For some years economists and analysts have been wondering what it would take to scare financial markets. Wars, coups, soaring commodity prices, increased energy costs, unwinding housing markets—nothing seemed to do it. Last week we got one answer: China. The sharp plunge in the Shanghai stock market caused jitters around the world. But while the reaction pointed to the increased importance of China in global economics, it also highlighted the confusion and misunderstanding that surround the Middle Kingdom.
When a market has gone up 150 percent since 2006, as Shanghai's had, one doesn't need to search for grand explanations to recognize that it's bound to retreat at some point. More important, there is little linking the Shanghai stock market with the overall Chinese economy. It simply doesn't play the role that the stock market does in the United States or Britain. Most Chinese companies raise money through banks, not equities. Indeed, for the past 10 years, Chinese stocks have gone down while the economy has boomed. And yet the day after the market fell, we saw yet again all the same warnings about the hollowness of the Chinese system, the perils it faces and the imminent possibilities of its collapse.
It might be time to admit that we really don't understand China. The country simply does not conform to our most basic beliefs about what makes nations grow. Hernando de Soto, the Peruvian scholar, has argued persuasively that clear and strong property rights are the prerequisite for economic growth. Except that China, the fastest-growing country in human history, has an extremely unclear and weak system of property rights. Alan Greenspan has argued that the rule of law is the linchpin of market economics. Except that China has a patchy set of laws, unevenly enforced. The Washington Consensus that the World Bank and the IMF have peddled across the globe claims that if currencies don't float freely, they will produce huge distortions in the economy. China has declined that advice and yet prospers. So, instead of learning from facts and revising theory, we assume that the facts are wrong, that China is one grand charade.
This paradox is even greater in the political realm. Scholars examine China's political system—a Leninist party that maintains a total monopoly on power—and they are sure that it is crumbling. Yet the regime has defied predictions of its collapse for 25 years. We're sure that the Chinese people must hate their government, except that the only polls we have suggest exactly the opposite. Surveys conducted in the late 1990s by the scholar Jie Chien showed 80 percent support for the political system. Last year's Pew Survey on Global Attitudes has a little-noticed question: "Are you satisfied with the state of your nation?" Less than 30 percent of Americans said they were. China topped the list, with 81 percent of those surveyed answering "yes." Perhaps people lie to pollsters in China, but these numbers are consistent in several polls, and people in China do regularly express their opposition to corruption, environmental degradation and other specific policies.
Citizens' feelings about their governments are made up of a complex mix of cultural, historical and emotional attitudes. Americans, by and large, don't understand this because the basis of American nationalism is ideology. We believe that regimes with bad ideologies must be deeply unpopular. So we assume that the Iranian mullahs have no support in their society, that Vladimir Putin is viewed by his people as a dictatorial thug and that Saddam Hussein must have been reviled even by his Sunni brethren in Iraq.
Books proliferate about the fragility and weakness of the Beijing government—and the critiques are often extremely intelligent. But considering the massive challenges that it has faced, the regime has handled them quite skillfully year after year—though sometimes with a brutal edge. At every juncture, it's been able to tackle some seemingly overwhelming problems, postpone others and dodge bullets. Chinese leaders have managed the migration of 200 million peasants into cities and the mass unemployment caused by shutting down state-owned factories. They've periodically slowed the economy to stop its overheating. They've planned for the largest and fastest urbanization in history, and controlled the social discontent bred by such headlong growth. None of their moves has been perfect, but compared with any other country in the world, China has managed its problems well.
Is it so difficult to understand why the Chinese people might be satisfied with their current situation? Over the past century the country has gone through chaotic turmoil almost every decade—the collapse of the monarchy, warring states, the Japanese invasion, civil war, the communist takeover, the Great Leap Forward, the Cultural Revolution. But in the past 30 years, China has enjoyed stability, as well as the fastest growth rate of any country ever. Some 350 million people have been lifted out of extreme poverty. The country has a new, sparkling image across the world. If you were Chinese, you might take some pride in that too.