Is China a paper tiger? (Other Countries).(China's economic conditions)(Brief Article)

Gordon Chang, The Coming Collapse of China, Random House, 299 Park Avenue, New York, New York, 10171

China appears to be on the verge of becoming an economic powerhouse. But Gordon Chang, a lawyer with extensive experience in China, contends that this is a mirage. Actually, he suggests, China is on the verge of economic collapse. "Today, China is halfway to somewhere with no consensus as to the future," he writes. "It is suffering from the pain of a transition partially completed, yet at the same time it does not enjoy most of the benefits of modernization."

Despite the economic reforms implemented by Deng Xiaoping and Jiang Zemin, China remains a communist nation. Economists still devise five-year plans (the Tenth Five-Year Plan will run through 2003) that are ratified at Communist Party Congresses. At least 240,000 Chinese are professional Marxists.

All these ideologists and party officials have to find work somewhere, and they are likely to work in a state-owned enterprise or SOE. SOEs are at the core of today's Chinese economy; officially, the Chinese Communist Party is "the Party of Public Assets"--the "public assets" being SOEs. Some of these SOEs are huge; China Petrochemical (Sinopec) has over a million employees, while its chief rival, China National Petroleum Corp. has a payroll of 1.5 million people.

Official Chinese statistics claim that SOEs are profitable. But these statistics don't account for government subsidies. In 1998, SOEs allegedly made a profit of $5.9 billion, but that was only after government subsidies amounting to $18.1 billion. The losses may well be larger, but accounting practices are foggy. A 1999 study ...