt. But I doubt China will fall any time soon unless the author means fall from 10% annual growth to 5~6% annual growth.
    Chinese are natural born entrepreneur. Their spirit has been wakening up but not fully unleash in last 30 years. Chinese CCP government either intentionally ignores or doesn’t recognize this huge potential yet. They rely too much on a handful big state companies and banks which are very inefficient but essentially monopoly the Chinese economy. They prevent instead of promote Chinese economy from growing faster and healthier.
    Such thing can’t sustain. Chinese economy is increasingly depending on domestic market and Chinese people are increasing demanding better life standard. If CCP wants to remain in power, they have to meet people’s expectation. Only a booming private sector can massively employ people and provide the necessities and smart Chinese entrepreneurs are everywhere. There is no turning point. CCP government may struggle temporarily. But they are either with the trend or against the trend which they can’t afford. Chinese economy will continue to grow, maybe not that fast, but certainly higher than western countries standard.
     
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  10. Drsomnath999

    Drsomnath999 lord of 32 teeth Elite Member

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    &
    thanks u guys are always welcome :hippo:
     
  11. nimo_cn

    nimo_cn Senior Member Senior Member

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    Summer just began in China, it is too soon to talk about the fall.
     
  12. cir

    cir Senior Member Senior Member

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    Jealousy knows no bounds。:rofl:

    The ill-wishers derive primitive pleasure from conjectures and day-dreamings。:thumb:

    It is akin to masturbation。:laugh:
     
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  13. panduranghari

    panduranghari Senior Member Senior Member

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    We are looking at the wrong factors in terms of economics and the closed nature of Chinese Bureaucracy. The west went to China to manufacture because the population was under control and poor. They could be manipulated to work for the western company but this was sold as 'working for the greater Chinese good and the great Chinese nation'. This ideology which is obviously from the times of Mao has its own problem. It relies on the premise that the Chinese paymasters remaining in control.

    This sums it up well;

    There are labour shortages in China now as the pay demands are increasing and every year during the Chinese new year in February the annual contracts for the workers expire. So the workers en masse leave seeking higher pay elsewhere. The Labour Theory of Value is still fully active in China.

    If the foreign corporations can find another place where they can manufacture even cheaper, they will leave. It is foolish of the Chinese posters here to say only China can accomplish that.

    This bit;


    Its win-win for India either way you look at this.
     
  14. no smoking

    no smoking Senior Member Senior Member

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    Well, obviously you are miscalculating the situation.

    Just because that Chinese has some spare cash and their facotries are still making money, it doesn't mean they have that luxary to start a political reform.

    The point you are missing in your calculation is that China has a very long list problems to face now: environment, economic equalty, social security, etc. This list can go on and on, each one of them would cost hugh CCP's energy and resources, and political reform is definitely not on the top. It may turn ugly in the future if political reform is not started now. But it will definitely turn ugly NOW if the limited resource is focus on the political reform instead of other more urgent problems.

    Furthermore, the other questions are asked by far more power group such as peasants, workers. They have far more power than students or any elites. Without their support, any political reform is just hopeless. With their support, CCP has enough confidence to crash any pro-democratic protest or riot. That was also the reason that those students failed in 1989.

    By the way, for your information, CCP is doing a smooth transition now though it is just too slow that it may take 30 years to complish.
     
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  15. huaxia rox

    huaxia rox Senior Member Senior Member

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    if prcs economy is described as something falling then who isnt? actually i agree with those who saying chinas economy is not doing good but my question is who is currntly doing BETTER than prc???name 1.....

    is the US falling? EU falling? or they ve already fallen.....what a big deal?? 1 day they will recover maybe just within 2 years.....
     
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  16. trackwhack

    trackwhack Tihar Jail Banned

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    Oye dumfuk. As long as you stay out of our affairs, no jealousy, no envy. You are a poor country and poor people getting richer anywhere in the world is a good thing. The fact that the average chinese is not getting richer is a debate worth having but still, china is growing. good for you.

    btw... here is some good news for you. usually you post such articles with a :rofl:

    today I decided to do that for you.

    April export growth - 4.9%
    April import growth - 0.3%

    Both were expected to be between 8 and 11%

    China trade data add to calls for easing - FT.com

    Good luck holding the ship in one piece. There are only so many buildings you can construct to spur growth.
     
  17. Ray

    Ray The Chairman Defence Professionals Moderator

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    Quite an interesting analysis.
     
  18. Ray

    Ray The Chairman Defence Professionals Moderator

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    Jealousy is no answer.

    Rebutting would be more appropriate, if indeed it can be rebutted.

    If it can't be, then one might as well grin and bear up!
     
  19. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    China’s Growth Slows, and Its Political Model Shows Limits

    CHONGQING, China — After the economies of Western nations imploded in late 2008, Chinese leaders began boasting of their nation’s supremacy. Talk spread, not only in China but also across the West, of the advantages of the so-called China model — a vaguely defined combination of authoritarian politics and state-driven capitalism — that was to be the guiding light for this century.

    But now, with the recent political upheavals, and a growing number of influential voices demanding a resurrection of freer economic policies, it appears that the sense of triumphalism was, at best, premature, and perhaps seriously misguided. Chinese leaders are grappling with a range of uncertainties, from the once-a-decade leadership transition this year that has been marred by a seismic political scandal, to a slowdown of growth in an economy in which deeply entrenched state-owned enterprises and their political patrons have hobbled market forces and private entrepreneurship.

    “Many economic problems that we face are actually political problems in disguise, such as the nature of the economy, the nature of the ownership system in the country and groups of vested interests,” said Zhang Ming, a political scientist at Renmin University in Beijing. “The problems are so serious that they have to be solved now and can no longer be put off.”

    On Thursday, China released data that showed its economy was continuing to weaken. Many economists have been urging the government to loosen controls over the financial system, to support lending to private businesses while reining in state-owned enterprises, to allow more movement in exchange rates and interest rates, and to improve social benefits.

    Such changes would curb the state’s role, lessen corruption and encourage competition. But making them would involve a titanic power struggle. Executives of Chinese conglomerates, army generals, Politburo members, local officials and the “princeling” children of Communist Party elders have little incentive to refashion a system that fills their coffers.

    Another significant aspect of the China model is the growing security apparatus. Its heavy-handed tactics in pursuit of social stability have been called into question by, among other things, more than 30 self-immolations by disaffected Tibetans and a diplomatic crisis between China and the United States precipitated by the plight of a persecuted dissident, Chen Guangcheng. A well-documented uprising last winter against corrupt officials in the southern village of Wukan ignited a debate about how protests should be addressed: by the sword of the security forces, or through mediation by senior officials.

    But it is the scandal over Bo Xilai, until recently a member of the party’s elite Politburo, that has most humbled those who previously praised the well-oiled nature of China’s political system and its appearance of unity.

    Before the charismatic Mr. Bo lost his party chief post in Chongqing, other leaders were already starting to view him as an increasingly intolerable maverick. After arriving in Chongqing in late 2007, Mr. Bo began what was billed as a crackdown on crime, along with a revival of Mao-era singalongs and welfare policies, aimed at generating populist backing and winning political support from the “new left,” or hard-core socialists, for his bid to join the top-level Politburo Standing Committee, which is scheduled to turn over this year.

    Mr. Bo’s bid veered sharply from the traditional route of ascension, which since the era of Deng Xiaoping has been one of back-room patronage and shadowy negotiations among party elders. The problem now in China is that the powers of those elders have diminished with each generation — the current president and party chief, Hu Jintao, is weaker than his predecessor, Jiang Zemin, who was much weaker than Mr. Deng.

    With the dissolution of power, a multitude of factions and alliances are emerging under one-party rule, with no one voice able to impose order.

    “China needs a system in place more than ever,” said Wang Kang, a liberal writer from Chongqing. “Only a system can guarantee stability.”

    Some say that the purge of Mr. Bo was a correction in the political system, and that the system has returned to normal. But many others argue that given the growing incoherence at the top, and the diversity and reach of mass media in China, it is inevitable that more politicians will adopt Mr. Bo’s populist methods. Cheng Li, a scholar of Chinese politics, noted that at the annual National People’s Congress in March, several rising sixth-generation leaders gave prominent news media interviews, a form of self-promotion that was a break from tradition.

    “There are no clear and steadfast rules,” said Wu Si, chief editor of Yanhuang Chunqiu, a journal of politics and history. “In this confused state, there is bound to be someone like Bo Xilai who deploys various methods to compete to enter the standing committee.”

    Mr. Bo’s policies also helped expose another fault line in the China model: the priority placed on economic growth through investment projects carried out by state-owned enterprises, with generous loans from state banks. This is the framework propping up the Chinese economy.

    Flush with infrastructure projects, Chongqing, with a population of 31 million, had an economic growth rate of 16.4 percent last year, the highest of any municipality. But the municipal government and local state-owned companies have accumulated $160 billion in debt, according to an estimate by Victor Shih, who studies China’s political economy. Many of those loans might never be repaid.

    Policy makers pushing for a different model across China, one that relies more on consumer spending and encourages private enterprise, insist that long-stalled structural overhauls must be restarted. Some see an opening in the coming leadership transition. But the biggest hurdle may be the fact that both departing and incoming leaders have close ties to state-owned enterprises, which are keen to preserve the status quo.

    The hesitancy over the next step is heightened by China’s cooling economy. The growth rate slowed to 8.1 percent in the first quarter of this year, and Prime Minister Wen Jiabao in March cut the forecast for the year to 7.5 percent. The property market is deflating. The data released on Thursday showed that domestic demand is weakening and exports are flagging.

    China warded off the global financial crisis with a $580 billion stimulus package and a loosening of bank lending. Its leaders could fall back on that government-led, investment-driven approach if the economy cools too much.

    One thing keeping them in check, however, is fear of rampant inflation, which could increase social unrest. Discontent among the poor and middle class is a major source of anxiety for Chinese leaders, yet there are no easy solutions to the widening wealth gap, as long as rapid growth is the priority.

    The surging number of protests arising from this gap is another stress point in the China model. Officials rely heavily on domestic security forces to quell what they call “mass incidents,” which one sociologist, Sun Liping, estimated at 180,000 in 2010. In March, the government announced that it planned to spend $111 billion on domestic security this year, a 12 percent increase over 2011, and $5 billion more than this year’s military budget.

    During the uprising in Wukan last winter, which began because of what villagers called illegal land seizures by local officials, police units surrounded the village, but backed off after Guangdong Province officials negotiated with the residents. Wang Yang, the provincial party chief, took credit for the peaceful settlement and has proposed that that strategy be more widely adopted, in an implicit criticism of the militant tactics used in “stability maintenance.”

    The weakness of those tactics was exposed once again when Mr. Chen, the activist put under house arrest in 2010, made his nighttime escape from village guards who had beaten him and his wife. Mr. Chen, who is blind, fled to the United States Embassy in Beijing. That such brutality could set off a diplomatic crisis between the world’s superpower and its rising rival is as obvious a sign as any of the deep flaws in China’s security methods.

    “From the few times I’ve engaged with them,” Mr. Chen said, “I know they have the intention of reforming, of slowly initiating the rule of law. But I don’t know how soon.”

    Jonathan Ansfield contributed reporting, and Li Bibo and Edy Yin contributed research.

    http://www.nytimes.com/2012/05/11/world/asia/chinas-unique-economic-model-gets-new-scrutiny.html
     

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