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Brazil after Dilma

On Tuesday former Brazilian president Dilma Rousseff left the presidential palace in Brasilia and boarded a plane for her adopted home city of Porto Alegre. She leaves behind a successor who risks indictment for far worse offences than the ones that brought her down, and a country that has lost its right to a place among the BRICS

The BRICS began as a collection of large, fast-growing countries in the poorer parts of the world that Jim O’Neill of Goldman Sachs identified as emerging global powers in 2001: Brazil, Russia, India and China. (South Africa and the capital S were added in 2010.) The BRICS even started holding annual summits, although they were rarely more than orgies of self-congratulation.

Nobody enjoyed their new status more than the Brazilians, but it was always an illusion. China and India, with 1.3 billion people each, were indisputably great powers. Russia was a recovering great power, not a new one. But Brazil, like South Africa, was an imposter, lacking the critical combination of population, resources and industry that entitles a country to a place in the first rank.

Brazil was a fairly plausible imposter during the years of the great boom in commodity prices, but for the past two years it has been in deep economic trouble. It was Dilma Rousseff’s misfortune to win the 2014 presidential election just as the bottom dropped out of the country’s economic “miracle”.

Her predecessor as president, Luiz Inacio “Lula” da Silva, exploited the boom to build a modest welfare state that lifted 50 million Brazilians out of poverty. Rousseff struggled to maintain those gains in the midst of Brazil’s worst recession since the 1930s – the economy shrank by almost 4 percent last year – and became the least popular president in Brazilian history.

Her unpopularity, plus a huge corruption scandal that implicated some members of her Workers’ Party (though not herself personally), created the atmosphere in which it became possible for the Brazilian Congress to impeach her. She describes it as a “constitutional coup” designed to remove an elected left-wing government from power, and she is quite right.

Rousseff was not impeached for corruption. She was found guilty of window-dressing government accounts before the last election, in order to minimise the impact of the collapse in Brazil’s export earnings on her spending promises. It was a petty misdemeanour for which she received a grave punishment at the hands of a Congress full of people who have committed actual crimes.

It is universally acknowledged that the Brazilian Congress is one of the most corrupt legislatures on the planet. 58 percent of the members are currently under investigation for involvement in the “Lava Jato” (car wash) scandal, in which they allegedly got kickbacks on contracts with the huge, state-owned Petrobras oil monopoly.

Few of these people are associated with Rousseff, since the Workers Party holds less than one-tenth of the seats in Congress and depends on coalitions for a majority. A cynic
might say that that’s why Rousseff has supported federal prosecutors who are investigating Lava Jato – but the same cynic would also have to acknowledge that one of the motives for impeaching Rousseff is to shut the investigation down.

Indeed, the majority leader in the Senate, Romero Juca, was secretly recorded discussing precisely that goal – and he is a close political ally of Michel Temer, Rousseff’s former vice-president (from another party), one of the leaders of the campaign against her, and now her successor as president.

President Temer himself has been accused of skimming $300,000 off a nuclear-energy contract, so it shouldn’t be too long before some kind of amnesty is cobbled together for everybody who faces indictment in the Lava Jato case.

Under Temer, a centre-right politician, it also shouldn’t be long before austerity measures begin to cut into the increased spending on education and welfare that has transformed the lot of the Brazilian poor since the turn of the century. Money is scarcer now, of course, but there are other possible ways of coping with it than just imposing more sacrifices on the poor.

So what kind of Brazil emerges from this sorry story? It will be a much diminished country in wealth, in reputation, and in international influence, and the social and economic gulf between the rich and the rest will widen once again.

None of the BRICS apart from India is doing very well at the moment: Russia’s oil income has collapsed, China’s claims of continuing economic growth are deeply suspect, and South Africa’s economic growth last year was 0.5 percent. As Warren Buffet once said, it’s only when the tide goes out that you find out who’s been swimming naked. Everybody, it turns out.

What’s especially sad about Brazil is that it really did use its boom to rescue a generation of the very poor from misery, and was starting to address the extreme corruption of its political system as well. Now most of that will be rolled back. The crooks are back in charge.
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To shorten to 725 words, omit paragraphs 7 and 14. (“Rousseff…crimes”; and “None…out”)

Duterte and the UN

Rodrigo Duterte, the new president of the Philippines, gives good copy. Here’s a quote from his final election rally: “Forget the laws on human rights. If I make it to the presidential palace, I will do just what I did as mayor. You drug pushers, hold-up men and do-nothings, you better go out. Because I’d kill you. I’ll dump all of you into Manila Bay, and fatten all the fish there.”

And here’s another, from last Sunday, after United Nations Secretary General Ban Ki-moon and the UN’s Office on Drugs and Crime condemned Mr Duterte’s “apparent endorsement of extrajudicial killings.”

“I do not want to insult you,” Duterte said. (He only called them “stupid”.) “But maybe we’ll just have to decide to separate from the United Nations. If you are that rude, we might just as well leave. So take us out of your organisation. You have done nothing. Never. Except to criticise.”

What upset Ban Ki-moon and the UNDOC is the fact that Duterte is having people murdered. Since he took office three months ago, some 900 “suspected drug-dealers” have been shot dead by police and civilian vigilantes acting in his name. None was found guilty by a court, and some, of course, were completely innocent.

Duterte is not denying it or apologising. Before he leaves office, he says, he’ll just give himself an amnesty: “Pardon given to Rodrigo Duterte for the crime of multiple murder, signed Rodrigo Duterte.”

“The Punisher”, as he was known when he was mayor of Davao, is very serious about his “war on drugs”: he recently said he would kill his own children if they took drugs. But crime is not the Philippines’ biggest problem, and it’s not clear what else he is serious about.

He talks vaguely about making the Philippines a federal country, but no details of his policies and plans have emerged. In fact, he has spent most of the time since his election down south in his Davao stronghold, not in Manila.

But he does have a plan of sorts for what to do after he walks out of the United Nations. He says he may ask China and African countries to walk out too and form a rival organisation. He doesn’t know much about China or Africa, so maybe he thinks they would like to get together and defy the parts of the world where governments believe that killing people is wrong.

“Duterte Harry” (another nickname) is very popular in the Philippines, but he is not really a threat to global order. The hundred million Filpinos will have to live with him for the next six years, but the United Nations is not doomed. In fact, it is doing better than most people give it credit for.

One proof of this is the fact that the Secretary General now has the right to criticise a member government merely for killing its own citizens. That’s not what it was designed for. When it was created in 1945, as the catastrophe of the Second World War was ending, its main goal was to prevent any more wars like that.

The founders tried to give it the appearance of a broader moral force by signing the Universal Declaration of Human Rights in 1948, but that was mainly window-dressing. The UN was created by the great powers to prevent any government from launching another war of international aggression, not to make governments treat their own citizens better.

In fact, each major power was effectively guaranteed the right to do whatever it wanted to its own citizens, so long as it did not attack the neighbours. In this, the new UN was just recognising reality, for every great power was determined to preserve its own “sovereignty”. Even for smaller powers, the great powers could rarely agree on what kind of intervention was desirable, and who should do it.

The UN has done well in its original task: it shares the credit with nuclear weapons for the fact that no great power has fought any other for the past 71 years. It has gradually moved into other areas like peace-keeping and promoting the rule of law in the world, but it never interferes inside the territory of the great powers. Even in smaller countries it almost never intervenes without the invitation of the local government.

So when Duterte called the UN useless because “if you are really true to your mandate, you could have stopped all these wars and killings,” he was talking through his hat. Besides, he would never accept UN intervention in his own country to deal with an alleged crime wave. He’s just talking tough because he hates being criticised.

It’s very unlikely that he will carry out his threat. The UN is the keystone in the structure of international law that, among many other things, deters China from settling its territorial dispute with the Philippines by force. Rodrigo Duterte is just a problem for the Philippines, not for the UN or the world.
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To shorten to 725 words, omit paragraphs 7 and 12. (“He talks…Manila”; and “In fact…it”)

Brazil’s Corruption Crisis

You couldn’t make this stuff up.

Next Sunday, President Dilma Rousseff of Brazil faces an impeachment vote in the lower house of Congress. The charge? That she manipulated government accounts to make the deficit look smaller than it really was before the last election.

But that’s ridiculous. Governments always try to downplay the deficit before an election. I’ve covered dozens of elections, and at least one-third of the time it later came out that the government had been hiding how bad the financial situation was. It’s naughty, but it’s not a hanging offence.

Never mind. The knives are out for Dilma Roussef in Brazil, and if she loses the Congressional vote this weekend she is heading straight for impeachment. That would mean that she would be suspended for 180 days even if she ultimately survived the process. So who would take over while Rousseff is on trial?

Vice-President Michel Temer, of course, and he would be more than happy to do that. In fact, a recently leaked audio tape reveals him rehearsing the speech he would make after Rousseff was suspended. “Many people sought me out so that I would give at least preliminary remarks to the Brazilian nation, which I am doing with modesty, caution and moderation…” he modestly begins.

Rousseff was furious, accusing Temer of betrayal (he only led his party out of her coalition government last week), and she now talks about him as the chief conspirator in a coup plot against her democratically elected government. But she shouldn’t worry too much about Temer, because he is also facing impeachment, on the very same charge of cooking the government books to hide the scale of the deficit.

Who would take over if Temer was also impeached? The speaker of the lower house of Congress, Eduardo Cunha, is next in line – but he is facing money-laundering and other grave charges connected with an immense scandal in the state-owned oil company, Petrobras. (His secret Swiss bank accounts hold over $5 million.)

So the job of running Brazil would go to the speaker of the Senate, Renan Calheiros – except that he is also being investigated on the same charges. Indeed, more than 150 members of Congress and government officials are currently facing charges of bribery, corruption and money laundering as part of the “Operation Lava Jato” (Car Wash) investigation into the affairs of Petrobras.

This is not some banana republic. This is Brazil, a country of 200 million people with the sixth biggest economy in the world. Yet the entire political class is under suspicion of criminal behaviour, apparently with good reason, and day after day the streets are full of angry demonstrators.

Brazil has been fully democratic for the past three decades, yet Rousseff now worries openly about a coup. Some of the anti-government demonstrators are openly calling for a military takeover. This is a country in meltdown – but why now? Because the economy has gone belly-up.

The global economy was booming when Rousseff’s Workers Party first came to power in 2003 under the leadership of Luiz Inácio “Lula” da Silva, and Brazil’s economy was booming with it. There was money then for huge social spending – enough to lift 40 million Brazilians out of poverty – and Lula was beloved by all.

But the Crash of 2008 had already taken the bloom off the rose before Dilma Rousseff succeeded Lula in 2011, and Brazil’s export-dependent economy has taken a terrible beating since then. It was growing at 3.5 percent annually under Lula. It was already down to 2.2 percent in Rousseff’s first term, but it shrank at the rate of 4 percent annually in 2014 and 2015.

It’s mostly not Rousseff’s fault, although she could have done better. China, Russia and South Africa have seen similar declines as commodity prices plunged and exports dwindled.

Indeed, among the BRICS, the big, fast-growing economies of the former Third World, only India has escaped. And this collapse in growth is why opinion polls show that 68 percent of Brazilians now want to see Rousseff removed from power.

There is unquestionably a major political crisis in Brazil, but it may not be quite as bad as it looks. The latest head-count suggests that the vote in the lower house of Congress may not produce the two-thirds majority of votes that is needed to impeach Rousseff.

Even if it does, Rousseff can appeal to the Supreme Court. If that fails, the Senate must vote on impeachment – and if it also votes yes, Rousseff can appeal to the Supreme Court again. And so far the military show no signs of wanting to seize power again.

So Rousseff may still be lumbered with the miserable and deeply unpopular task of running a large and boisterous country that is going through a severe cyclical economic downturn for another two and a half years. She’ll probably be glad when her term is up.
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To shorten to 725 words, omit paragraphs 11 and 12. (“The global…2015”)

China: Another Chairman Mao?

Opening the National People’s Congress in Beijing last Saturday, Prime Minister Li Keqiang set China’s growth target for the coming year at 6.5-7 percent, the lowest in decades. Only two years ago, he said that 7 percent was the lowest acceptable growth rate, but he has had to eat his words. He really isn’t in charge of very much any more.

The man who is taking charge of everything, President Xi Jinping, is now turning into the first one-man regime since Deng Xiaoping in the 1980s. The “collective leadership” of recent decades has become a fiction, and Xi’s personality cult is being vigorously promoted in the state-controlled media.

Xi has also broken the truce between the two major factions in the Chinese Communist Party, who might be called the “princelings” and the “populists”. Xi, as the son of a Communist Party revolutionary hero who ended up as vice-premier, is princeling to the core. His centralising, authoritarian style is typical of this privileged breed.

The populists, like Li Keqiang, are generally people who grew up poor, usually in the interior, not in the prosperous coastal cities. They rose to prominence more by merit than by their connections, and they are more alert to the needs of vulnerable social groups like farmers, migrant workers and the urban poor. Most of them have come up through the Communist Youth League, and are known in Chinese as tuanpai (“the League faction”).

Frightened by the non-violent demonstrations that challenged the Communist Party’s monopoly of power in 1989, for almost three decades these two factions have carefully shared power and never attacked each other in public. Xi has now broken that non-aggression pact, authorising open attacks on the “mentality” of the Communist Youth League in the media.

The friction between the factions has grown so great mainly because the Chinese economy is stumbling towards a crisis. Neither faction has a convincing strategy for avoiding the crisis, but each has come to believe that the other’s political style – authoritarian for the princelings, populist for the tuanpai – will make matters worse.

The Communist Party’s dictatorship is founded on an unspoken contract with the population: we will provide constantly rising living standards, and in return you will not question our authority. But no economy can grow at 10 percent a year forever, or even at the currently advertised rate of 6.5-7 percent.

In fact, China’s growth rate actually collapsed about seven years ago, but it has so far been hidden by a binge of debt-fuelled investment. When most of the world went into a deep recession after the financial crisis of 2008, the Chinese regime artificially kept the country’s growth rate up by raising the proportion of GDP devoted to investment in infrastructure to an incredible 50 percent.

In the following five years, China was building a new skyscraper every five days. It built more than 30 new airports, subway systems in 25 cities, the three longest bridges in the world, more than 10,000 km (6,000 miles) of high-speed railway lines, and 40,000 km. (26,000) miles of freeways. Tens of thousands of high-rise residential towers went up around every city.

But the new towers remain largely empty, as do many of the freeways. These are investments that produced jobs at the time, but will not produce an adequate return on investment for many years, if ever. And to finance all this, the government let the country’s debt burden explode, from around 125 percent of GDP in 2009 to 220 percent now.

All of this investment has been counted in the GDP figures, but up to half of it, or maybe even more, is bad debts that will eventually have to be written off. If only half of it is bad debts, then China’s GDP growth in the past five years has really been around 2 percent, not 7-8 percent.

The crisis can be disguised for a while longer by printing more money, which the regime is doing. But that is putting downward pressure on China’s currency, the yuan, which is currently over-valued by around 15-20 percent. Devaluation would give a temporary boost to China’s exports, but it could also trigger an international trade war that would drag everybody’s economy down.

So at the moment China is spending $90 billion in foreign exchange each month to keep the value of the yuan up, but even with its immense foreign exchange reserves that is an unsustainable long-term policy. Sooner or later there is going to be a “hard landing”, and the regime’s very survival may be at risk.

There is no evidence that President Xi Jinping has a better strategy for mastering this crisis than the rival faction, but the storm is obviously approaching and he is battening down the hatches.

In his view, that means taking absolute power and building a personality cult of a sort that has not been seen in China since the demise of Mao Tse-tung. He is certainly not a vicious megalomaniac like Mao, but he clearly believes that he will need total control to get through the storm without a shipwreck.
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To shorten to 725 words, omit paragraphs 9 and 10. (“In the…now”)