The New Rules: Resilience the Big Question in China’s Rise

The New Rules: Resilience the Big Question in China’s Rise

The sense of ideological triumphalism with which China recently celebrated the 90th anniversary of Communist Party rule echoed a flood of recent books and analyses in the West that have readily embraced that same sentiment. Nevertheless, there is a growing mountain of evidence that suggests China's "unprecedented" economic accomplishments are far less impressive than popularly imagined. And with the region's "demographic dividend" already shifting from China to both India and Southeast Asia, there are plenty of reasons to believe that Beijing -- and the world -- is just one financial crisis away from finding the "superiority" of state capitalism revealed as a fraudulent myth.

Anyone who might welcome this disturbing scenario out of some sense of Schadenfreude should think twice: China is slated to directly account for the single largest component of global economic growth in the decade ahead. And when you factor in all the just-emerging economies in Latin America, Africa and the rest of Asia that owe much of their recent and ongoing growth to the Middle Kingdom's ravenous appetite for commodities, it's clear that globalization's long-term prospects depend heavily on the continued success of China's rise. The irony couldn't be greater: Democracy champion America's seven-decade grand strategy of transforming the world via the international liberal trade order known as globalization now hinges on one of the world's most illiberal political systems.

But with that stunning economic dependency comes increased financial scrutiny. Already there is a boom in corporate investigations by Western auditing firms looking for discrepancies in the financial claims of Chinese businesses. Meanwhile, a small army of Western hedge funds is searching for short-selling opportunities, and the world's leading bears increasingly finger China as the next focal point of the ever-extending global financial crisis. As Andrew Collier, a Western expert on China's banking system, recently argued in a Wall Street Journal op-ed,"There is a rampant growth of credit, uncontrolled or even incalculable by the country's top leadership . . . Does this remind anyone of America's subprime crisis?"

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