Bookshelf: ‘Vampire state: The rise and fall of the Chinese economy’

After three decades of record-breaking growth, at about the same time as Xi Jinping rose to power in 2012, China’s economy started the long decline to its current state of stagnation. The Chinese Communist Party would like us to believe that the country’s massive problems are under control and that the economy can easily be kickstarted. But few analysts are convinced.

Ian Williams was a long-time foreign correspondent for Channel 4 News and NBC, based in Moscow, Hong Kong, Bangkok and Beijing, and has written extensively about China. In his latest book, Vampire State: The rise and fall of the Chinese economy, he takes a particularly tough view, suggesting that China’s economic miracle was just a mirage all along.

As Williams sees it, China’s economic reforms were half-hearted from day one and designed first and foremost to ensure that the CCP would remain in power. The West expected economic reform to be followed by political reform and US president Bill Clinton even used this argument with Congress to justify China’s accession to the World Trade Organization in 2001. But political change was never on the CCP’s agenda. Rather, China’s ‘socialist market economy’ was intended to bend economics and business to the party’s will and keep the CCP firmly in the driver’s seat.

With China’s economy now in deep trouble, Williams argues that the party-state is the problem rather than the solution. Like a vampire, the party-driven control structures are draining the life-blood out of the economy. Not satisfied to control the country’s huge state-owned enterprises, in recent years the CCP has tightened its centralised mechanisms and expanded its presence into the boardrooms of private companies.

Williams’s analysis starts from the domestic economy, where an enormous property bubble has deprived local governments of income from the sale of land rights, creating huge industrial surpluses and driving youth unemployment up and consumer prices down.

With limited options for addressing this deflationary spiral, China has resorted to exporting its problems. Casting a wide net, Williams reviews the global reach of China’s economic operators, from the expansive infrastructure lending of state-owned policy banks throughout Africa, Asia and Latin America to Chinese racketeers in the border regions of Laos, Myanmar and Thailand.

For all Beijing’s talk of borrower-friendly policies and no-strings-attached lending, China is an unforgiving creditor. When its massive infrastructure projects run into trouble, it prefers providing rescue loans that tighten its control over the assets it has created to writing down debt, squeezing the poorest borrowers in the process.

Williams takes a particularly dim view of China’s business and investment environment, citing numerous examples of a business-unfriendly public sector, biased legal system and unreliable private partners. The fine line between the voluntary transfer of know-how and technological theft is a major danger zone. Many foreign investors have been trapped into ‘voluntarily’ handing over business secrets only to find themselves edged out by their Chinese partners. Investors have also learned the hard way that the Chinese court system rarely works in their favour.

Overseas cooperation between China’s public sector and its state-owned and private enterprises is exceptionally tight, whether in trade policy, research and development, the ‘borrowing’ of technology or development of human resources. The Chinese army, for example, describes sending scientists to study in Britain as ‘picking flowers in foreign lands to make honey in China’.

Williams has researched his book thoroughly, travelling the length and breadth of China to study local-level problems first-hand. He also visited countries throughout Asia and elsewhere impacted by China’s economic policies. His research included wide-ranging interviews, from the foreign minister of Lithuania and other government leaders, business executives and human rights activists to the manager of a massage parlour operating on the border between Laos and Thailand.

Can China bounce back, or is the miracle over? According to Williams, Xi is not able to implement the reforms needed to get the economy back on track simply because they would threaten the CCP’s grip on power. As a result, the Party is ‘frozen in the headlights’. The cautious balance between stimulating the economy and ensuring stability struck this month by the National People’s Congress is consistent with this diagnosis.

Williams analyses China with his eyes wide open. His refreshing book is a must read for anyone dealing with China’s economy, from public sector trade negotiators to private businesspeople and investors.