The Fat Years

by Koonchung Chan

  He needed Heaven’s help. If, about a year before the scheduled transfer of power, a major crisis occurred and the Politburo decided to scrupulously follow his “Action Plan for Ruling the Nation and Pacifying the World”—with that, He Dongsheng believed, China would certainly be saved. Of course, future generations would never know how much blood, sweat, and tears he, He Dongsheng, had contributed to the perfection of this strategy. They would never know that his plan was his own ingenious design to preserve Communist Party rule in China forever. All the credit would go to the existing party-state leadership.

  He Dongsheng had grasped very early on the imminence of another crisis in Western capitalism. His own investment strategy was to bet against the U.S. dollar. He had been in Zhongnanhai for so many years, and at first, like all the other high officials, he spent as much as possible of his Chinese renminbi in purchasing dollars. About ten years earlier, he became less confident about his dollar assets. At that point, he exchanged his American currency for Canadian dollars, to pay for his only son’s school fees overseas. He also purchased a mansion in an old bourgeois neighborhood called Shaughnessy in Vancouver. With the remainder of his American funds, he bought into gold, petroleum, and other mineral and energy stocks with the intention of hanging on to them long term. Even more importantly, he decided to retain a good deal of renminbi and invest them in the Chinese real estate market. He didn’t play the Chinese stock market because he couldn’t spare the time, didn’t like the duplicity and lack of transparency of the whole game, and didn’t want to appear greedy. Over these past few years, his anti-American investment strategy had returned a hefty profit, and confirmed him in his view of international economics.

  The 2008 financial tsunami caused him to reflect deeply on his economic theory, to reconstruct his mental image of the world economy and China’s road to development, and cleverly to incorporate his further ideas into his “Action Plan.”

  He saw that the American-led developed countries, due to their two-party or even multiparty democratic political systems, had neither the ability nor the resolve to tame the monster known as globalized finance capitalism. America’s elected politicians were beholden to a plethora of interest groups: Wall Street, big business, the arms industry, local power groups, the churches, labor unions, and various public-relations lobbies; they also had to take care of popular and media opinion. So when it was necessary for them to unite to accomplish something big and important, all they could do was look around, to the left and right, and fight meaningless little battles; they didn’t dare to cut to the bone and heal the body politic, and were even less likely to take bold and decisive action. American market fundamentalists and the right wing of the Republican Party constantly dragged their feet and added to the confusion; they were completely out of touch with reality and could certainly mess things up, but they could not make any positive contributions. He Dongsheng was completely discouraged by Western representative democracy; he didn’t have the slightest hope for it. He was even less hopeful that those government financial decision-makers, with their multifarious connections to Wall Street, had the cojones to make correct decisions that would save the world economy. On the contrary, he was more and more convinced that China’s vast post-totalitarian government really did have the ability to manage and direct this historical stage of globalized finance capitalism—that is, if China had the correct understanding of the globalization of capital.

  He Dongsheng realized, however, that in the Chinese system, merely having a correct understanding of any situation was not enough. This was because every level of the party-state-government was under the excessive control of interest groups and corrupt officials, and they would distort or reject even the most correct policy if it didn’t profit them directly. Thus, He Dongsheng thought that only a major, unprecedented crisis would permit the current ruling group to implement a genuine dictatorship, guarantee action at the bottom on every order from the top, and build a firm foundation for China’s Golden Age of Ascendancy that was just waiting to blossom out of the nation’s growing power.

  He Dongsheng had never imagined the 2008 global crisis would happen so soon. Nor had he imagined that on the first frenetic day, the Chinese Politburo would set in motion a completely new plan for tackling the situation. The policy proposal was called the “Action Plan for Achieving Prosperity amid Crisis.” This proposal, of course, represented the collective wisdom of the entire Politburo Standing Committee, but very many of its elements were in accord with He Dongsheng’s own secret plan.

  First, let’s answer the question: What about the United States? How did they start learning from our Chinese state-run system?

  The United States government printed money and sold bonds, tried to save the bankrupt car manufacturers, poured money into already defunct banks … spending all that money in the wrong places. The result was that credit didn’t revive, the market continued to contract, house prices continued to plunge, the unemployment rate edged up as before, and the value of the U.S. dollar steadily declined. American investors didn’t want dollars and international investors didn’t want them either; even the central banks of Japan, Russia, and Taiwan didn’t dare to hold only American currency. American bonds, both long- and short-term, were hard to sell no matter how good their interest rates were. The dollar rose for a while at the beginning of 2009, but a little later it again lost twenty-five percentage points. In the end, worldwide confidence in the dollar reached a critical low, and, in one trading day in February, panic selling began. This was followed by the collapse of the American stock market. The chairman of the Federal Reserve Board, the secretary of the Treasury, and economics Nobel laureates such as Joseph Stiglitz and Paul Krugman all agreed that the United States was in a state of high-inflation decline or “stagflation”—what the Chinese media called an economic crisis of “fire and ice.”

  While the world economy was floundering, what was the situation in China?

  China was also in danger as exports came to a standstill, the number of unemployed suddenly rose steeply, and stock markets fell until trading was halted to forestall further losses. This time China’s economic growth would probably not avoid slipping from positive to negative figures.

  The economic stimulus of 2009—relying on the National Treasury to allocate funds for direct investment to stimulate the economy—helped maintain the national GDP, but didn’t genuinely encourage domestic consumer demand. Much of the stimulus money was invested in dubious mega-projects and fixed-capital assets, and the chief beneficiaries were the bureaucrats, state-run enterprises, and the interest groups tied to their apron strings. In other words, the stimulus helped increase the monopoly of state-run enterprises over the market, and further decreased the scope of private businesses.

  The most troublesome thing was still the huge decline in the value of the dollar. Before 2004, China’s annual trade surplus had not been very large. After 2004, however, China had less and less need to import foreign manufactured goods, and its exports grew at an ever more ferocious pace. China’s foreign-exchange reserves abruptly rose to over two trillion dollars. Then, all of a sudden, those dollars lost more than a third of their value.

  Although China had originally made a lot of noise about the dollar, it had not actually been selling off dollars the way Japan, Russia, and Taiwan had; China held on to its dollars and kept buying American-dollar assets right up to the end. It wasn’t that China didn’t want progressively to distance itself from the dollar, but it lacked an alternative place to invest its money. The government was already trying to reach mutual currency-exchange arrangements with Japan, South Korea, the ASEAN, and the Shanghai Cooperation Organization nations, and was already actively urging the United States to issue some bonds payable in renminbi—what the foreign press had dubbed “Panda Bonds.” So it wasn’t that the government wasn’t making crisis preparations, it was that time was against them; they could only pray that the dollar would not decline further—they certainly could not imagine that
it would go under so quickly.

  Politics is a cruel business. Just the “crime” of allowing our sovereign wealth to shrink so much was bad enough. Add to that the negative growth in the national economy that was certain to follow, and the ruling group at that time would have completely lost its prestige within the Party. The following year, that governing group would not have had the strength to resist the opposition, and would certainly have fallen from power; it would have been a time for their friends to weep and their enemies to laugh. And this is the most important reason why they resolutely decided to put the “Action Plan for Achieving Prosperity amid Crisis” into operation.

  So. Since they were going to die anyway, they thought they might as well make one last stand, and take drastic measures to alter the course of the heavens, an attempt to turn a bad situation into a victory. If they won, it would be a complete victory. And if they lost … well … if they lost, the great deluge that came after them would be a problem for the next Party leadership to resolve.

  The day that the dollar fell so precipitously in 2011 was the eighth day of the first lunar month. The New Year vacation period had just ended, and, except for a few factories, every place was open again for business. That morning virtually all the news media reported that the global economy had entered a period of “fire and ice” crisis.

  Where was the machine of state?

  In fact, the Public Security police, the armed police, and the army were all in a state of readiness that day. Party Central had announced to all levels of government that the entire nation was in a state of emergency, and that the “Action Plan for Achieving Prosperity amid Crisis” had gone into operation. This was a coordinated chain of actions. The entire nation had to be regarded as a single chessboard and each move had to scrupulously follow the planned schedule if complete success, total victory, was to be achieved.

  In the first phase, except for establishing martial law in Xinjiang and Tibet, the machine of state was forbidden to do anything without express orders from Party Central. In other words, the party-state machine was going to wait. Why? They were waiting to see how long it would take for genuine chaos to materialize. Waiting to see how long the common people could endure a state of anarchy. When that moment arrived, the people themselves would call on the government not to abandon them; they would beg the government to save them. The machine of state was waiting for the people of the entire nation once again to voluntarily and wholeheartedly give themselves into the care of the Leviathan.

  If large-scale rioting or a mass exodus of people occurred, that would be the signal for the machine of state to go into action. As things turned out, the people went through six days of being so scared they couldn’t face another such day, rumors were circulating wildly, and by the seventh day, many regions reported to Party Central that a genuine upheaval had broken out in their area. Still, in this situation, only a few places experienced large-scale rioting and mass exodus. On the eighth day, the fifteenth of the first lunar month, token forces of the People’s Liberation Army and the armed police entered over six hundred cities around the country, and, as expected, were welcomed with open arms by the local population. This demonstrated the fact that in a moderately well-off society, the people fear chaos more than they fear dictatorship. And besides, Chinese society was really not as disorderly as was imagined; the vast majority of the Chinese people crave stability. As long as the government was not a target of attack, everything could be easily taken care of.

  That afternoon, the national security police, the armed police, and the People’s Liberation Army jointly announced the beginning of a crackdown on criminal elements, and social order was restored almost immediately; even petty looting came to an abrupt halt. The government also announced that it would start distributing rice from its grain reserves. Rations would be handed out every day, completely free of charge, and no one would be refused; the people’s livelihood would be guaranteed and they need have no fear of hunger. The most interesting thing, however, was that the people grumbled that the reserve rice, having been harvested over a number of years, tasted bad. They didn’t want to eat it, and they certainly weren’t going to line up for it. Also, due to the crackdown on criminal activity, the usual opportunists didn’t dare to buy up the reserve grain to sell off to rice-wine distilleries.

  “Why? Why did you have to terrorize the common people like that?” Fang Caodi indignantly interrupted He Dongsheng.

  He Dongsheng answered as though he were delivering a classroom lecture: “The beginning of the crisis was the key; if handled poorly at first, it would be hard to clean up the mess later. This crisis was extraordinarily serious, serious enough to give rise to mass disturbances on a nationwide scale. It started as an economic crisis, but it was capable of causing the long-smoldering volcanic contradictions deep under the surface of society to erupt. If the government reaction was too mild and too fragmentary, the people would remain dissatisfied and their resentment would be even greater. If the government acted too harshly, dispensing strong medicine too hastily, some strata of society would not accept it and would fight back. No matter what the government did then, it would be the only target.

  “The situation at the time was as follows: except for incidents involving conflict between Han and minority ethnic nationalities, in general most of the major protests involved a confrontation between the masses and the government. For years many of the common people had long made up their minds and believed that the only way to solve their problems was to create a disturbance. The smallest thing, the pettiest grievance, was enough to set off a collective protest.

  “If mass protest riots broke out at the same time all over the country, and all the criticism and resentment were aimed at the government, the machine of state would have collapsed.

  “On the other hand, as long as all the complaints were not aimed at the government, mass protests would be difficult to start. A few lawless elements stirring up trouble would be insufficient to start a series of mass protests.”

  “So what did the leadership do to prevent the popular masses from aiming all their resentment and criticism at the government?” asked Fang Caodi.

  “Well, after considering the situation from every angle, the leadership decided to allow the Chinese people to frighten themselves, let them be afraid of the government abandoning them, afraid of anarchy. The condition of anarchy is what Thomas Hobbes called ‘the war of all against all.’ In an anarchic state of nature, to quote his book The Leviathan, the ‘life of man’ is ‘solitary, poor, nasty, brutish, and short.’ To have no security for their life and property is, indeed, the people’s ultimate terror. And because they are afraid of anarchy and chaos, everyone is willing to bow down voluntarily before the power of a really quite unlovely Leviathan. Only this Leviathan of a government can guarantee their lives and property. That means the party-state can win only by making the people feel that our Communist Party is their only hope in a major crisis, that the party-state is the only power great enough to concentrate our resources to do big things.”

  “Now you’re talking about having a government or having anarchy,” Little Xi needled He Dongsheng. “Nobody said that the government has to be your Communist Party!”

  “It’s fruitless to argue that,” said He Dongsheng. “The government and the Party are one and the same.”

  “After you created a state of anarchy,” asked Little Xi, “and fooled everyone so that even the people of Beijing filled the streets to welcome the People’s Liberation Army into the city, what did you want to do then? Why did you have to have a crackdown? Do you know how many people die every time there’s a crackdown?”

  “I was almost executed in that crackdown,” said Fang Caodi.

  “In good faith, I also hope that this was our last crackdown,” said He Dongsheng. “But the government in power at the time had no other choice but to take a hard line in the face of the upcoming transfer of power.

  “With the global economy in a deep freeze, China had
to save itself. That required administering strong medicine to the economy, but the government might lose control of society, its orders might be distorted, and the people might protest. The government had to have complete control over society and tame the masses; everybody had to be submissive to government orders. But how does the Chinese government usually tame the masses? In 1983, when the market economy experienced turmoil, didn’t Old Deng order a crackdown? And June 4, 1989, was another big crackdown. Do you see? Sacrifices are inevitable if we want to accomplish something big and important.”

  Little Xi and Fang Caodi felt He Dongsheng was being unreasonable and they were anxious to refute his arguments, but he motioned for them to let him finish first.

  “In 1816, the year after the end of the Napoleonic Wars,” He Dongsheng went on, “the effects of the war faded and Britain suffered an economic recession; its national debt was two and a half times its GDP. Most unfortunately, in 1815, the Mount Tambora volcano in Indonesia erupted, the worst eruption in history, and spread volcanic ash all around the world. The next year was called ‘the year without a summer’ and there was virtually no agricultural harvest in Europe. The British prime minister at the time was Lord Liverpool, and who do you think his adviser was? None other than the celebrated economist David Ricardo. In the face of an imminent economic depression potentially leading to great social unrest, they instituted a program of crisis management. And what was it? Liverpool got Parliament to agree to a suspension of habeas corpus, Britain’s protection of personal freedom. The government could round up and imprison anyone who caused trouble or didn’t do what they were told, without following the law or legal procedures. In modern language, the government could trample human rights at will. The result of this policy was that during the entire period of economic decline, the usual troublemakers didn’t dare start anything, and in one year the national economy recovered. Wasn’t that pretty amazing?”