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The Danger From Within
by James Dunnigan
September 2, 2014

The Chinese government anti-corruption campaign has prosecuted more high-ranking thieves recently, and a lot more lower-ranking officials as well. This campaign has been going on longer, and taking down more people than any previous effort. The government also insists that this campaign will not, as in the past, simply diminish and fade away as past anti-corruption efforts have. This worries a lot of Chinese, even though most admit that the corruption is the greatest threat the current communist government faces. The potential problem is the growing risk that corrupt businessmen and officials who fear prosecution will get organized and fight back. This could mean anything from assassinations of politicians backing the prosecutions to the worst case; another civil war. The fears are real because most Chinese with a lot of money (the top one percent of wealthy Chinese basically own a third of the wealth and control most of the economy) had to deal with corruption (either enthusiastically or out of necessity) to get where they are. If supreme leader Xi Jinping and his anti-corruption allies are to succeed they must continue their efforts (to greatly diminish the corruption and keep it diminished) without triggering a violent response. Where this gets tricky is figuring out how to deal with all those senior government officials who are dirty, especially since a lot of them would rather not be. Worse yet, Xi Jinping has broken a long-observed, but unwritten, rule against prosecuting the most senior officials. Xi Jinping is now doing that and this makes many Chinese, and non-Chinese nervous.

The obvious solution to this problem involves giving a lot of the corrupt a way to obtain some form of amnesty and have the anti-corruption effort concentrate on the worst offenders. If there are no rules or guidelines on how this will proceed, opposition may form and get violent. Meanwhile a growing number of wealthy Chinese and senior government officials are moving assets, and sometimes family, to other countries. Just in case. This sort of moving cash out of the country is often illegal and it is estimated that over a trillion dollars have been moved since 2002. More wealthy Chinese are now being prosecuted for this money laundering, which often left a lot more clues behind in the West (where the money landed) than in China (where financial records are less regulated and more subject to tampering.) China did not even start investigating and prosecuting this sort of thing until 2013.

The government recently concluded several months of intense anti-Japanese propaganda in state controlled mass media. Most of this consisted to broadcasting details of Japanese atrocities during World War II. All this is because Japan decided (according to diplomatic messages decrypted after the war by the U.S.), even before their surrender in 1945, to play the victim when it came to their responsibility for horrific wartime actions. While this played well in Japan, it annoyed and disturbed the neighbors. Some Japanese understand what is going on here, but because the Japanese educational system is based on this 1945 decision (which played down Japanese atrocities in Japanese textbooks and media in general) most Japanese cannot understand the reaction of foreigners when it comes to Japan and World War II. Among Chinese, too many (as far as the government is concerned) note that, while the Japanese are guilty as charged, their own government is not much better. During World War II the communists were into atrocities as well, although not as massively and effectively as the Japanese. Then after the war this bad behavior continued. Most Chinese know about the massive starvation and political killings in the 1950s and 1960s and how their government continues to try and hide what actually went on. Many Chinese still regard Mao Zedong as a hero, even though his polices led to the death of over 20 million Chinese and the impoverishment of most of the population. When Mao died in 1976 his fellow communists (who had survived the many purges ordered by Mao) took a different path and made China what it is today. Despite that success, the Chinese leaders, like their Japanese counterparts, continue to try and hide the ugly past and learn nothing from it.

The government continues to hide bad news, and this has many Chinese, and many of China’s economic partners worried. Even according to official data the Chinese economy continues to slow down. The international financial community is getting nervous about the Chinese government’s ability to deal with a uniquely Chinese financial bubble. While in the West the usual bubble is one based on real estate or stock market speculation, in China there is a less well known bubble involving an unofficial banking system that provided loans to highly speculative (and often, by Chinese standards, illegal) undertakings. These “shadow banks” were also very corrupt, doling out bribes and fees to corrupt businesspeople and government officials. The problem is that all this off-the-books financial mischief has got its hooks into legitimate assets (as collateral or a source of cash to keep operating or expand). The number of bad loans (that are not, and probably never will be repaid) has been growing and that is threatening to reduce the cash the official banks have free to keep the economy going. If the government mishandles this mess the Chinese economy could suffer widespread bankruptcies and high unemployment. It could take several years to recover and during that time there could be a popular uprising. A dip in the Chinese economy (at $9 trillion second only to the American $14 trillion) would ripple throughout the global economy. It would be 2008 all over again, but possibly worse. So it’s not just China’s problem.

Details of this misbehavior are, ironically, being made public as the government also expands its anti-corruption efforts to the mass media and the Internet, where a number of prominent executives are being prosecuted for manipulating data in the media for financial gain. While government censors try to keep anything embarrassing (to the government) out of the reporting of anti-corruption efforts, a lot of embarrassing material has been released anyway, often because the censors were not prepared to handle complex financial data.  This has led to more public protests as people defrauded by this data manipulation stage demonstrations against the culprits (both government and non-government.) Growing public discontent over corruption and mismanagement in the government has led to growing unrest, and more violent protests. Public demonstrations against corruption or harmful government policies have increased since the 1990s from under 8,000 a year, to over 2000,000 a year. Attempts to hide this have backfired, as the Internet and cell phones quickly spread news, and images, of police brutality. As a result, the police are being more restrained, and the government is more willing to address the popular complaints. In a growing number of cases, the police have little choice, because the crowds are becoming larger, and more aggressive, than the police can handle. The most frequent causes of these demonstrations are land theft, police misconduct (like murdering someone in jail) or various forms of official corruption. Government response still varies greatly, largely because decisions on how to handle demonstrations is usually a local matter. The central government can intervene, but rarely does. That's because the central government does not have the resources to run the entire country. China has always depended on strong local governments, at the province level and below, to take care of things. But this is where the corruption is worst. More and more provincial officials are being prosecuted for corruption, but there are so many of them, and they tend to help each other out. In effect, China is at war with itself over the corruption and bad government, and everyone is losing.

In the northwest (Xinjiang) the government continues to have problems with Uighur unrest. China accuses Islamic terror groups among the ethnic Turks (Uighurs) of Xinjiang for all these problems. The government is greatly embarrassed at its inability to halt the violence. Unhappy Uighurs are increasingly aggressive in attacking the growing Chinese presence among them. In Xinjiang province the local Uighurs are not responding well to growing pressure from Han Chinese soldiers and intrusive Han government officials. Because of that many Uighurs continue to support anti-Han activity and this makes it possible for Islamic terrorists to survive and operate. Most Uighurs are found in Xinjiang province. There the nine million Uighurs are now less than half the population and most of the rest are Han Chinese. The government has been publicly urging soldiers and police to be more aggressive against uncooperative Uighurs. The government accuses Uighur activists of endangering state security and tries to keep the unrest out of the news. The same thing is happening in Tibet, where the government is using the same tools to keep everyone under control. Since 2011 several hundred have died in Xinjiang because of Uighur violence against Han rule. Thousands of Uighurs have been arrested and hundreds sentenced to prison, or death.

China has increased its efforts to gain some control over the North Korean government by doing nasty things the North Korean leaders want. The Chinese have gained some leverage by providing something the North Korean leadership wants badly; help in halting North Koreans from escaping into China. More North Korean “defectors” are being arrested by Chinese police and sent back to North Korea. In the last few weeks China has also applied more pressure to Christian charities and foreign Christian in general who are operating in China near the North Korean border. Many of these Christians (especially ethnic Koreans from the West) are known or suspected of helping North Koreans escape North Korea and get to South Korea. It is unlikely North Korea will go so far as to drop their nuclear weapons program because of all this assistance, even if that’s what China really wants. Nevertheless China is trying the carrot with North Korea for the moment, although the stick (messing with the North Korean economy by halting trade and Chinese investment) is still ready for use.

The anti-Christian campaign is not confined to the North Korean border but is also taking place in areas where Christians are a large (meaning over ten percent) of the population. Christians have often been persecuted by the communist government and that usually happens again when more Chinese Christians are too active in practicing what they preach.

China and India recently agreed to allow more economic activity between the two countries. This is unpopular with Indian firms who see the Chinese as capable and ruthless competitors. Indian businessmen know that the flood of Chinese consumer goods entering Pakistan in the past few years has hurt Pakistani manufacturers. The Chinese good are cheaper and seen as better quality than locally made stuff. Indian diplomatic experts also point out that once China becomes a large part of a neighbor’s economy they will use that economic leverage to coerce concessions out of the neighbor. China is even doing this with mighty Japan, long a major investor in and exporter to China. Meanwhile India is spending billions of dollars to double the number of troops stationed on its borders with China because of border disputes the Chinese refuse to settle.

Meanwhile the Chinese aggression in the South China Sea has created a widespread belief that war is not only possible but imminent. A recent opinion poll in the region found that over 60 percent of the people in nations bordering the South China Sea feared Chinese aggression and the war it might trigger. A similar percentage of Chinese agreed. China created this mindset, and the world wonders what China is going to do about it. Another interesting trend is that more people in the region, and worldwide, are agreeing that China is now a superpower. More Chinese have that attitude as well. Worldwide, the democracies tend to get along with each other and the result is that in democracies the United States has much better popularity ratings. The two Cold War tyrannies, Russia and China, still foster anti-American sentiments, even though the U.S. made the first move to improve relations with China in the 1970s and rushed to the aid of Russia after the Cold War, and the Soviet Union, ended. While popular opinion in China and Russia is generally anti-American, the neighbors of both those countries tend to be hostile to their large neighbor and friendly towards the United States.



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