Tuesday, February 24, 2009

Geopolitical Intelligence Report

Sorry people, I was cut off from GIRs (si mnajua "global credit crunch"). Now I am back.

Internal Divisions and the Chinese Stimulus Plan

Due in large part to fears of dire consequences if nothing were done to tackle the economic crisis, China rushed through a 4 trillion yuan (US$586 billion) economic stimulus package in November 2008. The plan cobbled together existing and new initiatives focused on massive infrastructure development projects (designed, among other things, to soak up surplus steel, cement and labor capacity), tax cuts, green energy programs, and rural development.

Ever since the package was passed in November, Beijing has recited the mantra of the need to shift China’s economy from its heavy dependence on exports to one more driven by domestic consumption. But now that the sense of immediate crisis has passed, the stimulus policies are being rethought — and in an unusual development for China, they are being vigorously debated in the Chinese media.

Debating the Stimulus Package

In a country where media restrictions are tightening and private commentary on government officials and actions in blogs and online forums is being curtailed, it is quite remarkable that major Chinese newspaper editorials are taking the lead in questioning aspects of the stimulus package.

The question of stimulating rural consumption versus focusing the stimulus on the more economically active coastal regions has been the subject of particularly fierce debate. Some editorials have argued that encouraging rural consumption at a time of higher unemployment is building a bigger problem for the future. This argument maintains that rural laborers — particularly migrant workers — earn only a small amount of money, and that while having them spend their meager savings now might keep gross domestic product up in the short term, it will drain the laborers’ reserves and create a bigger social problem down the road. Others argue that the migrant and rural populations are underdeveloped and incapable of sustained spending, and that pumping stimulus yuan into the countryside is a misallocation of mo ney that could be better spent supporting the urban middle class, in theory creating jobs through increased middle-class consumption of services.

The lack of restrictions on these types of discussions suggests that the debate is occurring with government approval, in a reflection of debates within the Communist Party of China (CPC) and the government itself. Despite debate in the Chinese press, Beijing continues to present a unified public face on the handling of the economic crisis, regardless of internal factional debates. Maintaining Party control remains the primary goal of Party officials; even if they disagree over policies, they recognize the importance of showing that the Party remains in charge.

But, as the dueling editorial pages reveal, the Party is not unified in its assessment of the economic crisis or the recovery program. The show of unity masks a power struggle raging between competing interests within the Party. In many ways, this is not a new struggle; there are always officials jockeying for power for themselves and for their protégés. But the depth of the economic crisis in China and the rising fears of social unrest — not only from the migrant laborers, but also from militants or separatists in Tibet and Xinjiang and from “hostile forces” like the Falun Gong, pro-Democracy advocates and foreign intelligence services — have added urgency to long-standing debates over economic and social policies.

In China, decision-making falls to the president and the premier, currently Hu Jintao and Wen Jiabao respectively. They do not wield the power of past leaders like Mao Zedong or Deng Xiaoping, however, and instead are much more reliant on balancing competing interests than on dictating policy.

Party and Government Factions

Hu and Wen face numerous factions among the Chinese elite. Many officials are considered parts of several different factional affiliations based on age, background, education or family heritage. Boiled down, the struggle over the stimulus plan pits two competing views of the core of the Chinese economy. One sees economic strength and social stability centered on China’s massive rural population, while another sees China’s strength and future in the coastal urban areas, in manufacturing and global trade.

Two key figures in the Standing Committee of the Politburo (the center of political power in China), Vice President Xi Jinping and Vice Premier Li Keqiang, highlight this struggle. These two are considered the core of the fifth-generation leadership, and have been tapped to succeed Hu and Wen as China’s next leaders. They also represent radically different backgrounds.

Li is a protege of Hu and rose from the China Youth League, where Hu has built a strong support base. Li represents a newer generation of Chinese leaders, educated in economics and trained in less-developed provinces. (Li held key positions in Henan and Liaoning provinces.) Xi, on the other hand, is a “princeling.” The son of a former vice premier, he trained as an engineer and served primarily in the coastal export-oriented areas, including Hebei, Fujian and Zhejiang provinces and Shanghai.

In a way, Li and Xi represent different proposals for China’s economic recovery and future. Li is a stronger supporter of the recentralization of economic control sought by Hu, a weakening of the regional economic power bases, and a focus on consolidating Chinese industry in a centrally planned manner while spending government money on rural development and urbanization of China’s interior. Xi represents the view followed by former President Jiang Zemin and descended from the policies of Deng. Under that view, economic activity and growth should be encouraged and largely freed from central direction, and if the coastal provinces grow first and faster, that is just fine; eventually the money, technology and employment will move inland.

Inland vs. the Coast

In many ways, these two views reflect long-standing economic arguments in China — namely, the constant struggle to balance the coastal trade-based economy and the interior agriculture-dominated economy. The former is smaller but wealthier, with stronger ties abroad — and therefore more political power to lobby for preferential treatment. The latter is much larger, but more isolated from the international community — and in Chinese history, frequently the source of instability and revolt in times of stress. These tensions have contributed to the decline of dynasties in centuries past, opening the space for foreign interference in Chinese internal politics. China’s leaders are well aware of the constant stresses between rural and coastal China, but maintaining a balance has been an ongoing struggle.

Throughout Chinese history, there is a repeating pattern of dynastic rise and decline. Dynasties start strong and powerful, usually through conquest. They then consolidate power and exert strong control from the center. But due to the sheer size of China’s territory and population, maintaining central control requires the steady expansion of a bureaucracy that spreads from the center through the various administrative divisions down to the local villages. Over time, the bureaucracy itself begins to usurp power, as its serves as the collector of taxes, distributor of government funds and local arbiter of policy and rights. And as the bureaucracy grows stronger, the center weakens.

Regional differences in population, tax base and economic models start to fragment the bureaucracy, leading to economic (and at times military) fiefdoms. This triggers a strong response from the center as it tries to regain control. Following a period of instability, which often involves foreign interference and/or intervention, a new center is formed, once again exerting strong centralized authority.

This cycle played out in the mid-1600s, as the Ming Dynasty fell into decline and the Manchus (who took on the moniker Qing) swept in to create a new centralized authority. It played out again as the Qing Dynasty declined in the latter half of the 1800s and ultimately was replaced — after an extended period of instability — by the CPC in 1949, ushering in another period of strong centralized control. Once again, a more powerful regional bureaucracy is testing that centralized control.

The economic reforms initiated by Deng Xiaoping at the end of the 1970s led to a three-decade decline of central authority, as economic decision-making and power devolved to the regional and local leadership and the export-oriented coastal provinces became the center of economic activity and power in China. Attempts by the central government to regain some authority over the direction of coastal authorities were repeatedly ignored (or worse), but so long as there was growth in China and relative social stability, this was tolerated.

With Hu’s rise to power, however, there was a new push from the center to rein in the worst of excesses by the coastal leaders and business interests and refocus attention on China’s rural population, which was growing increasingly disenfranchised due to the widening urban-rural economic gap. In 2007 and early 2008, Hu finally gained traction with his economic policies. The Chinese government subsequently sought to slow an overheating economy while focusing on the consolidation of industry and the establishment of “superministries” at the center to coordinate economic activity. It also intended to put inland rural interests on par with — if not above — coastal urban interests. When the superministries were formed in 2008, however, it became apparent that Hu was not omnipotent. Resistance to his plans was abundantly evident, illustrating the power of the entrenched bureaucratic interests.

Economic Crisis and the Stimulus Plan

The economic program of recentralization and the attempt to slow the overheating economy came to a screeching halt in July 2008, as skyrocketing commodity prices fueled inflation and strained government budgets. The first victim was China’s yuan policy. The steady, relatively predictable appreciation of the yuan came to a stop. Its value stagnated, and there is now pressure for a slight depreciation to encourage exports. But as Beijing began shaping its economic stimulus package, it became clear that the program would be a mix of policies, representing differing factions seeking to secure their own interests in the recovery plan.

The emerging program, then, revealed conflicting interests and policies. Money and incentives were offered to feed the low-skill export industry (located primarily in the southeastern coastal provinces) as well as to encourage a shift in production from the coast to the interior. A drive was initiated to reduce redundancies, particularly in heavy industries, and at the same time funding was increased to keep those often-bloated industrial sectors afloat. Overall, the stimulus represents a collection of competing initiatives, reflecting the differences among the factions. Entrenched princelings simply want to keep money moving and employment levels up in anticipation of a resurgence in global consumption and the revitalization of the export-based economic growth path. Meanwhile, the rur al faction seeks to accelerate economic restructuring, reduce dependence on the export-oriented coastal provinces, and move economic activity and attention to the vastly underdeveloped interior.

Higher unemployment among the rural labor force is “proving” each faction’s case. To the princelings, it shows the importance of the export sector in maintaining social stability and economic growth. To the rural faction, it emphasizes the dangers of overreliance on a thin coastal strip of cheap, low-skill labor and a widening wealth gap.

Fighting it Out in the Media

With conflicting paths now running in tandem, competing Party officials are seeking traction and support for their programs without showing division within the core Party apparatus by turning to a traditional method: the media and editorials. During the Cultural Revolution, which itself was a violent debate about the fundamental economic policies of the People’s Republic of China, the Party core appeared united, despite major divisions. The debate played out not in the halls of the National People’s Congress or in press statements, but instead in big-character posters plastered around Beijing and other cities, promoting competing policies and criticizing others.

In modern China, big posters are a thing of the past, replaced by newspaper editorials. While the Party center appears united in this time of economic crisis, the divisions are seen more acutely in the competing editorials published in state and local newspapers and on influential blogs and Web discussion forums. It is here that the depth of competition and debate so well hidden among the members of the Politburo can be seen, and it is here that it becomes clear the Chinese are no more united in their policy approach than the leaders of more democratic countries, where policy debates are more public.

The current political crisis has certainly not reached the levels of the Cultural Revolution, and China no longer has a Mao — or even a Deng — to serve as a single pole around which to wage factional struggles. The current leadership is much more attuned to the need to cooperate and compromise — and even Mao’s methods would often include opportunities for “wayward” officials to come around and cooperate with Mao’s plans. But a recognition of the need to cooperate, and an agreement that the first priority is maintenance of the Party as the sole core of Chinese power (followed closely by the need to maintain social stability to ensure the primary goal), doesn’t guarantee that things can’t get out of control.

The sudden halt to various economic initiatives in July 2008 showed just how critical the emerging crisis was. If commodity prices had not started slacking off a month later, the political crisis in Beijing might have gotten much more intense. Despite competition, the various factions want the Party to remain in power as the sole authority, but their disagreements on how to do this become much clearer during a crisis. Currently, it is the question of China’s migrant labor force and the potential for social unrest that is both keeping the Party center united and causing the most confrontation over the best-path policies to be pur sued. If the economic stimulus package fails to do its job, or if external factors leave China lagging and social problems rising, the internal party fighting could once again grow intense.

At present, there is a sense among China’s leaders that this crisis is manageable. If their attitude once again shifts to abject fear, the question may be less about how to compromise on economic strategy than how to stop a competing faction from bringing ruin to Party and country through ill-thought-out policies. Compromise is acceptable when it means the survival of the Party, but if one faction views the actions of another as fundamentally detrimental to the authority and strength of the Party, then a more active and decisive struggle becomes the ideal choice. After all, it is better to remove a gangrenous limb than to allow the infection to spread and kill the whole organism.

That crisis is not now upon China’s leaders, but things nearly reached that level last summer. There were numerous rumors from Beijing that Wen, who is responsible for China’s economic policies, was going to be sacked — an extreme move given his popularity with the common Chinese. This was staved off or delayed by the fortuitous timing of the rest of the global economic contraction, which brought commodity prices down. For now, China’s leaders will continue issuing competing and occasionally contradictory policies, and just as vigorously debating them through the nation’s editorials. The government is struggling with resolving the current economic crisis, as well as with the fundamental question of just what a new Chinese economy will look like. And that question goes deeper than money: It goes to the very role of the CPC in China’s system.


Anonymous said...

Thanks for posting this...pretty much a territory i am comfortable with kuliko local politics ambazo at most zinanifanya nitake kutapika....can you believe ule MTARO mbele ya HAIDERY PLAZA mpka leo haujazibwa? halafu nadhani unajua kama pale posta mpya kuna maji machafu yametwama na of course all our honourable mayor AL HAJJ KIMBISA thinks about is his big belly!

Back to topic in hand....its obvious kuwa the entire ASIA-PACIFIC region recognizes that China is an increasingly important political player and the potential economic powerhouse of Asia, and every government prefers to avoid the opportunity costs of antagonizing Beijing if possible.

There is little doubt that China is rising to a level of unmatched prominence in the Asia-Pacific region. How other states in the region are reacting to the growth of Chinese power, however, is a matter of some debate.

Its also important to point out that China is not behaving aggressively toward any states in Southeast Asia; quite the contrary, Beijing's recent diplomacy aims to reduce tensions with China's neighbours, inspire confidence that China upholds the values of peaceful negotiation, multilateralism, and respect for sovereignty that ASEAN extols, and convince Asia that "China will never seek hegemony", as Chinese leaders have proclaimed on countless occasions

Now in theory, two of the common responses of smaller states in the shadow of a potentially dominant or threatening power are balancing and bandwagoning and this "Bandwagoning" has at least two distinct definitions:

1) aligning with a threatening country to avoid being attacked by it

2) "being on the winning side" in the hope of realizing economic gains

the real question now should be Is china a threat?

Che Solasi said...

I think the article dissects very well the political dimensions of Chinese gov't in these times but it left out one aspect of the issue... the PLA. China doesn't just want to be a major political player in terms of economics, they are fully committed to military endevours as well. The PLA is modernising almost as fast as the Chinese economic growth. They don't want to be considered paper tigers anymore in terms of their capability and they don't want to be outplayed when it comes to regional as well as global influence. If it's a Chess match, PLA is almost equally as power as any piece on the checker board.
The goals of the CCP have deviate very little since the times of Mao, although economic prowess have been at the forefront of the agenda, the main goals are still to exert influence regional and globally. You can see this when China annexed Tibet, invaded India, invaded Vietnam after the US left, send troops to help N. Korea during the Korean War. China is willing to negotiate only when it's adventageous to them.
The economic hardship hitting the global markets do have impact on China but not to the level to create instant instability. So while the leader within the CCP or Chinese government may be bickering among each other, nothing has eascape their main prorogative.... reclaim Taiwan, have weaker Japan and India and be a World power.

Anonymous said...

China should be credited for their aggressiveness in global market and hardwork within their state to the point of being able to create and build a situation they're in, where their dependence on foreign aid is either none or little, regarding that it's still a developing country. And they're not even slowing down but they keep increasing intergration into global trade, investment and fincancial markets.

Despite the emergence of China as a global economic power, Does their rapid growing economy seem as a sham or imbalanced? With their substantial impact on global economy, they get their share of blame due to other country's economic problems i.e unsafe products and job losses.
Also, the relationship with some of her allies has been in question, with a good example of the Sudanese Government, their ralationship has caused China's International reputation to go awry

Their reputation is receiving a negative impact of being seen as an opportunist.
But, it has been gaining influence across the world through strategic investiments in poor countries.
It's obviously getting hit too with the current tanking world economy but, may be it should be the one to give the US and other International institutions a lecture on their solution to this economic financial downturn.

Anonymous said...

Awwwwwwwwwwwww salamah!

Che Solasi said...

"Despite the emergence of China as a global economic power, Does their rapid growing economy seem as a sham or imbalanced?" I will say so simply because they're in a hybrid command economy systems that nobody know exactly how it works, to me its just an experiment. And the major resource they do have is labour and some entrepeneur abilities which in my opinion will be completely out of whack if it wasn't for globalization. There's no domestic consumption for the local market to balance their export to the world market. If today, China was in a situation that would restrict them from exporting, they would have no way to import other resource such as gas and oil, they'll have no capital and if you combine that with their monetary and fiscal policy... that will be a disaster for that nation.
One thing I do I agree with you Salama is they're very strategic in their dealing and that goes a long way to assure them for the next decade or few. However, given the ideological differences with the west, the shortcomings of their foreign and domestic policies are bound to collide head on with the interest of the West. Right now the US has a debt to China in billions thanks to GW and his wars, that's a bargaining chip. Right now major Western company are willing to invest in China due to cheap labor... thanks to globalization. It's all good at the moment but China just like any other Superpower wannabe, is interested on it's own interest first and foremost and most nations want the piece of the pie they're offering. What happen when the pie is too expensive or nobody wants that pie no more?

Anonymous said...

I was listening to Obama Speech addressing a joint session of congress earlier, I am now thinking, that he is more looking at far East for economic model particularly at China, to solve American Economic problems, more government engagement and involvement on private industries, detecting the market and steering to its direction.

Therefore ramping up the economy by revolutionising American industries (Green industries), emphasizing on less domestic consumption to encourage savings and exports more, which was not mentioned on the speech but that’s the intention(how are you going to cut US deficit by half), and ultimately initially cutting domestic spending and less imports.

In turn, Chinese are seeing this is coming, therefore in their part have to cooperate in emphasizing on domestic consumption as currently debated in China as how that will be moulded in terms of policy makings.

Despite all the squabbling and the ongoing debate, Chinese will ultimately invest more in RURAL inland as highlighted on the article, which will work in favor to the Chinese, in boosting their internal economy as alternative to EXPORTS, and I BELIEVE thats good for BOTH countries following this steps. China and US are desperately in need of each other’s now than ever before

To me it looks like two in Tango.

BUT, what scare middle class in URBAN areas in China , and one of the problem eating their conscious as highlighted in the report, is that, eventually in years to come the cheap labor will dry out and wages inflated, as that caused by urbanizing major part of the country as key trading hubs, particularly in inland China, which will be key in internal Chinese trading in future, therefore creating a mini giant economic super power, with huge internal tradings, balancing it out with exports, particularly in Africa(energy sources), Asian countries and Europe.

By Mchangiaji

Anonymous said...



Wewe!, be nice to your leaders!
(`a A. Kimbisa) (lol!)
Hujui kuwa big belly is a sign of prosperity kwetu(lol)!
(If it's not full of cholesterol)

Che Solasi

Well said, the experiment comment is very interesting. On top of their ideological differences with the west, some Political pundits were wondering if China is a threat and if it should be contained. It's growth is somehow an oppurtunity for the west's economy and now the question is are they going to engage it?

With the fact that they're deeply invested in global economic system, I wonder if they'll step in a plate and try to stabilize this crisis simply by importing more and exporting less. But, They're unlikely to take on a key role in reconstructing the global financial system without guarantees that its interests would be recognized.

Anonymous said...

In honor of one of my Hero Stevie...You can always count on HIM..

Thats what are friends for

Fowarded by Mchangiaji

Anonymous said...

Salamah! the name kinda sounds like Samah! and i like them both...seee i dont discriminate! Yaani wewe acha tuu...January and his ever hard hitting blog...and since its friday i intend to do nothing but just chill afterall there isnt much to do in Dar anyway unless you wanna help a brotha out(for this I cant blame Kimbisa and his crew)

back to the topic

Hu was in town a week ago and i guess we are getting pimped by the Chinese big time...can you believe they anly agreed to give Tz $25million only? I could guess my life that keeping mr Hu in town must have cost us close to $10 million!

ahhhh hebu nijitokee mie

misokasick said...

To all,
Great stuff man. I am enjoying reading so much of your contributions.

GT, You made me laugh so much..... I am still cracking up by this sentence. "Hu was in town a week ago and i guess we are getting pimped by the Chinese big time...can you believe they anly agreed to give Tz $25million only? I could guess my life that keeping mr Hu in town must have cost us close to $10 million".

I guess watakupa answer yakwamba we are looking for long term investment. Na hiyo long term invesment ni $15 millions. Anyways, there is a saying ukimuona mchina ameweka Mikono nyuma, ajenda yake ni nzito mno. Chine has bigger plans for us (Not sure their impact to our economy, but kama Mungu alivyomwambia Jeremiah "I have bigger plans for you, the China Man is making African countries believe they are the solution to our economy. I will say good luck Africa.

Thanks all for being so articulate and for sharing your take on this topic.


Anonymous said...


Kana kama hiyo haitoshi....:

1)Pesa zilizoibiwa za EPA kwa mwaka mmoja in one year totaled 133 million USD.

in otherwords kama alivyosema mzee wa Detroit, CHINESE so called AID is six(6) times less than what we were able to afford to lose. Which renders it irrelevant!

b) We bought a dual use radar from UK for about 40 Millions USD. Of that amount, 21 mil USD was diverted to Shaileth Vithlani (the dealer and broker) some of which ended in corrupt officials' pockets. Among them supposedly Andrew Chenge (Former AG) and Dr Idriss Rashid (Former BoT Governor). This means, the amount of aid hawa MACHO KUFUMBA wametupatia could as well been easily given to Vithlani and his crook politicians friends without causing any dent to our national economy or cause outrage. Which renders HU JINTAO'S aid irrelevant.

c) Our leaders bought a Gulf stream 550 for about 50 Million USD. So we,we could afford to buy such a plane at that price, we could have well afford to get some 22 million USD somewhere!

d) Of the money stolen from EPA account we were told that 70 Million USD was returned by the thieves and last week directed towards agriculture. That amount is almost 3 times the money HU gave us in aid at a fanfare with President Kikwete.....NA MBAYA ZAIDI JK MWENYEWE ALISEMA HIVI:

"It has been a great visit", said Kikwete, hailing the friendly tied between the two countries"

I just home our friend didint have mkono kwenye maneno haya

e) We are currently planning to carryout a new ID project for about 200 million USD. That amount is 9 times the CHINESE aid. If we can budget the use of such amount of money without thinking of the cost, we might as well just get some 22 million USD from somehere!

f) Last year when President Bush came to Tanzania he signed the biggest single foreign aid in the country worthy 978 million USD. That is 44 times the amount these chinese gave us



Anonymous said...

Game Theory,(GT)

Jamaniii!, too bad am not in town, aww!, imagine how much fun it would've been between nyama choma, kinywaji, musiki ya babaa, huku tuna exchange ideas about mchina na usungura wake. We have to be really smart to work with china, if not, they will inter-nationalize us bila ya sisi kujiju.

Nakwambia with this malaise economy, nimebaki kukaa ndani na kuangalia National Geographic. Tunaita "travelling the world on the couch".

Dar, jamani, I miss clubbing ya mpaka 5am, halafu unatakiwa kazi
8am, and you still make it. (I wont do that again)
There's nothing like nyama choma, kinywaji and politics I guess.
I hope hauna kitambi kama cha Kimbisa (lol!), kama unacho kakaangu hit the gym.(kidding!)
(I picture you tall, gorgeous, buffed, power mabula, and of course very savvy and brilliant)

Enjoy the weekend!

Anonymous said...

Salamah,I've had the busiest weeked since i came to TZ doing all sorts of first things and lots of old things too (and sometimes the old things are definitely the best). Now, first of all, I have decided that Friday evening at this place called Garden Bistro is definitely the most retro cool place in Dar, While Saturday evening was the most boring since coz i ended up hitting Kilimanjaro,Kempisky where i was told i would meet Dar's new Intelligentsia and gosh this boy was so dissapointed, I might as well stayed indoors with my laptop and arguing with Misokasick et al on JM blog!

I am not comparing Dar's Kempisky to my fav hang, London's N1(Islington)where and champagne left media types link but damn we need a place where we like minded folks when in Dar should link...Then Sunday went to this private gallery opening in the midst of Masaki areas only to be acquainted with a fashion designer I had never heard of - He's Asian of Indian or Pakistani origin and designs clothes which are cutting edge in terms of their African inspired futuristic design and, in my view, their sheer ability not to pander in any way to the desire of the wearer. Comfort? Whatever. Flattering cut? Whatever. Suffice it to say that it's not going to surpass Ozwald Boateng on my coolest designer ever list. The coolest design on display was however this African inspired laserlike outfit. I doubt any of those attended paid paid serious money...Ahhhh ndio Dar hiyooo

Power Iranda? jamani wasnt that dude a bouncer or something back in 90's? Kitambi...? Nah aint got that yet even though nimegundua dudes mji huu wana vitambi left and right and i think i know sababu ni nyama choma na those malt drinks which include beer..I am still struggling to maintain my weight mji huu, i hit a treadmill hapa nilipo lakini not yet to hit a guym since i came...but that said i am more carefull with what i eat...for starters i still maintain "not eating food just because its on the table",lots of "organic" pinaple juice does wonders for me if you know what i mean...the bottom like i am having a blast in Dar considering i also like meeting new people wit the same freaky intentions that I have! lakini ya nini tuandikie wino wakati mate ipo? drop me something here: regimechange05@gmail.com you might get an invite to a masquarade party at the end of the month just bring girlfriends along unajua tena akina misokasick,jmMchangiaji nao wataalikwa