___________________________________________ Visit Stratfor's NEW Middle East & Africa Intelligence Center http://www.stratfor.com/meaf/default.htm ___________________________________________ ALSO ON STRATFOR.COM A Midsummer's View of Japan and China's Economic Status http://www.stratfor.com/asia/specialreports/special34.htm Russia Argues for Debt Forgiveness http://www.stratfor.com/CIS/commentary/c9907242355.htm Iran Warns Against Reactionary Backlash http://www.stratfor.com/MEAF/commentary/c9907242335.htm __________________________________ STRATFOR's Global Intelligence Update Weekly Analysis July 26, 1999 China, Falun Gong and the Politics of Economic Depression Summary: China has become obsessed with a couple million middle-aged members of a group that does a lot of strange exercises and whose leader lives in New York. Sensible people - like those at the New York Times - can't understand why the Chinese government cares about Falun Gong when there are so many serious economic problems to worry about. That's a good point, since China is in deepening economic depression (for our latest read on Asia's economy, see http://www.stratfor.com/asia/specialreports/special34.htm ) The reason China is so concerned is because the Chinese know that there is no solution to their economic problems. Therefore, they are bracing for the social and political consequences of long-term economic failure. Beijing understands that in times of misery, seemingly harmless groups can suddenly challenge the regime. The crackdown on Falun Gong expresses Beijing's deep-seated insecurity. If China's economy can't recover, can the regime survive? President Jiang Zemin intends to do whatever is necessary to make certain it can. Analysis: The Chinese government has mounted a massive public attack on the Falun Gong, a quasi-religious group that is reported to involve large numbers of middle- aged people doing to strange exercises. To outsiders, Beijing's obsession with this group appears strange and even bizarre. The New York Times, for example, ran an article today pointing out that with China's economy in deep trouble, there are much more important things to worry about than strange cults. What the Times and other observers fail to understand is that Beijing is obsessed with Falun Gong precisely because it cannot get control of the economy. Beijing knows full well that the economy is in trouble. It also knows that there is little it can do about it. Therefore, Beijing is bracing for the inevitable social consequences of economic depression, an extreme condition under which even innocuous cults can quickly get out of hand. In our view, the internal dynamic of China resembles that of Indonesia more than it does Japan. Although Japan and Indonesia both suffered from similar economic defects, there was real social and political difference between the two countries. Japan's economy was obviously much more developed than Indonesia's, but the more significant difference was that Japan itself was much more socially integrated and stable. It could absorb the consequences of economic failure without being torn apart by social and political tensions. Indonesia, quite apart from its level of economic development, lacked the social integration needed to handle bad times. Thus, the consequences of economic failure had immediate and severe social and political consequences in Indonesia, consequences that could be contained for a longer period of time in Japan. China is politically integrated. It is not socially integrated. It has ethnic, religious, class and regional tensions that Beijing was able to paper over during economic good times. When the economy contracts and the task becomes the distribution of scarcity rather than the management of prosperity, these forces emerge and the state has to struggle to contain them. Now, Beijing is much stronger the Jakarta and has more political tools at its disposal than the Indonesian government had. Nevertheless, it is nowhere near as stable as Japan. China, in the end, is a country with more than a century of experience in revolution and social upheaval. Beijing is exquisitely aware of its vulnerabilities. It is also aware that seemingly nonpolitical movements that do not owe their primary loyalties to the regime can rapidly be transformed into political challenges. At a time when Beijing is dealing with the social consequences of economic decline, the Falun Gong is one of dozens of challenges that China will take seriously. Why is Beijing concerned with Falun Gong when it has more serious economic problems to worry about? The answer is simple. China does not have the ability to do anything about its economic problems without worsening its social problems. Therefore, since it regards its economic problems as a given, it is focusing on the dimension that it can do something about: the socio-political consequences of economic decline. China is dealing with the problem that is both important and manageable. It is not dealing with the problems that are unmanageable. In that sense, the Falun Gong episode is completely understandable. The key to all of this is understanding that (a) China's economy is in deepening trouble and that (b) this trouble could lead to massive domestic instability. This could range from massive government repression designed to control centrifugal tendencies, to a collapse of central authority and a return to the condition of China at the turn of the century. This is a view we have held for quite awhile. As we said In our 1999 annual forecast [http://www.stratfor.com/services/giu/1999.asp]: * Asian economies will not recover in 1999. Japan will see further deterioration. So will China. Singapore and South Korea will show the strongest tendency toward recovery. * China will try to contain discontent over economic policies by increasing repression not only on dissidents but also on the urban unemployed and unhappy small-business people. Tensions will rise. Our first prediction appears to be coming true. (For our latest views on Asia's economic development, see today's Special Report at [include AIU's URL]. There are ways to recover from this. The two prices that have to be paid are time and pain. The structural problems of all Asian economies, but particularly China's, which suffers from the twin problems of Stalinism and Japanism, will take time to be solved. The solution will involve pain. It will involve closing inefficient government enterprises, bankrupting inefficient public enterprises, slashing production in inefficient factories, containing consumption in favor of capital formation. All of this requires massive social dislocation that will take decades to work out. Beijing is painfully aware of this. What it is unsure about is whether or not it has the political means to carry out this restructuring. Mao gave China two mutually supporting strategies. He gave China a centralized regime by institutionalizing the centrifugal forces within the Communist Party. Mao understood that China's diffuse society inherently generated social disruption. He co-opted that disruption on behalf of the regime. In the Great Leap Forward and the Great Proletarian Cultural Revolution, Mao preempted the revolutionary and centrifugal tendencies that had dominated China since the 19th century and even before. He understood that Chinese modernization could not proceed without social disruption, so he made the regime the instrument and beneficiary of social disruption. It was a brilliant move. That move was supported by another Maoist strategy. Mao sealed China off from the rest of the world. This was critical. From the 19th century onward, internal Chinese conflict was exploited by foreign nations for their own economic and geopolitical ends. Mao understood that Beijing could not contain the disruptive forces it had created in the face of outside interference. The main source of that interference would come from foreign investors and importers who sought to manipulate conflict in order to secure their own interests. The very fact that China depended on investment and trade made China vulnerable. Therefore, Mao sealed off China from both investment and trade, accepting the economic price in order to maintain political stability. Deng reversed Mao's strategy based on two presumptions. The first was that the regime could, after a generation of centralized government, contain social disruption so long as foreign investment and trade resulted in economic development. Second, Deng's view was that since China's geopolitical needs had already created a dependency on the United States, it had become vulnerable without enjoying the full benefits of vulnerability. If China was already geopolitically integrated with the global system, he felt it had better be economically integrated as well. Indeed, since U.S.-Chinese geopolitical dependence was mutual, it followed that China had levers with which to control U.S. exploitation of Chinese vulnerability. We are now a generation after Deng's reversal of Mao. Two massive shifts have taken place. First, the early, easy part of economic development is behind China. What follows is the hard part, made harder still by the economic development model followed by Beijing. Second, the geopolitical principle that led Deng to his conclusions, namely that China and the United States were geopolitically dependent anyway, no longer follows. With the collapse of the Soviet Union, the underlying force tying the U.S. and China are gone. With the Chinese economy in a massive depression, the economic interests of the West remain, and are in fact motivated to manipulate the situation inside China, to preserve their investment. China sees itself, properly, as having passed beyond Deng's world. It also sees itself as terribly vulnerable to Western manipulation of internal social tensions that arise from depression. They see that the West, and the United States in particular, has invested billions in China. With that level of exposure, the West is inevitably motivated to intrude in China's internal affairs in order to protect its investments. That is precisely why Mao sealed off China's economy. China fears that, given the concentration of investment in the coastal region, the United States in particular might encourage regional interests inside the party and the army as well as outside, to seek greater autonomy from Beijing. Since Beijing must transfer assets from the wealthier parts of the country to the poorer parts in order to shore up its power base among the poor, Beijing fears that elements in the coastal regions opposed to this policy will be particularly open to accommodation with outside investors. This would be an old story in China's history, and one that Beijing does not intend to see repeated. The Chinese reaction to Kosovo was conditioned to a great extent by Chinese opposition to anything that would allow the United States to intrude on a sovereign state on behalf of a regional entity. China is extremely suspicious of the United States on three regional issues: Tibet, Xinjiang and Taiwan. It sees the United States as trying to disrupt China's integrity for economic reasons. The common denominator is that the United States is using issues like human rights to increase its control over the evolution of events in China. Falun Gong, whose leader Li Hongzhi lives in New York, is seen as part of this strategy. Looked at this way, China's response on all of these issues is completely coherent. Falun Gong is part of a general U.S. strategy to weaken Beijing and destabilize China. In today's meetings with Madeleine Albright, Beijing indicated to the United States the intensity with which it will respond to any U.S. meddling, whether through New York-based gurus or Taiwanese declarations of statehood. China's problem is this. Communism as an ideology is as dead as the Druids. The institutions created by communism (party, army, security apparatus, state industries, planning apparatus) continue to exist, but no one any longer takes the ideology itself seriously. Deng's justification for the regime was that it delivered economic growth. As with Suharto, this was a justification that did not require much discussion, so long as the growth was happening. Jiang's problem is that he does not have either a gripping ideology or economic growth to sustain him. He cannot seal China off from the world as Mao did, nor can he compete in that world as Deng did. At this moment, Beijing simply cannot justify itself and Jiang knows it. Jiang is relying on the brute force and presence of the regime to maintain authority. His ultimate claim to power is that he controls the instruments of power and that any resistance will be crushed. Having lost both the ideological and the pragmatic arguments, Jiang can only win by crushing those who disagree with him. Jiang must create a sense of dread inside China, on an ongoing basis, in order to forestall challenges to his regime. It also helps to create a sense of embattlement. This is why a confrontation with the United States is such a good idea right now. It allows Jiang to use the Maoist anti-imperial tradition because he can portray himself as protecting China from U.S. intrusions. If he can portray Falun Gong, Tibet, Xinjiang and Taiwan as part of a coherent U.S. strategy, he can at least adopt the mantle of nationalism. Having achieved that, he might even be able to portray China's economic woes as the result of U.S. actions. Here is his problem. Nationalism only goes so far in a China that has always consisted of multiple entities occasionally joined by a single state. Mao was very astute in driving negative visions - he pushed distilled anti-imperialism rather than try to make the case for Chinese nationalism. In fact, during the Cultural Revolution Mao attacked the national heritage of China. Nationalism will fly only so far in China. The Chinese regime is in big trouble. Unable to move its economy forward, sinking deeper into the morass, Beijing is terribly afraid that China's half-century experiment in centralization will collapse and China will return to the chaos and victimization that preceded the Communists. The regime is frightened and it should be. Therefore, its behavior toward Falun Gong is not at all bizarre. It makes perfect sense, if you understand how much trouble China is in. If, like most observers, your view is that China has serious problems but that these will soon go away, you will have trouble understanding Beijing's actions on this and many other subjects. However, in our view, Beijing understands China very well. As a result, it is terribly frightened. As with the Soviet Union in 1989, the very integrity of Chinese social and geographic fabric is in the balance. Jiang does not intend to be China's Gorbachev. He understands that liberalization is impossible when the economy is going south. Jiang will ruthlessly crush any movement that moves the system toward liberalization, especially if its leader lives in the United States. But here is the problem: an ideologically bankrupt regime that has led a country into depression with little hope of recovery cannot call for its people's blood, sweat and tears and expect to get them. Without a carrot, it at least needs a stick. The stick, in this case, is party members and the military. Unfortunately, many members of both are as disappointed in the way that things have worked out as is the rest of the population. As it dawns on everyone that China's depression is not a passing event, the effects become more and more profound. With outside nations having billions of dollars at stake and needing to protect investments, a very old story is unfolding in China. Jiang is trying to stop that story in its tracks. It will not be easy. ___________________________________________________ SUBSCRIBE to FREE, DAILY GLOBAL INTELLIGENCE UPDATES (GIU) http://www.stratfor.com/services/giu/subscribe.asp or send your name, organization, position, mailing address, phone number, and e-mail address to [EMAIL PROTECTED] UNSUBSCRIBE FROM THE GLOBAL INTELLIGENCE UPDATES (GIU) http://www.stratfor.com/services/giu/subscribe.asp ___________________________________________________ STRATFOR.COM 504 Lavaca, Suite 1100 Austin, TX 78701 Phone: 512-583-5000 Fax: 512-583-5025 Internet: http://www.stratfor.com/ Email: [EMAIL PROTECTED] ___________________________________________________ (c) 1999, Stratfor, Inc.
