This is the Social Contract between the Chinese Communist Party and Society
I decided to give Maverick, C-in-C of the Monkey Brigade of E-7, a lecture on China. “While Pakistan’s rulers past, present and wannabes have been asleep, the world has been changing uncomfortably fast. Global turmoil is increasing as the world churns and crunches on towards a New World Order, the Leviathan morphing and convulsing as it sheds its old skin or old global status quo and acquires a new skin or a new global status quo, hopefully, but unlikely, to one more equitable.”
“What’s new?” asked Maverick sarcastically. “We are Sleeping Beasts, we know that, everyone knows that.”
“Look Maverick. I don’t like blowing my own trumpet, but hadn’t I predicted that the so-called Greek EU bailout was actually fiscal colonisation and would not fly, turmoil would increase, just as I had predicted the global recession of October 2008 in an article entitled ‘The Coming Global Financial Crisis’ three months earlier? So listen patiently.
“The bailout hasn’t flown, not after the people had already voted against it in a referendum, but the Greek parliament-in-bondage passed it, ignoring the voice of the people. Such is the turmoil that a new anti-austerity party has been launched. There are so many defections from the ruling party that Greek Prime Minister Alexis Tsipras has been forced to call snap elections to re-establish his legitimacy after betraying his promise to his electorate to reject bailouts and austerity. But when the heat went up he ran from the kitchen, sacked his finance minister and accepted a worse deal. His government lost all credibility. He banks on snap elections hoping to win and re-establish credibility. So has Tayyip Erdoğan of Turkey for different reasons, fighting as he is against unmitigated state and non-state terrorism and the danger of losing a large swathe of his country if Kurdistan is made, as Iraq and Syria have lost parts of their countries to the fake ‘Islamic state’.
“Now to China, Maverick. When Deng Xiao Ping took over soon after the great turmoil of the Cultural Revolution, the one thing that the Chinese had come to treasure most was stability. So the Chinese Communist Party (CCP) entered into a Social Contract with its people: ‘Growth for Stability; Stability for Growth’ – growth provided by the government, stability by the people. The CCP knows that if growth and prosperity slow down, stability will go out the window and cause strife and destabilisation.
“To stimulate economic growth Deng Xiao Ping grafted two ideologies together to make a new one: ‘Communist Capitalism’. This social surgery was done by taking one branch from the best of political and administrative communism and grafting it on the best branch of capitalism and unleashing entrepreneurship and the pioneering spirit. The best of capitalism is not free-for-all unchecked market capitalism as in the West that gave free rein to banks and banksters to plunder without regulation that is bringing western economies to their knees along with the global economy, but properly regulated.
When Deng Xiao Ping took over soon after the great turmoil of the Cultural Revolution, the one thing that the Chinese had come to treasure most was stability
“Growth came so fast that China took some 400 million people out of poverty in the shortest time in history and became the second largest economy in the world before my eyes. When I first went to China some 35 years ago Maverick, I felt sorry for them. Now when I go there I feel sorry for us.
“So when the stock markets of the second largest economy slump, it causes worldwide panic and stocks and currencies go south. For whatever they might think of themselves, humans are still skittish herd animals who skittle easily. Panic spreads like a contagion and causes a mindless stampede. Before it is over the herd has trampled over a great deal and sent it to oblivion or degradation.”
“Why did this happen?” asked Maverick.
“Because China made some mistakes to keep its part of the Social Contract with its people. The CCP and government or ‘State Council’ as government is called went too far too fast, hell-bent on exporting anything and everything at whatever price. Most people think that China is a dictatorship where the word of the party general secretary, head of the military commission and/or president counts. Few people know that China has a ‘Collective Presidency’ and no one person can make unilateral decisions like a king, as happens in Pakistan under the facade of sham democracy. In the process of export price cutting China destroyed many industries in developed and developing countries and became an export-driven economy overly dependent on the health of its biggest importers, the USA, Europe and Japan.
“China realised after the 2008 global recession that its economic health depends hugely on the health of its importers and the strength of the US dollar (USD) as the global reserve currency. So it decided to do three things to break out of the shackles of US-European import dependence:
1. Increase domestic consumption to become less export dependent.
2. Open export and investment markets in other emerging economies.
3. Create an alternative to the USD as the global reserve currency by first getting into the IMF’S basket of currencies that make Special Drawing Rights (SDR), a ‘synthetic reserve fund’ as Benjamin Cohen calls it, that today comprises the USD, sterling, euro and yen. But the Chinese renminbi or yuan, though the currency of a leading exporter, will also have to float first before it can join the SDR basket. That’s a pre-condition. But floating it would be a grave mistake and leave the renminbi at the mercy of currency markets and currency speculators, many of whom work with the US. Best to let the People’s Bank of China determine the daily exchange rate within a narrow band, as the US had promised to do with the dollar when it was made the international reserve currency and let the world lump it. China’s not-so-long term plan is either to replace the dollar with the renminbi as the global reserve and trading currency or at least become another currency of choice along with the USD. That would be a mistake too because a reserve currency has to be “as good as gold” and remain within a narrow value band as President Richard Nixon promised when the US dropped the Gold Standard and replaced it with the dollar. It was the greatest gold swindle in history. Plus the renminbi as reserve currency would meet the same fate as the dollar. The step-by-step second plan is better, that China helps launch a new Global Reserve Currency or GRC backed by the renminbi, USD, yen, sterling and euro if it still exists by then.
4. To increase credit-driven domestic consumption China devalued its currency by only five per cent and caused a huge artificial international kerfuffle. Problem is, the West wishes to put all the blame for its economic woes on China instead of taking it on the chin and accepting that they are self-inflicted, driven by greed and a misplaced sense of global overlordship. The kerfuffle is a smokescreen to hide the mistakes of the West. ‘China has unleashed a currency war’, screamed western pundits. The euro’s devaluation this year has been 20 per cent, the yen’s 35 per cent since 2012, so what is the hue and cry over China’s five per cent devaluation all about? What ‘currency wars’? China will hardly get a larger chunk of the world export market with a five per cent devaluation but could increase direct investment and more domestic consumption, albeit credit based, which is a pity because it would add to the domestic debt stock. China has no external debt but its credit-driven consumption has raised a huge private sector debt stock that could become unsustainable, just as the debt of most others has become unsustainable.
The Chinese people have three intrinsic spontaneities:
1. They are the world’s greatest (though not necessarily the best) capitalists.
2. Yet they are also the most abhorrent to risk, preferring to pass all risk to the other guy. Thus China’s growth slowdown and stock market slump will psychologically affect the people hugely and damage their Social Contract leading to societal destabilisation that it can ill afford.
3. They are the world’s most spontaneous gamblers, which has been transferred to their two stock exchanges that many play like casinos.
4. Yet, they are also the world’s greatest savers, loathe to purchasing with their own money.”
“That’s quite a lecture, Humayun,” said Maverick. “My mind is reeling. You know more about China than I do.”
“That’s not difficult, Maverick,” I said unkindly. I cannot help being a wise guy sometimes.
“I know am more interested in it for it affects my life,” said Maverick, ignoring my rudeness.
All three branches of government – parliament-legislature, executive and judiciary – have compromised themselves. What Pakistan needs is another election, this time not under the disgraced judiciary but the army, the only institution left with credibility
“Well, we should be interested about what happens in the world too Maverick,” I said, “because it has a great impact on us. What if China’s economy actually takes a huge downturn? It could delay the China-Pakistan Economic Corridor if not compromise it. The drop in international oil prices helps to reduce our import bill and reduces the inflation rate too, but what goes down must come up one day. Should we not create a huge oil stock now to reduce the oil price rise shock later? But we don’t have the money. Do we have the credibility for forward buying? I don’t know. Problem is that we are so caught up in our own unnecessary politics-created mess that we have no time to worry about global events much. Tensions with India and Afghanistan are rising. We are winning the war against domestic terrorism, but there is still a long way to go, even longer to fight economic terrorism of our rulers past and present.
“A litany of everything that is going wrong will take up too much time, Maverick. The two biggest events of last week were the third parliamentarian of Nawaz Sharif’s ruling party felled by Imran Khan’s PTI for stealing the mandate of their constituencies and the arrest for alleged corruption of Zardari crony Dr Asim Hussain who was PPP petroleum minister and his gas flunky. The three felled parliamentarians include the Speaker of the National Assembly. The third seat was where the PTI’s Jehangir Tareen won his case; the fake MNA who ‘won’ has been banned from contesting elections for life. Tareen and his lawyers put up a great fight and deserve great kudos. But what happens to all the rulings of the pretender speaker, one Ayaz Sadiq? Where do they go? Into the dustbin or will they be allowed as ‘past and closed transactions’ under the dark cover of the Law of Necessity?
“All three branches of government – parliament-legislature, executive and judiciary – have compromised themselves. What Pakistan needs is another election, this time not under the disgraced judiciary but the army, the only institution left with credibility. If Imran Khan has any political sense he would resign from the assemblies and force elections, whether the MQM withdraws its resignations or not. If Nawaz Sharif has any sense, he would call snap elections and catch everyone with their pants down. I’m sure he knows it but what stops him is the fear that, first, he might not win this time with the army and not the judiciary supervising elections with an honest and competent Election Commission, making wanton rigging very difficult unless the army wants it as it has done before in the Nineties. Second, and worse, the Supreme Court (with some prodding by you-know-who) may rule that the new caretaker government should first do a janitorial cleansing job and conduct ruthless accountability, amend and correct the constitution and its political and other systems, make changes to Pakistan’s administrative structure and do electoral reforms before holding the next elections. That would take years during which our political gangsters may no longer be part of the equation but living with the stars or cooling their heels behind bars, in exile or under disqualification from holding public office, elective or selective, ever again. So, make hay while the sun shines – or even when it is cloudy, as it is right now.
“Someone said to me, ‘The end game has begun, old chap’. Actually, the end game begins the moment you start, just as you become terminal the moment you are born because die we all must one day. However, I do have the feeling that the ‘Moving Finger’ has started writing the final chapter of this phase of Pakistan’s existence.”
