Don't be fooled by China

Chris Patten: It's a simple truth - you can only do business with totalitarians if you lick their boots first

ONE OF the more bizarre events of last year was the attempt to parade China's Premier, Zhu Rongji, as an Asian representative of the Third Way. Mr Zhu, who has a sense of humour, must have been quietly amused. He made his own position clear recently when greeting his Vietnamese opposite number. The purported ability of the Vietnamese and Chinese economies to withstand the effects of the Asian financial crash demonstrated, according to Zhu, "the advantage of socialism". Surely not even John Prescott would have gone quite that far.

What did Zhu actually mean by this? He was presumably characterising the measures taken by China over the past year, even as Western leaders fell over themselves in the rush to Peking to pay tribute to the wisdom and growing open-mindedness - so it is claimed - of China's leaders. He must have been thinking of foreign exchange controls, backtracking on privatisation, the total politicisation of credit, restrictions on market access and a crack-down on any sign of political dissent. It is this sort of backlash against greater economic and political openness, not confined to China, which threatens serious trouble for Asia and therefore for the rest of us in the year ahead.

The case for authoritarianism, usually corrupt and often incompetent, was one of the main casualties of the Asian crash that began 18 mouths ago. What had once been lauded as visionary nation-building - Indonesia plc, South Korea Inc - was now denounced as crony capitalism. No longer were outsiders likely to sit quiet while being lectured on the moral relativity of human rights and on the close relationship between GDP growth and the curbing of democracy, civil society and freedom.

There were proximate financial and economic causes of Asia's crisis - above all, perhaps, the slump in Japan which represents three-quarters of the whole region's economy. But the underlying reasons for the turmoil were political.

The analysis was not breathtakingly original. The wonder is that so many people had overlooked it for so long. Sustainable economic progress requires open markets and free trade, and they flourish best in liberal democracies under the rule of law. "Is that all you've got to say?" someone once asked me accusingly. "Er, well, yes actually." It's a simple truth, periodically buried under self-serving drivel about the inscrutable differences of the Orient or under the humiliating and unproven assumption that you can only do business with totalitarians if you lick their boots first.

Recovery in Asia is going to be slow and patchy. It will be led by those countries that have most enthusiastically embraced the need for change. For those that seek to spit into the wind, worse is probably still to come.

While China was locking up democracy activists the other day, Taiwan was counting the votes in its latest round of elections. Taiwan is a free society, increasingly open, with an economy that has done better than any other in Asia over the last year of turmoil.

South Korea's economic collapse in the autumn of 1997 scared international bankers and worried the world's international financial institutions. The Koreans still have some way to go, but under a democratic government, led by the intrepid Kim Dae Jung, they are making headway. The currency has stabilised and strengthened. Interest rates have been cut.

In Thailand - where the crash began - the most democratic government in the country's history is making steady progress under its decent prime minister, Chuan Leekpai. From the outset the Thais recognised that political and economic reform must go hand it hand. They too have seen their currency strengthen and interest rates fall. Confidence has started to return.

Elsewhere, some governments have set a different course. Malaysia is one of the most worrying examples. Dr Mahathir reacted to the crisis by turning his back on reform and locking up its principal advocate, his deputy Anwar Ibrahim. Anwar's trial has turned into a ghastly paradigm of the corrupt authoritarianism and nonsense economies that threaten a turbulent future for his country.

But China represents the most significant attempt to force a passage through the financial storms with a combination of statist economies and Leninist politics. And all this has happened during a year in which "constructive engagement" with China has been justified on the grounds that it is the right, indeed the only way to secure improvements in human rights and continued economic reform,.

It is difficult to be against engagement; you cannot contain more than a fifth of humanity. But I see no reason why engagement should involve fooling ourselves about what's happening in China, or biting our tongues about the issue that will shape Asia's future - the triumph or failure of liberal, pluralist values.

First, China is not an emerging and stable economic giant, about to elbow Japan off centre stage. The welcome decision not to devalue its currency (so far) has been taken in its own interest. China's alleged stability has been based on controls over capital flows - exactly the sort of controls that we have pressed other countries to scrap. A tighter foreign exchange regime, so damaging to international companies, has been brought in to stem capital flight, the scale of which in recent years equalled foreign investment into China.

Second, the economic reform process in China has stalled because of the political dangers of going ahead with it. Closing down clapped-out state- owned firms risks rising unemployment and social turbulence. Growing economic problems are almost certainly the reason for tougher political controls. The recent harsh sentences handed out to democracy activists are only part of a much wider campaign against dissent, including new rules affecting film-makers and computer software developers. .

The winter's political freeze in China tells us far more about what's happening to the real economy than any official statistics. Yet the longer the government postpones wide-ranging reform, the more money it will have to pour from its commercial banks into the bottomless pit of the nationalised firms.

So as the Chinese batten down the hatches at the start of what could be a very bumpy year, what do they make of us? They have seen the West humiliate and isolate its friends in the democracies of India and Japan in order to promote what is claimed to be a more mature relationship with China - a relationship that has seen China strongly attacking US and British policy in the Gulf (which was supported by Japan) and showing no interest in helping to defuse a growing crisis in North Korea.

They have turned Europe and America inside out on human rights, cynically signing international covenants that they have no intention of ratifying or keeping, trading the occasional sick prisoner for a day's headlines, depending with total confidence on our continuing timorous self-deception. How much worse do they have to behave before someone in the West is prepared to say something about "the disadvantages of socialism"?

It is crucial in the coming months that European and American leaders speak out, as to his credit Al Gore did in Kuala Lumpur, on the case for liberal economics and politics in Asia and around the world. We should praise those who are courageously doing the right thing, give more help to those like the Indonesians who want to do what is right but are finding the path of reform hard going, and refuse to have any truck with the argument that the Asian crisis partly caused by authoritarianism can only be cured by a bigger dose of the same.

Democracy, transparency, free speech, civil society, the rule of law - these are not Western phenomena, they are universally valid. We should recognise that our best friends are those who believe in these things. They are more likely to be economically successful partners as well.