policy proposal was called the “Action Plan for Achieving Prosperity amid Crisis.” This proposal, of course, represented the collective wisdom of the entire Politburo Standing Committee, but very many of its elements were in accord with He Dongsheng’s own secret plan.
First, let’s answer the question: What about the United States? How did they start learning from our Chinese state-run system?
The United States government printed money and sold bonds, tried to save the bankrupt car manufacturers, poured money into already defunct banks… spending all that money in the wrong places. The result was that credit didn’t revive, the market continued to contract, house prices continued to plunge, the unemployment rate edged up as before, and the value of the U.S. dollar steadily declined. American investors didn’t want dollars and international investors didn’t want them either; even the central banks of Japan, Russia, and Taiwan didn’t dare to hold only American currency. American bonds, both long- and short-term, were hard to sell no matter how good their interest rates were. The dollar rose for a while at the beginning of 2009, but a little later it again lost twenty-five percentage points. In the end, worldwide confidence in the dollar reached a critical low, and, in one trading day in February, panic selling began. This was followed by the collapse of the American stock market. The chairman of the Federal Reserve Board, the secretary of the Treasury, and economics Nobel laureates such as Joseph Stiglitz and Paul Krugman all agreed that the United States was in a state of high-inflation decline or “stagflation”-what the Chinese media called an economic crisis of “fire and ice.”
While the world economy was floundering, what was the situation in China?
China was also in danger as exports came to a standstill, the number of unemployed suddenly rose steeply, and stock markets fell until trading was halted to forestall further losses. This time China’s economic growth would probably not avoid slipping from positive to negative figures.
The economic stimulus of 2009-relying on the National Treasury to allocate funds for direct investment to stimulate the economy-helped maintain the national GDP, but didn’t genuinely encourage domestic consumer demand. Much of the stimulus money was invested in dubious mega-projects and fixed-capital assets, and the chief beneficiaries were the bureaucrats, state-run enterprises, and the interest groups tied to their apron strings. In other words, the stimulus helped increase the monopoly of state-run enterprises over the market, and further decreased the scope of private businesses.
The most troublesome thing was still the huge decline in the value of the dollar. Before 2004, China’s annual trade surplus had not been very large. After 2004, however, China had less and less need to import foreign manufactured goods, and its exports grew at an ever more ferocious pace. China’s foreign-exchange reserves abruptly rose to over two trillion dollars. Then, all of a sudden, those dollars lost more than a third of their value.
Although China had originally made a lot of noise about the dollar, it had not actually been selling off dollars the way Japan, Russia, and Taiwan had; China held on to its dollars and kept buying American-dollar assets right up to the end. It wasn’t that China didn’t want progressively to distance itself from the dollar, but it lacked an alternative place to invest its money. The government was already trying to reach mutual currency-exchange arrangements with Japan, South Korea, the ASEAN, and the Shanghai Cooperation Organization nations, and was already actively urging the United States to issue some bonds payable in renminbi-what the foreign press had dubbed “Panda Bonds.” So it wasn’t that the government wasn’t making crisis preparations, it was that time was against them; they could only pray that the dollar would not decline further-they certainly could not imagine that it would go under so quickly.
Politics is a cruel business. Just the “crime” of allowing our sovereign wealth to shrink so much was bad enough. Add to that the negative growth in the national economy that was certain to follow, and the ruling group at that time would have completely lost its prestige within the Party. The following year, that governing group would not have had the strength to resist the opposition, and would certainly have fallen from power; it would have been a time for their friends to weep and their enemies to laugh. And this is the most important reason why they resolutely decided to put the “Action Plan for Achieving Prosperity amid Crisis” into operation.
So. Since they were going to die anyway, they thought they might as well make one last stand, and take drastic measures to alter the course of the heavens, an attempt to turn a bad situation into a victory. If they won, it would be a complete victory. And if they lost… well… if they lost, the great deluge that came after them would be a problem for the next Party leadership to resolve.
The day that the dollar fell so precipitously in 2011 was the eighth day of the first lunar month. The New Year vacation period had just ended, and, except for a few factories, every place was open again for business. That morning virtually all the news media reported that the global economy had entered a period of “fire and ice” crisis.
In fact, the Public Security police, the armed police, and the army were all in a state of readiness that day. Party Central had announced to all levels of government that the entire nation was in a state of emergency, and that the “Action Plan for Achieving Prosperity amid Crisis” had gone into operation. This was a coordinated chain of actions. The entire nation had to be regarded as a single chessboard and each move had to scrupulously follow the planned schedule if complete success, total victory, was to be achieved.
In the first phase, except for establishing martial law in Xinjiang and Tibet, the machine of state was forbidden to do anything without express orders from Party Central. In other words, the party-state machine was going to wait. Why? They were waiting to see how long it would take for genuine chaos to materialize. Waiting to see how long the common people could endure a state of anarchy. When that moment arrived, the people themselves would call on the government not to abandon them; they would beg the government to save them. The machine of state was waiting for the people of the entire nation once again to voluntarily and wholeheartedly give themselves into the care of the Leviathan.
If large-scale rioting or a mass exodus of people occurred, that would be the signal for the machine of state to go into action. As things turned out, the people went through six days of being so scared they couldn’t face another such day, rumors were circulating wildly, and by the seventh day, many regions reported to Party Central that a genuine upheaval had broken out in their area. Still, in this situation, only a few places experienced large-scale rioting and mass exodus. On the eighth day, the fifteenth of the first lunar month, token forces of the People’s Liberation Army and the armed police entered over six hundred cities around the country, and, as expected, were welcomed with open arms by the local population. This demonstrated the fact that in a moderately well-off society, the people fear chaos more than they fear dictatorship. And besides, Chinese society was really not as disorderly as was imagined; the vast majority of the Chinese people crave stability. As long as the government was not a target of attack, everything could be easily taken care of.
That afternoon, the national security police, the armed police, and the People’s Liberation Army jointly announced the beginning of a crackdown on criminal elements, and social order was restored almost immediately; even petty looting came to an abrupt halt. The government also announced that it would start distributing rice from its grain reserves. Rations would be handed out every day, completely free of charge, and no one would be refused; the people’s livelihood would be guaranteed and they need have no fear of hunger. The most interesting thing, however, was that the people grumbled that the reserve rice, having been harvested over a number of years, tasted bad. They didn’t want to eat it, and they certainly weren’t going to line up for it. Also, due to the crackdown on criminal activity, the usual opportunists didn’t dare to buy up the reserve grain to sell off to rice-wine distilleries.
“Why? Why did you have to terrorize the common people like that?” Fang Caodi indignantly interrupted He Dongsheng.
He Dongsheng answered as though he were delivering a classroom lecture: “The beginning of the crisis was the key; if handled poorly at first, it would be hard to clean up the mess later. This crisis was extraordinarily serious, serious enough to give rise to mass disturbances on a nationwide scale. It started as an economic crisis, but it was capable of causing the long-smoldering volcanic contradictions deep under the surface of society to erupt. If the government reaction was too mild and too fragmentary, the people would remain dissatisfied and their resentment would be even greater. If the government acted too harshly, dispensing strong medicine too hastily, some strata of society would not accept it and would fight back. No matter what the government did then, it would be the only target.
“The situation at the time was as follows: except for incidents involving conflict between Han and minority ethnic nationalities, in general most of the major protests involved a confrontation between the masses and the
