Overheat DA

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Chinese Overheat DA Index

Chinese Overheat DA Index..................................1
Chinese Overheat 1NC.............................................2
Chinese Overheat 1NC.............................................3
Overheat Uniqueness - Soft-Landing Now..............4
Overheat Uniqueness - Soft Landing Now...............7
Overheat Uniqueness - Soft Landing Now...............8
Overheat Uniqueness - Reforms Now......................9
Overheat links - General.........................................10
Overheat Links - General.......................................11
Overheat Links - Asset Depletion...........................14
Overheat links - Inflation........................................15
Overheat links - Overinvestment............................16
Overheat Links - Overinvestment..........................17
Overheat links - Overinvestment............................18
Overheat Links - Overinvestment..........................19
Overheat links - Overinvestment / Banking...........20
Overheat Links - Rapid Growth Undermines Reforms21
Overheat links - Rapid Growth undermines reforms22
Overheat links - Rapid Growth undermines reforms23
Overheat links - Social Stratification.....................24
Social Stratification (Impacts)................................25
Social Stratification (Impacts)................................26
AT: We Spur Reforms - Solving Overheat.............27
AT: Slow growth worse / Chinese Economic Collapse28
AT: Slow growth worse / Chinese Economic Collapse29
AT: Slow growth is worse / Economy collapse......30
Overheat Impact - Military Coup...........................31
Overheat Impacts - Global Economy.....................32
Overheat Impacts - Chinese Economy (Nuclear War) 33
AT: Overheat...........................................................34
AT: Overheat...........................................................35
AT: Overheat...........................................................36
AT: Overheat - reforms solve.................................37
AT: Overheat - reforms solve.................................38
AT: Growth Cause Poverty.....................................39
Chinese Economic Collapse Inevitable - Oil Dependence
40
Chinese Economic Collapse Inevitable - Poor Monetary Policy41
Chinese Economic Collapse Inevitable - Privatization 42
Chinese Economy Collapse Inevitable - Laundry List 43
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Chinese Economy Collapse Inevitable - Laundry List 44

Chinese Economy Collapse Inevitable - SOE........45
Chinese Economy Collapse Inevitable - SOE........46
Chinese Economy Collapse Inevitable - Inequalities47
Chinese Overheat 1NC

A. Uniqueness - Fast growth has been contained near 8% - ensuring a soft landing this year
Xinhua Financial Network News, 7/14/2005,
(China Economy set for Soft Landing, Major Policy Changes Unlikely)
BEIJING (XFN-ASIA) - China will probably only tinker at the edges of macro and monetary policies this year as it
steers its economy towards the "proverbial soft landing", UBS said. Jonathan Anderson, head of Asia Pacific
economics at UBS, told reporters at a briefing here not to expect major policy adjustments from China given the
relative success of its managed slowdown. "Our outlook is this year growth will be nine percent plus. Next year
growth will be in the eight percent range and, going forward, we'll see where we end up -- seven-and-a-half to
eight-and-a-half is probably a good guess on where China's growth is going. This is the proverbial soft landing."
He said doomsday scenarios of an economic collapse in China are mistaken, with downturns in some areas such as
the overheated steel, auto and property sectors and the sluggish stock markets unlikely to seriously damage growth.
"They've done a decent job," Anderson said of the government's measures to rein in an economy that grew at a
blistering 9.5 pct last year. He said the next three quarters will remain "fairly quiet", with inflation and credit growth
largely under control.
1. Link - The Plan Accelerates Chinese Economic Growth (Insert)

2. Accelerated economic growth causes the Chinese economy to overheat - collapsing the Chinese
economic stability and the global economy; a short-term slow-down is a better alternative
Money News 7/20/2005

(China Surge Worries Economists, http://www.newsmax.com/archives/articles/2005/7/20/11731.shtml)
China's economy continues to grow like wildfire, flying in the face of analysts who have been expecting a
slowdown. And the pace of development renews concerns of an overexpansion that could result in a crash landing.
According to the The Los Angeles Times, for the second quarter Beijing is reporting a 9.5% expansion over the
same period one year ago even though the Chinese have been trying to manipulate the economy to achieve a soft
landing that would allow growth to diminish slowly and not come to a catastrophic crashing halt. This data
confirms that earlier weakness (which was most likely engineered by the authorities to prevent gluts of raw materials
boosting prices) is probably over and that the global economy will remain robust for the remainder of 2005. The
government had imposed lending restrictions and capital-gains taxes to bring overheated Chinese markets like
Shanghai back down to earth. But the latest figures suggest all measures are failing and that China the world's
seventh-largest economy will go on driving global growth. Of course, failure to rein in growth could certainly
create an exceptionally dangerous bubble situation a burst would have catastrophic consequences for not only
China, but the rest of the world as well. While China's National Bureau of Statistics claims the overall situation is
"good," some analysts disagree. One Chinese economist believes growth in China's GDP could illustrate the
government's loss of control over capital inflows especially as China's fragmented cities and regions continue to
eagerly attract foreign investment. And once again the U.S. is imploring China to revalue the Chinese currency.
Many believe that this move would give China a firmer grasp on its own economic pace and progress while
alleviating the unfair trading advantage China currently enjoys.
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Chinese Overheat 1NC

C. The Impact is World War III
The Straights Times, 6/28/2003
(Tom Plate, UCLA professor, neo-cons a bigger risk to Bush than China,)
But imagine a China disintegrating- on its own, without neo-conservative or Central Intelligence Agency prompting,
much less outright military invasion because the economy (against all predictions) suddenly collapses. That would
knock Asia into chaos. A massive flood of refugees would head for Indonesia and other places with poor border
controls, which dont want them and cant handle them; some in Japan might lick their lips at the prospect of of
World War II revisited and look to annex a slice of China. That would send Singapore and Malaysia- once occupied
by Japan- into nervous breakdowns. Meanwhile, India might make a grab for Tibet, and Pakistan for Kashmir. Then
you can say hello to World War III, Asia style. Thats why wise policy encourages Chinese stability, security and
economic growth the very direction the White House now seems to prefer.
And, Global Economic Collapse Causes Nuclear War
Overheat Uniqueness - Soft-Landing Now

Chinas growth has stabilized now - economic reforms ensure a soft-landing
Xinhua General News Service, 7/21/2005,
(Economic Review: Chinas Economy Softlands Successfully)
The latest figures from the National Bureau of Statistics (NBS) show that China's macro economy has achieved a
successful soft landing, a source with the State Information Center (SIC) was quoted as saying by the China
Securities Journal Thursday. According to Wednesday's figures from the NBS, the gross domestic product (GDP) of
China witnessed a growth rate of 9.5 percent in the first half of this year, and the consumer price index (CPI), an
important index for inflation during the period only rose by 2.3 percent, lower than the 3.6-percent level for the
same period of last year. China now has witnessed a new type of economic growth mode with a low inflation rate
and the cooling-down of fixed asset investment, meaning a successful soft landing of the Chinese economy, the
SIC economic prediction department said in a report on the China Securities Journal. The growth rate of China's
economy will stably drop to 8-9 percent with the low inflation rate continuing, the SIC estimated. China's economy,
which has been growing at an annual rate of about 9.4 percent in the past 27 years, was troubled by the
overheating fixed asset investment recently. The government since 2003 has taken a series of policies to curb the
too-fast growth of investment as well as prices.
Overinvestment has been curbed - growth will remain in equilibrium

According to NBS figures, in the first six months of this year, the fixed assets investment reached 3.2895 trillion
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yuan, a year-on-year increase of 25.4 percent, 3.2 percentage points lower than the same period of last year. The
low-level investment in some energy-consuming and high-polluting industries has been curbed, with the investment
growth rates in steel, cement and aluminum decreasing remarkably, the SIC said. The three major driving forces of
the economy, namely fixed assets investment, exports, and retail sales of consumer goods, achieved a blazing yearon-year growth rate of 25.4 percent, 32.7 percent, and 12.0 percent respectively. As the growth rates in all three
aspects remain strong while inflation stays low, China's economy will continue its softlanding trend for the whole
year, the SIC said. The SIC advised the country to maintain the stable monetary and financial policies as well as
keep an eye on any inflation or deflation trends. The industrial structure has been improved, investment and
consumption streamlined, and the growth rate gap between heavy industry and light industry reduced, the SIC
report said. "The macro-economic growth may slow down in the latter half of this
year, but deflation is unlikely to happen," the SIC said. "We predict that for the whole year, China's economy will
maintain a 9 percent growth rate and the consumer price index ( CPI) will exceed 2 percent."

Fast growth has been contained
The slow-down of the consumer price index and fixed asset investment growth caused by tightened real estate
policies, appreciation of the US dollar, and pressure upon Renminbi all make deflation impossible, SIC said.
Consumption is the most optimistic factor pushing forward the economy as China's "baby-boomers" have joined the
work force. In spite of the price hike of raw materials, the prices of ten major categories of commodities including
apparels and home appliances have kept dropping since 1998, which implies that the overcapacity of the
manufacturing industries remains a serious problem, SIC warned. "The Renminbi still faces appreciation pressure,"
SIC said. "So if China's foreign exchange system is adjusted significantly, the possibility of deflation can not be
excluded." China has passed the stage of fastest economic growth, and the macro-economy has entered a new phase
for adjustment. China should stabilize the current macro-economy policies, accelerate the reform of the Renminbi
exchange rate mechanism, and cautiously handle its regulative measures in the real estate industry, it suggested.
Fast growth has been contained near 8% - ensuring a soft landing this year
Xinhua Financial Network News, 7/14/2005,
(China Economy set for Soft Landing, Major Policy Changes Unlikely)
BEIJING (XFN-ASIA) - China will probably only tinker at the edges of macro and monetary policies this year as it
steers its economy towards the "proverbial soft landing", UBS said. Jonathan Anderson, head of Asia Pacific
economics at UBS, told reporters at a briefing here not to expect major policy adjustments from China given the
relative success of its managed slowdown. "Our outlook is this year growth will be nine percent plus. Next year
growth will be in the eight percent range and, going forward, we'll see where we end up -- seven-and-a-half to
eight-and-a-half is probably a good guess on where China's growth is going. This is the proverbial soft landing."
He said doomsday scenarios of an economic collapse in China are mistaken, with downturns in some areas such as
the overheated steel, auto and property sectors and the sluggish stock markets unlikely to seriously damage growth.
"They've done a decent job," Anderson said of the government's measures to rein in an economy that grew at a
blistering 9.5 pct last year. He said the next three quarters will remain "fairly quiet", with inflation and credit growth
largely under control.
Current 8-9% growth rate is sustainable

Fortune International, 7/11/2005, (Does this look like a Slowdown?)
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China remains the world's fastest-growing economy. In the first quarter of 2005, GDP grew by 9.4%, stronger than
expected and the seventh consecutive quarter of 9%-plus expansion. But the pace seems to be slowing: Among
private economists, the new consensus is that China will grow by 8% or 9% over the next two years--robust, but a
far cry from 2004, when some clocked China's unofficial growth at better than 11%.

Macro economic controls have contained the overheat
BBC Monitoring International Reports, 6/30/2005
(Chinese Economy Not Cooling Off - Economic Experts)
Both experts agree that due to the macro-control measures, which have been in place for one year and a half, the
Chinese economy is now experiencing a " soft-landing " and heading for healthy development. China's economy
bid farewell to the five-year-long deflation in 2003, embracing a new round of economic growth. But following that,
the bank loans increased dramatically, investment rocketed and a power crunch occurred. To avoid abrupt economic
changes, China took a batch of macro-control measures to rein in growth some overheated sectors at the beginning
of last year, prolonging this round of economic prosperity. China's ongoing macro-control measures cut down
overproduction in some sectors and reduced the possibility of deflation in the future," said Wang. Though Wang and
Xu said that China is not at risk of deflation at the moment, they voiced their belief that the central bank should
consider taking some precaution measures, like relaxing its money supply. The growth of a broad money supply M2
in China, which covers cash in circulation and all deposits, quickened slightly to 14.6% in May over 14.1% in April.
However, China's target for M2 supply growth is 15% this year.
Economic soft landing now

The Main Wire, 6/6/2005
BEIJING (XFN-ASIA) - Finance minister Jin Renqing said China has achieved its goal of bringing the economy
to a so-called " soft landing " - or a growth slowdown without significant disruption - adding that reforms to the
exchange rate regime are also on track. Asked on the sidelines of a business luncheon how the government is
managing the economic slowdown, intended to prevent overheating, Jin said: "We are doing very well, and have
achieved our target." He added that exchange rate reforms are also on target, but did not elaborate.
Growth rates are stable at 8% - no risk of a overcorrecting decline or overheat now

Text of report headlined: "Fan Gang: China's economy is making a healthy' soft landing' ", carried by Chinese news
agency Zhongguo Xinwen She Shanghai, 28 May: Under the impact of a series of macro regulatory measures
taken by the state, China's economic operations indicators have all shown a downward trend since the first quarter of
this year. China's economy is making a " soft landing " in the course of transiting from the previous overheated
development to a state characterized by a sustainable potential growth rate, said Prof Fan Gong, an economics
scholar and director of the National Economic Research Institute of the China Reform Foundation, at the Second
Shanghai Derivatives Market Forum today. Reports have it that the growth rates of both industrial output and fixedasset investment in China for the first quarter of this year began to shrink. Also, there was a decline in the growth
rate of domestic demand for this period. Statistics show that the first quarter's total fixed-asset investment
was up 22.8%, compared with last year's corresponding period. However, this rate of growth was 20 percentage
points less than the same period last year and 3 percentage points below last year's annual record. As for the CPI, the
growth rate exceeded last year's corresponding period by 2.8 percentage points but was 1.1 percentage points below
the growth for the whole year of 2004. Fan Gang pointed out the following: Even though the GDP growth rate for
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the first quarter showed a year-on-year rise of 9.5 percentage points, almost the same as last year's, there are signs
showing that China's economy is possibly making a " soft landing " and entering a period of market correction.
According to him, the present "decline" and " soft landing" of China's economy do not mean the appearance of
"doldrums" and "depression" to correct the previous overheated development. Rather, they signal a gradual
transition to the potential level of growth of the economy. A growth rate of around 8% is just a
moderate rate for the healthy development of China's economy.
Overheat Uniqueness - Soft Landing Now

Breakneck economic growth is receding now
CNN Money, 8/2/2005 (Soft-Landing Seen for Chinas Economy,
http://money.cnn.com/2005/08/02/news/international/china_economy.reut/)
BEIJING (Reuters) - Steel price cuts, slower growth in oil demand and a survey showing that raw material
shortages are easing provided new evidence Tuesday of a slowdown in China's breakneck economic growth.
In a move that analysts blamed on oversupply, state media said Wuhan Iron and Steel Co. Ltd., the listed arm of
China's third-largest steel maker, would cut some product prices in September for the second time in less than two
months. The latest cuts, in an increasingly oversupplied market, were meant to bring domestic prices in line with
global rates, the official Shanghai Securities News said. "The Chinese economy has started to slow due to excess
capacity. The rapid investment-led boom of the last five years has borrowed growth from the future," Andy Xie,
chief Asian economist at Morgan Stanley, said in a note to clients. The next stage of the slowdown, which could last
two years, would involve the liquidation of surplus property developed in anticipation of speculative demand that
had now dried up, Xie said.
Chinese economic growth has stabilized

Peoples Daily Online, 8/17/2005 (Unstable Factors in Chinas Economy Under Control,
http://english1.people.com.cn/200508/17/eng20050817_202946.html)
Thanks to macro-control policies by the government, China's economy has entered another round of steady growth,
with unstable factors such as overheated investment, inflation threats and demand deficiency successfully curbed,
economists said. Zhang Liqun, an expert with the macro economy department of the Development and Research
Center under the State Council, said that three factors, including the expanded consumption in housing and
transportation, the increase of labor-intensive products exports, and the growth of a global new economy and new
technology, are driving China's economic development. Zhang held that these factors would first drive the
development of downstream sectors like housing, automobiles, light textile, home appliances, electronic
communication products, and digital products. In the meantime, basic sectors like heavy chemical materials, raw
materials, equipment, energy and transportation will be boosted indirectly as well, Zhang acknowledged. From the
perspective of demand, the driving forces for another round of economic growth are stable, he said. Trade surplus
rocketing is the most striking hallmarks in China's economic performance in the first half year, said Prof. Song
Guoqing of the Beijing University. The net exports, growing at an unexpected rate, are forcefully pushing forward
the country's economy. Figures from Chinese customs show that in the first half year, China's exports jumped 32.7
percent, while imports only grew 14 percent, with trade surplus totaling 39.6 billion US dollars. During the same
period last year, the country's trade surplus was 6.8 billion US dollars. Song expressed anxiety about China's heavy
reliance on exports. It is very hard to keep the rapid growth of exports for long, so it is of great importance for the
economy to reduce dependence on foreign trade and expand domestic demand, he said. Bolstered by the growth of
employment and income, China's domestic consumption is expected to expand stably, said Zhang. In the first half of
this year, the total retail sales of consumer goods actually grew 12.0 percent, 1.8 percentage points higher than the
same period of 2004, according to the National Bureau of Statistics. "China's high rate of bank savings, investment,
robust market demand and abundant labor forces guarantee the rapid growth of the Chinese economy," said Zheng
Jingping, spokesman of the National Bureau of Statistics. The hyperactive growth of fixed asset investment has been
effectively controlled. In the first half of this year, China's urban fixed asset investment grew 27.1 percent, down 3.9
percentage points from the same period last year. So as to make China's economy grow stably in a longer period, the
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government should stabilize its macro-control policy and make full use of market tools in adjusting economic
structure, Zhang suggested.
Overheat Uniqueness - Soft Landing Now

Chinese growth is stable at 8% in 2005
Xinhua New Agency, 8/16/2005
(Chinas Economy to Grow 9% in 2005, http://en.chinabroadcast.cn/855/2005/08/16/50@9484.htm)
The World Bank said Tuesday China's economy is expected to grow by 9 percent in 2005, and about 8 percent in
2006. In its quarterly update on the country's economy, the China mission of the World Bank said the economic
outlook for China "remains good" in a stable macroeconomic environment and with favorable financial conditions.
"We now project (China's) GDP (gross domestic product) growth of 9 percent in 2005, and about 8 percent in 2006,"
the bank said in the report released in Beijing Tuesday. The bank based the projection partly on global economic
factors, saying the growth in world economic activity and trade is projected to slow during the rest of 2005. "World
trade growth is now expected to slow from 12 percent in 2004 to 6.4 percent in 2005, which is likely to affect
China's export growth." China's exports will also be affected "somewhat by the modest revaluation of the RMB (the
Chinese currency)" and the recent measures designed to discourage exports of "highly energy intensive products"
including the cancellation of rebates to exporters of VAT (value-added tax) on aluminum and steel, the bank says.
"Domestically, investment growth is expected to ease, reflecting the moderation in credit growth since the first half
of 2004 and the more recent reduction in profitability and profit growth." Price pressures are projected to ease.
International raw material prices are generally easing, with the important exception of oil (energy) prices, according
to the report. Based on past patterns and the World Bank's international commodity price projections, increases in
China's raw materials prices are expected to decline from 9.6 percent year-on-year in the second quarter to 7.3
percent in the fourth. In addition, continued rapid productivity increases in China's manufacturing industry put
downward pressure on prices, the report says, adding that the recent revaluation of the Chinese currency will help
ease imported inflationary pressures somewhat. According to the bank, China's domestic demand is slowing
down.GDP growth remains high due to a large contribution of external trade as exports continued to power ahead
while imports decelerated significantly.
Current decline is a healthy correction - preventing overheat

In Fan Gang's opinion, the macro regulatory measures currently carried out by the Chinese government are aimed at
realizing the potential economic growth rate for the prudent and fast development of China's economy. Without the
government's macro regulation, there would be a large amount of overproduction. As he pointed out, we cannot
expect China's economy to continually maintain a relatively high growth rate as in the past. An overly high growth
rate is bound to trigger a series of problems. At the present time, the soft landing of the Chinese economy is a
healthy one, which conforms to China's interests as well as the interests of the world.
Overheat Uniqueness - Reforms Now

Economic and political reforms are progressing
Elizabeth Economy, C.V. Starr Senior Fellow, Director of Asia Studies, Council on Foreign Relations,
May/June 2004 (Dont Break the Engagement, Foreign Affairs, Vol. 83, Issue 3)
PARTY INVITATIONS NEVERTHELESS, political reform is resolutely moving forward, because China's leaders
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have come to understand that enhancing their legitimacy is a matter of survival. To give the people a greater stake in
the political process, Hu and Wen are increasing transparency in government practices, broadening the CCP's
membership base, and experimenting with electoral reform. For the first time, last October, Hu allowed both that the
agenda of the Politburo Standing Committee (the CCP's top leadership) be published and, that a report on the
Politburo's work be reviewed by the Central Committee (a wider group of top party officials). Local governments
have undertaken their own experiments, too, inviting citizens to attend people's congresses (provincial assemblies)
and opening more of their proceedings to the public. The city of Guangzhou recently launched a Web site with
information about its activities, from personnel changes to urban planning and large-scale development projects,
encouraging citizens to send comments and complaints directly to the mayor. It also passed path-breaking measures
requiring disclosure of certain government records (much like the Freedom of Information Act in the United States).
Such measures are now being considered at the national level. The CCP has also sought to broaden its support base
by varying its membership, in particular by welcoming entrepreneurs and successful businesspeople. A recent
amendment to Chinas constitution acknowledges their important contribution and targets them for participation in
the party. According to one estimate, 20 to 30 percent of Chinas private entrepreneurs are now CCP members. They
are likely to have an important impact on issues such as the protection of property rights, reform of state-owned
enterprises, and the highly controversial question of government oversight by the CCP. Some of them who also
belong to provincial people's congresses or to the National People's Congress (Chinas national legislature) have
already established their own private think tanks, staffed with social scientists and retired officials, to gather
complaints and reform proposals from the general population. Other entrepreneurs have pushed political boundaries
in different ways: Richard Chang, who heads the semiconductor powerhouse SMIC, founded his own church in
Shanghai. In time, however, the greatest force for political change will likely be electoral reform. Although it is not
immediately clear how Hu's commitment to "ensure that the people can exercise democratic elections" will be put
into practice, there are promising signs that it will materialize.
Overheat links - General

Breakneck economic growth will cause a bigger long-term Chinese crash
Robert McCormack, US Ambassador to China, 4/13/2005
(Uncertainties in Chinas Economic Prospects and the Broader Problems of Global Imbalances,
www.csis.org/china/050413_mccormack.pdf)
Last spring, there was a lot of discussion in Washington about whether China would experience a hard or soft
landing of its overheated economy. So to take a deeper look at this question, I visited China in August, with former
speaker Newt Gingrich, and again in December to talk with central bankers, members of the Central Committee, key
officials and investors. This was my 9th trip to China since l983. To see the continual improvement in ordinary
peoples lives since those early years is a heartening confirmation of many hopes and the result of much hard work,
both in Washington and much more importantly in China itself. The large number of hungry and ill-dressed children
that were evident in every city in China in earlier decades, is now largely a thing of the past. All involved need to
make sure it stays that way. After these recent visits to China, I also traveled to Japan, Hong Kong, and Taiwan to
meet with senior leaders from the public and private sectors to learn how Chinas prospects looked from the
perspective of these neighboring locations. Most, but by no means all, of the experts consulted suggested that China
would, in fact, engineer a soft landing, with growth falling from its present 9-l3 per cent rate, depending
on whose numbers you believe, to somewhere near 7% in 2005. Even the hopeful experts, however, reported an
unusually large number of downside possibilities that could result in a Chinese economic crash landing. Some went
so far as to suggest that the breakneck pace of the Chinese economy was like a man surfing a giant wave off Hawaii.
There was no possibility of slowing down the tremendous forces driving the surfer, only a desperate need somehow
to stay on top of the hurtling board to avoid a bone-crushing wipe out. In the meantime, the issue of a hard landing
or a soft landing for the overheated Chinese economy has been temporarily answered: thus far, no landing
whatsoever.
Overheat will cause a resource crunch that makes long-term healthy economic growth
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unsustainable
The Communist Party has lost a great deal of its reputation in recent years in part because of corruption problems,
despite tens of thousands of punitive actions against corrupt party leaders at all levels. In some ways, the current
Chinese system combines the worst evils of both socialism and capitalism: namely, the inherent corruption problems
of a vast powerful, but low paid bureaucratic establishment, plus exploitation of workers in some places on a scale
that has not been seen since the darkest days of the industrial revolution in England. One has only to think of the
rash of recent articles about conditions in many Chinese coal mines, and about the difficulty the more exploitive
sweat shop managers are facing in other parts of China. This too is potentially explosive. The over heated Chinese
economy has also generated shortages of energy, water, port and transportation facilities and environmental systems
that already act as a brake on healthy future growth. Supply has to catch up with demand. This will take time and
investment.
Overheat Links - General

Rapid Chinese growth will inevitably implode
Gordon Chang, Shanghai Counsel, Law Firm of Paul, Wiess, Rifkin, Wharton & Garrison, 2001
(The Coming Collapse of China, p. )
In the view of all these trends, growth in the future will slow, consumer prices will decline, exports will stagnate,
foreign investment will fall further, and the economy will stagger. Beijing can, by decree, postpone the onset of the
symptoms, but eventually the laws of economics will apply: at some point the central government will simply run
out of money. When that happens, China will have the same half-reformed economy and will have to tackle
substantially the same problems it faces now. The only difference is that its financial condition then will be ominous.
We are but a few years, perhaps five, from that time. While foreign experts tell us that everything's just fine in
China, the Mainland's own analvsts arc becoming worried. The economy could collapse, warns Lin Yifu of the
China Economic Research Centre of Beijing University, the nation's most prestigious institution of higher learning.
He sees all the trends close up and, despite the pressure to make rosy pronouncements, tells us that deep-seated
problems could cause the central government's economic policies to fail. Recent growth won't mask China's
structural defects, Lin argues. The time for Beijing's leaders to worry is now, argues Yang Fan of the elite Chinese
Academy of Social Sciences. "We already face major crises of income disparity, corruption and flight of capital,
thanks to the government policies of the past ten years," he says. If the central government doesn't act, Yang predicts
these problems "will explode within five years and could bring everything down." In the meantime, at least China's
emperors have new swim trunks. "Until the tide goes out you don't know who's swimming naked," says Warren
Buffett, the American investor. The tide is going out, and soon we shall see who's been in the water without his gear.
But of course we already know.

Growth causes overheat - crashing the Chinese economy
Barry Naughton, Professor of Pacific Studies, Graduate School of IR, UC San Diego, Winter
2004
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(An Economic Bubble? Chinese Policy Adapts to Rapidly Changing Conditions, China Leadership
Monitor, No. 9, http://www.chinaleadershipmonitor.org/20041/bn.html)
During the first half of 2003, rapid growth in China led many to proclaim the emergence of an economic bubble.
Extremely rapid growth of money and credit was accompanied by rapid growth in investment, especially in the
housing market. Chinese policymakers have taken steps to restrain the bubble, and these measures are now having
an impact. During this first phase, the emergence of the bubble and the way that it was handled seem to have
strengthened the positions of both Premier Wen Jiabao and Central Bank Governor Zhou Xiaochuan. However, the
rapid emergence of the bubble economy reveals some unsettling realities about the Chinese economy. Moreover, the
bubble portends important shifts in the economic payoffs and challenges that lie ahead for the political leadership.
The Chinese economy began to heat up in the second half of 2002. After having managed a sluggish economy since
1998, Chinese leaders naturally welcomed rapid growth, at least initially. However, the acceleration of growth from
late 2002 was clearly founded on some unsustainable practices. Bank lending grew at an accelerating rate toward the
end of 2002, and during the first half of 2003 bank credit expanded by 23 percent, much too rapidly to be
sustainable. Moreover, loans by state-owned banks increased more rapidly than those by other types of banks,
accounting for 62 percent of the increase. Fixed investment had been growing strongly for several years as the
government promoted infrastructure construction, and it had already reached the extremely high level of 42 percent
of gross domestic product (GDP) in 2002. Even so, fixed investment jumped further during the first half of 2003,
increasing at a rate of 31 percent. Moreover, during the first half of 2003, investment under the purview of local
government increased 41.5 percent, while central government projects actually decreased
nearly 8 percent.1 The lending boom was accompanied by significant capital inflows into China. As Chinas
impressive 2002 export performance became clear, an increasing amount of investment capital was attracted to
China.2 Capital inflows created upward pressure on the Chinese currency, the yuan. The desire to maintain stable
rates forced the Central Bank to buy up U.S. dollars, adding to official reserves but causing the Central Bank to emit
more domestic currency in order to purchase those dollars. Although the Central Bank tried to sterilize the impact
of capital inflows and limit the growth of domestic money, bank deposits and the domestic money supply grew
rapidly. Initially, there was almost no reaction to this investment-and-lending boom. Some steps should have been
taken to restrain credit growth by spring 2003, but the severe acute respiratory syndrome (SARS) crisis erupted in
Beijing in April 2003, and the government was effectively paralyzed. By midyear, as SARS faded, it seemed that an
unsustainable bubble economy was developing in China. The economic situation was complex, and many important
indicators were providing ambiguous signals. On the one hand, overall consumer inflation was low and
unemployment was high. Unused capacity was evident in many factories, and the stock market continued its slow
but inexorable two-year downward slide. On the other hand, bottlenecks were emerging in energy and
raw-material sectors (especially steel), and real estate development was exceptionally rapid. Although vacancy rates
were increasing, the number of new housing starts soared 70 percent in the first half of the year. As was the case
with the U.S. technology bubble of 19992000 or the far more damaging Japanese asset bubble of the late 1980s, it
was clear that if significant action were not taken to restrain the economy, long-term damage could be substantial.

Rapid growth will collapse the Chinese economy
Heidi Malhotra, Asian Research Center, 8/25/04
(Is a Soft-Landing Possible for China?, http://www.asianresearch.org/articles/2263.html)
Chinas Premier, Wen Jiabao, informed the world early this year that China had to take action to cool its red-hot
economy. A number of questions come to mind. Has the economy slowed down? What actions were taken? Were
the actions Band-Aid measures that had no effect on the overall economy and financial sector? Did such actions
curb and address Chinas notorious non-performing loans? Is China on the right track?
Similar to the countries affected by the Asian Financial Crisis, from which China escaped fairly unscathed, China
has been experiencing unprecedented economic growth. History suggests China's strong GDP, foreign direct
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investment and healthy account surplus cannot be sustained in the long term. Internal culprits include corruption and
deceptive business practices, the almost paranoiac attitude of wanting to dominate the worlds economy, a legal
quagmire that does not provide avenues for redress on default/non-payment of loans, elimination of local
protectionism, inability of the banking system to respond to interest rate changes and inability of state-owned firms
to respond to pricing signals, lack of labor mobility, labor unrest due to high levels of unemployment, a large
impoverished populace, power and transportation problems and more. An external factor is that China is skirting
international labor market agreements, bypassing legal restrictions through deceptive practices and producing lowcost products through slave labor, among other things. China, unless it addresses the aforementioned and many other
issues, will not face only internal turmoil, but also international hostility and possible isolation and protective
measures.
Overheat Links - Asset Depletion

Rapid growth fuels corruption and massive depletion of national assets - crushing the economy
Wang Fang, Asian Research Center, 7/3/04
(Corruption Fuels Chinas Overheated Economy, http://www.asianresearch.org/articles/2172.html)
Economics expert Liao Shiming, one of Chinas leading economic journalists, states that Chinas expanding
economy has resulted in a massive depletion of the nations assets. Many of Chinas ministers and committees are
proposing new projects, as a project allows for readily available funds. Corrupt officials might use this money for
personal means. This wouldnt be possible without new projects. Liao believes that China is developing ad hoc at
present, especially in distributing the nations wealth. Putting the brakes on the economy will affect the nations
asset distribution. It also will have an effect on the international financial market to a certain degree. The Chinese
Government is limiting some local development projects. Recently, Beijing investigated a large-scale steel and iron
project in Jiangsu. In 2002, a private steel company planned to build large-scale steel and iron factories
inChangzhou and Zhenjiang. This company expected to produce 8.4 million tons of steel and iron annually. The total
investment was approximately 10.6 billion yuan or $1.28 billion USD. As soon as the steel company was granted 4.3
billion yuan in loan funds it falsified its financial records in an effort to divert 2 billion yuan. Zeng Renquan, another
one of Chinas leading journalists, said, Corruption in Chinas system reaches every level and cant be solved.
Economic corruption is the most prominent and the financial state in this corrupted system is the most horrifying.
Overheat links - Inflation

Rapid Chinese growth causes inflation and wage disparities that undermine economic and political
stability
Merri Uckert, Lt. Colonel, US Air War College, April 1995
(China as an Economic and Military Superpower: A Dangerous Combination,
www.au.af.mil/au/awc/awcgate/awc/uckertmb.pdf)
Inflation too, is a result of Chinas rapid economic growth. It has distorted prices, increased corruption and resulted
in insufficient government revenues. These kinds of problems can be solved with the dissolution of the state owned
enterprise system and a continued move to a competitive market economy. However, as the Chinese have found,
they must temper their growth and consider all the factors bearing on their economy. The current relationship
between the state and society in China cannot be regarded as stable. Economic development has been responsible for
the spread of dissatisfaction from the cities into the countryside due to the disparity in wages and standards of living.
Through most of the 1980s, the rural areas provided the Communist Party with a secure base of support, since early
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success in agricultural reform caused peasant incomes to rise more rapidly than those of urban workers. Now,
however, agricultural output is growing more slowly than industrial production and prices for industrial goods are
rising faster than for agricultural products.28Thus, the cost of living and inflation in the rural inland provinces far
exceed those of the industrialized coastal cities.
Rapid economic expansion undermines causes runaway inflation and threatens the survival of the regime
China cannot afford to endure runaway inflation, price and wage disparities and the social problems they create.
Perhaps the best approach to dealing with Chinas continuing progress in their shift to a market economy is to
continue to foster cooperation. Economic liberalization will create situations that stir political instability and may
challenge political authorities. The Chinese foresee increased political and economic tensions among the major
industrialized countries in the post Cold War era that could set back global economic development and in turn
threaten the success of Chinas modern economic program.39The efforts of the Western powers, especially the
United States, to impose market economic principles and political democracy worldwide are viewed in China as
potentially destabilizing and as a threat to the survival of Chinas Communist regime.
Overheat links - Overinvestment

Overinvestment in the Chinese economy makes a deflationary crash inevitable
Gordon Chang, Shanghai Counsel, Law Firm of Paul, Wiess, Rifkin, Wharton & Garrison,
2001 (The Coming Collapse of China, p. 114)
As bad as the situation is in Shanghai, it is much worse in other parts of China. In general, the Party followed Nike's
famous slogan. The cadres not only just did it, they overdid it. Time will remedy the results of the Party's
unrestrained enthusiasm as eventually China will grow into its new premises. The inevitable consequence of the
gross overinvestment of the past will be that growth rates in the future will decline as China makes the adjustment.
China lurches from scarcity to excess and now to economic failure. That's the result of development by mass campaign. It will be harder for the cadres to remedy another cause of deflation, one that cannot be solved by mass action
directed from Beijing. Simply put, the people of China look around them and feel insecure. They can see what is
happening. Their country is undergoing wrenching transformations from a Maoist economy to a semimarket one and
from an agrarian society to a string of urban centers. And the old "iron rice bowl" system is breaking down. Once the
state provided workers with most essentials for life. If you needed a bar of soap or a towel, for instance, your
employer would provide that in addition to housing, schooling, health care, and a hundred other essentials. Maoism
might have smothered the Chinese people, but they did feel secure in its embrace. That's a lot less true these days as
the Party stumbles toward a freer economic system. Hardship, the consequence of change, has convinced millions
that they must provide for themselves. Today they save and save and save some more. Americans are allergic to
putting money away for the future: the Chinese, on the other hand, are collectively among the world's greatest
savers, stuffing away some 40 percent of gross domestic product year after year. That, if anything, is a big vote of no
confidence in the state's ability to provide.
Overheat Links - Overinvestment

Prefer out Link - the biggest risk isnt inflation but overinvestment - overdemand will crush the Chinese
economy - only a slow down can save it
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The Economist, 5/13/04 (Chinas Economy: Time to hit the Breaks,

http://www.economist.com/opinion/displaystory.cfm?story_id=2668182)
Almost everybody now agrees that the economy is growing too fast. The key question is: will China's economy slow
gently or will it crash? The hotter the economy gets, the greater the risk of a hard landing, and a repeat of 1994-95
when a previous investment bubble popped, leaving a hangover of excess capacity and deflation that lasted for
several years. However, Hong Liang, an economist at Goldman Sachs in Hong Kong, thinks that talk of a hard
landing is premature, because there are several differences between today and the early 1990s. Policy has been
tightened sooner this time. In 1993 inflation was already 15% (it rose to 28% at its peak) before the central bank
tightened, while money-supply growth then was twice as rapid as today's. In the early 1990s, real interest rates were
negative, falling at one point to minus 13%. Today, bank lending rates are positive (see chart). Even so, the level of
5.3% is far too low for an economy where nominal GDP is growing at around 15%. A second difference is that
unlike a decade ago, there has not been a consumer-spending binge. Private consumption grew by only 6% last year,
compared with average growth of 14% in 1992 and 1993. That is one reason why last year China had a currentaccount surplus; in 1993 it had a deficit of 2% of GDP. The debate over the extent to which China's economy is
overheating is sometimes a bit confused. The term overheating is normally used when an economy is suffering
from excess demand, which then causes inflation to rise. But China's boom has been led by investment, which
means that supply is booming as well as demand. As a result, the biggest risk to the economy is not inflation, but
overinvestment. A glut of property or industrial capacity could depress profitability, bankrupt firms and swell banks'
non-performing loans. China's banking system, which is virtually all state-owned, does not allocate credit efficiently,
and the misallocation of funds gets worse as growth speeds up. Bad debts may already be 40-50% of loans. In the
long run, to improve this China needs to commercialise its financial system. That will require financial reform, as
well as a transformation in corporate governance. But that will take years. Right now, the government needs to slow
the economy to avoid another wave of bad loans.
The greater and more prolonged the economic boom the harder the collapse will be - a slow
down leads to a soft landing not total collapse of growth
The Economist, 5/13/04 (Chinas Economy: Time to hit the Breaks,
http://www.economist.com/opinion/displaystory.cfm?story_id=2668182)
The measures taken so far have lacked teeth. The People's Bank of China is therefore likely to raise interest rates and
to introduce further, stricter quantitative measures to curb lending to the hottest sectors. The recent rash of
announcements suggest that the government is starting to panic. The longer the economy grows at its current pace,
the greater the risk of a hard landing, which would push up unemploymentsomething which Beijing cannot afford
because of the risk of social unrest. What do economists mean by a hard or a soft landing? In developed economies
a hard landing implies negative growth, but not in China, where growth has averaged 9% over the past two decades.
A soft landing would be growth slowing from its current 10% to not much less than 7%, the minimum needed to
create enough jobs to absorb surplus rural labour and workers laid off by state-owned firms. Even that could still
imply a halving in the rates of growth in industrial production and investment. A hard landing means growth
significantly below 7%. Official figures suggest that growth after the early 1990s boom never dipped below 7%a
perfect soft landing.
Overheat links - Overinvestment

Rapid economic growth causes overinvestment and misallocation - causing a hard landing
Kent Hughes, Director, Woodrow Wilson Center's Program on Science, Technology,
America and the Global Economy , 2005 (Facing the Global Competitiveness Challenge, Issues
in Science and Technology)
China is intrinsically fascinating. It is at once the worlds most promising economy and least promising economy.
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That contradiction emerges from Chinas mix of powerful real economic development, complete with rising
skyscrapers, smoking factory chimneys, and a rapidly growing system of national highways all thriving alongside a
feeble financial sector managed by a central bank designed to operate a staid planned economy. China has become
too dynamic to operate as a planned economy, but it hasnt even seriously begun a transition that, it must be said,
ultimately may or may not occur, to a market economy. There are two obvious and important features of the Chinese
economy that immediately thrust themselves at a newly minted expert on China. First, in the real economy, China
is experiencing an overinvestment cycle not unlike the violent cycles observed in the United States during the latenineteenth century, but also more recently in Japan in the 1980s and the United States in the 1920s and 1930s.
Second, Chinas financial system has some serious difficulties, not uncommon to economies at Chinas stage of
development, which exacerbate the instabilities tied to overinvestment and misallocation of investment that are so
obvious in China. I shall try here to suggest the broad outlines of Chinas extraordinary economic development and
the policy challenges that have become most urgent in the context of that development. Chinas leaders are well
aware of the problems they face in a very rapidly developing economy with a diverse population of 1.3 billion
people. The specific economic and financial sector problems under discussion here are more a byproduct of the
extraordinarily rapid evolution of Chinas development over the past several decades than they are the result of a
lack of attention from Chinas leaders. That said, it will be very difficult for China to avoid a hard landing this year.
Overheat Links - Overinvestment

Massive economic growth causes overinvestment and reckless lending practices by Chinese state banks causing economic collapse
The Economist 1/25/05 (A Reheated Economy, http://www.economist.com/agenda/displayStory.cfm?
story_id=3597367)
By the winter, however, hopes of a soft landing were high. Inflation was ebbing, investment was cooling and output
was slowing (see chart). Most economists expected Tuesdays figures to show a further slowdown in growth.
Instead, its pace has quickened. The Chinese economy has taken a puzzling detour on its gentle route back down to
earth. The worlds most populous country has vast reserves of labour and no shortage of capital. Why, then, should
we worry that it is growing too fast? Since China embraced market economics in 1978, its average rate of growth
has been 9.4%. By its own standards, then, last years pace of expansion was nothing out of the ordinary. But
economists are anxious about the balance of Chinas economy as much as its speed. China may or may not be
growing too fast, but it is certainly investing too much. In the year to the first quarter of 2004, spending on fixed
assetsplant, property and infrastructuregrew by 43%. Investment accounted for 42% of GDP in 2003, and
perhaps a still greater share last year. No economy can sustain such a colossal rate of capital accumulation. At some
point, Chinas investment must run into rapidly diminishing returns. Are two cement factories twice as good as one?
If investors were betting their own money, these redundant cement factoriesnot to mention steel mills, luxury flats
and car plantswould probably never have been built. But Chinas reckless investment owes a lot to the heedless
lending of its banks. Chinese households still save about 45% of their income. They deposit about two-thirds of
these savings in Chinas four big state-owned banks, which lend about two-thirds of these deposits to state-run firms.
The banks pay little attention to risk and do not expect much of a return: perhaps 40-50% of loans are nonperforming. In fact, their lending is best seen as a form of state subsidy. If these subsidies were added to the
governments books, Chinas budget deficit would balloon to 18% of GDP, reckons Diana Choyleva of Lombard
Street Research, an economic consultancy. Suppose, says Ms Choyleva, that China can sustain a rate of investment
of about 35% of GDP, rather than its current rate of 40-45%. How does it get there from here? Such a sharp
contraction in the investment rate is not, she says, consistent with a soft landing.
Rapid investment will collapse the Chinese economy

The Economist 1/25/05 (A Reheated Economy,
http://www.economist.com/agenda/displayStory.cfm?story_id=3597367)
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If investment slows, the economy as a whole will plummet. China, she predicts, cannot escape the natural
violence visited on all developing countries that go through such boom-and-bust cycles of investment. Those who
still hope for a soft landing agree that Chinas rapid rate of investment must slow. But they hope that exports and
consumption can take up the slack. They will draw some comfort from Tuesdays figures. Investment in fixed assets
grew by 21.3% in the year to December, its slowest pace in seven months. And yet the economy still quickened.
Exports jumped by a third to $63.8 billion in December. Rural incomes, boosted by a bumper harvest, grew by
6.8%. And in the cities, real disposable incomes increased by 7.7% and retail sales by 14.5%. Since 1978, Chinas
communists have let thousands of private firms bloom, from small-town enterprises, growing organically, to giant
manufacturing concerns, built with foreign money. According to Tuesdays figures, Chinas economy is still
sprouting vigorously. But some still fear that too much of this growth will turn out to be dead wood.
Overheat links - Overinvestment / Banking

Rapid growth outstrips the Chinese banking system - Only a temporary slow down in investments can
save the Chinese economy
John Makin, Resident Scholar, American Enterprise Institute , 2004 (China: The Unplanned,
Planned Economy, American Enterprise Institute Policy Brief, Academic Search Premier)
Chinas vulnerability to its own financial sector reflects a number of factors including its high saving rate and a
steady, rapid flow of funds into savings at banks that have been unable to deploy profitably all of the funds at their
disposal. Standard and Poors estimates that problem loans by Chinas banks largely to state-owned enterprises
are equal to over 40 percent of Chinas GDP or about 5 trillion yuan. While the actual figure may be less or greater,
Chinas banking system, as the major alternative for storage and enhancement of Chinas accumulated wealth, is
worthy of close attention. It is reasonable to suggest that Chinas rapid economic growth and even more rapid
growth of investable funds has outstripped the ability of its banking system to channel those funds to consistently
profitable uses. The danger exists that Chinas savers will suffer substantial losses at an early stage of their
experience with placement of savings in the hands of financial intermediaries, either through higher direct taxes
required to bail out insolvent banks or through higher inflation that reduces the real value of depositors holdings at
the banks. The basic problem emanating from a dichotomy between rapid growth of income and investable savings
and a financial system at an early stage in its development arises from an inability to generate market signals to
guide investments to their most profitable uses inside and outside of China. Securitization, the sale of nonperforming
loans to investors at market-determined pricesby auctionis reportedly under consideration by the Chinese
government. Such a step would provide Chinas fixed-asset investment grew at a 43-percent yearover-year rate in
the first quarter of 2004up sharply from a 26.7-percent year-over-year rate
during 2003 and a 16.1-percent rate during 2002. valuable information on the relative attractiveness of nonperforming loans. The information gleaned from securitization would be enhanced by allowing foreign banks, or
other financial institutions such as insurance companies to participate in the auctions. As insurance companies
accumulate long-term contingent liabilities denominated in renminbi, their need for long-term renminbi assets may
make them active bidders for non-performing loans currently held by Chinas banks. Problems tied to the tendency
for Chinas investable savings to grow faster than profitable investment opportunities inside China can be mitigated
by letting some Chinese savings flow abroad. While China may not be ready for such a step on a large
scale, the lesson from Japan and other episodes of rapid growth is to move as quickly as possible to broaden
investment opportunities for a population with a rapidly rising need for diverse options concerning the storage and
enhancement of growing wealth. As foreign banks and insurance companies become better established inside China,
their ability to help Chinese savers diversify will grow, as will the learning process whereby Chinese
banks acquire the same skills.
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Overheat Links - Rapid Growth Undermines Reforms

Rapid Chinese growth undermines necessary political and economic reforms - causing revolution, chaos,
and collapse
Minxin Pei, Director, China Program, Carnegie Endowment for International Peace,
January/February 2005 (Chinas Economy is Blinding the World to Its Political Risks, Foreign Policy,
http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=16541)
There is a Chinese proverb that says "one spot of beauty can conceal a hundred spots of ugliness." Today, in China,
there are few things as beautiful as the country's economic growth. But it is premature to dismiss the inherent
instability in China's authoritarian politics. The country's rapid economic growth may be blinding us to systemic
risks in Chinese domestic politics that, if poorly managed, could explode, threatening the survival of the regime.
There is no question that China's economy is on the rise-but so are the risks of political crisis. To be fair, some of the
dangers China is facing simply come with the challenge of being a developing country racing toward a market
economy. Shaking off socialism isn't easy for any nation. When you are the world's most populous country, the
chances for socioeconomic disaster are enormous. Income inequality, for example, is to be expected. The period
from 1980 to 1997 saw a 50-percent rise in inequality in China. Labor migration is natural. But China is
experiencing the largest movement of rural labor in history. In recent years, Chinese cities have absorbed at least 114
million rural workers, and they are expected to see an influx of another 250 to 300 million in the next few decades.
Under the circumstances, it's hardly surprising that China's effort to establish a new social safety net has fallen short,
especially given its socialist roots. It would be a Herculean task for any government. But China's isn't just any
government. It is one that rests on fragile political foundations, little rule of law, and corrupt governance. Worse, it
has consistently placed the highest value on economic growth and viewed all demands for curbing its discretion and
power as threats to its goal of rapid modernization. The result? Social deficits in education, public health, and
environmental protection. But it is hardly surprising, since promoting high growth advances the careers of
government officials. Thus, China's elites devote most of their resources to building glitzy shopping malls, factories,
and even Formula One racing tracks, while neglecting social investments with long-term returns. So for those who
wonder how, if China's political system is so rotten, it can deliver robust growth year after year, the answer is that it
delivers robust growth year after year, in part, because it is so rotten. But the Chinese Communist Party knows that
the people will tolerate only so much rot. Corruption is a rising concern. The party's inability to police its own
officials, many of whom are now engaged in unrestrained looting of public assets, is one of Beijing's greatest
worries. These regime insiders have effectively privatized the power of the state and use it to advance personal
interests. Their loyalty to the party is questionable, if it exists at all. The accelerating effect on the party's demise
resembles that of a bank run; more and more insiders cannot wait to cash in their investment in the party. Of course,
the Chinese government, like other authoritarian regimes, is constantly threatened by internal power struggles.
Again, Beijing has not only bucked the naysayers, but its ability to weather internecine strife appears to have
improved markedly since the 1989 Tiananmen tragedy. The recent transfer of power from Presidents Jiang Zemin to
Hu Jintao turned out more smoothly than expected, perhaps signifying that the party has acquired a higher degree of
institutional maturity. But it may still be too little, too late for an increasingly pluralistic and assertive population.
Although the government managed to build an elitist ruling alliance of party officials, bureaucrats, intellectuals, and
businessmen, the durability of this alliance is questionable. And, as in other countries, exclusionary politics
inevitably breeds alienation, resentment, and anger. This does not mean that a social revolution is imminent in
China. But should a crisis hit, all bets are off. Thankfully, all of these risks are manageable if China confronts them
with bold political reforms rather than denial and delay. But this may be wishful thinking. Beijing has thus far
preferred these risks to the gamble of democratic reforms. The only thing certain about China's political risks is that
they are on the rise. And that reality is hardly a thing of beauty.
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Overheat links - Rapid Growth undermines reforms

Economic growth covers up the need for economic and political reforms - causing the middle class to rise
up against the CCP
Supporters of engagement long argued that it would help tame China through a traditional pattern of modernization:
economic growth and increased connection with the outside world would spur the development of a Chinese middle
class that would in turn press for capitalism, democracy, and peace. But in fact, although China has gotten richer,
economic reforms have not led directly to political ones. Economic liberalization is indeed breeding a middle class
with a new set of demands, including protection of private assets, access to unfiltered information, and a greater
political voice. So far, however, the middle class has not organized in any meaningful way to push for wholesale
political change. Instead, that change is occurring primarily in response to the negative effects of China's market
transition. For the past several decades, as Chinas leaders have banked on the country's striking economic success to
legitimize their leadership, they have ignored the political and institutional changes necessary to ensure that markets
function smoothly and transparently and that the social challenges arising from economic reform are addressed
effectively. The result has been a dramatic rise in corruption and the decline of the country's social welfare system,
which together have bred widespread popular discontent and undermined the legitimacy of the rifling Chinese
Communist Party (CCP).
Economic growth short-circuits needed reforms - undermining CCP legitimacy

TIDES OF CHANCE FOR CHINA'S LEADERS, time is now of the essence. For decades, they believed that
economic growth would absolve them of providing people with health care and social security or of protecting basic
human rights and the environment. Meanwhile, crime and government corruption spread, the social welfare system
deteriorated, and the public alienation and distrust that have resulted now threaten the CCP's legitimacy.
State corruption is perceived as a particularly severe problem. A poll by the Chinese Academy of Social Sciences indicates that 60 percent of the
15,000 urban Chinese interviewed believe that economic reform has benefited the CCP and government officials the most--and far more than the
private sector. Another poll indicates that 80 percent of people in rural areas and 75 percent of city residents believe their local leader could be
corrupted. Instead of rooting out illegal activities, officials have come to depend on them to fund local affairs: according to an official in the State
Council (Chinas top government body), local government revenues increasingly derive from fines levied on criminals
engaged in drug smuggling, prostitution, or gambling. In response, thousands of retirees and unemployed workers from state-owned
enterprises demonstrate each month against the corruption they believe has robbed them of promised compensation, retirement benefits, or
medical insurance. Evictions and illegal land sales have prompted public suicides. The country's increasing--and increasingly powerful--middle
class has been outspoken, too. Middle-class Chinese want effective legal institutions to protect their newfound assets, so they organize into
independent associations (such as homeowners' groups) or run for political office to weigh in on decisions that affect their livelihoods. These are
voices that Chinas leaders know they can no longer ignore. (Private assets now exceed state assets by more than one trillion yuan, or $1.2 billion.)
According to a recent poll, 30 percent of top CCP cadres believe that reforming the political system is the leadership's most urgent task. Yet
political reform has been far from straightforward. It has seen many delays, reversals, and backlashes. Beijing has
initiated some key reforms, but others have percolated from individual initiatives or small-scale government-sanctioned experiments (many of
these changes had first been proposed by former Premier Zhao Ziyang as early as 1987). Some reforms have been announced and then
withdrawn. In 2003, Shenzhen municipality boldly proposed to end the CCP's oversight of government functions, but the project was dropped
when its chief supporter became vice-governor of a nearby province. Other reforms have taken years to materialize. A proposal to enshrine
property rights in the constitution was first put forth in 1999, only to be defeated by opposition within the CCP and then passed, in March of this
year, when a more hospitable political environment had developed. Every step forward seems to prompt a setback--a crackdown
on Internet freedom, a sweep of arrests of religious dissidents, or incidents of fraud or intimidation at local elections.
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Overheat links - Rapid Growth undermines reforms

Economic engagement is key to a smooth political transition from authoritarianism
China's leaders recognize that they must assuage this discontent in order to survive. They have responded by
adopting a strategy of political reform that harks back to Deng Xiaoping's approach to economic reform a generation
ago: decentralization, experimentation, and opening up to the outside world. President Hu Jintao and Premier Wen
Jiabao are trying to enhance the efficiency of the system by establishing new political processes and institutions,
inviting domestic and foreign experts into the process, and permitting local experiments to test what does and does
not work. In so doing, Hu and Wen have unleashed great popular expectations. Wide swaths of society--including
journalists, lawyers, property owners, environmentalists, and intellectuals--are pushing for more reforms. At the
same time, a strong current of resistance has developed within the CCP itself, which is fearful of losing its power.
Even reform-minded party members are wary of pushing too far too fast and incurring social instability or a
conservative backlash. Since a gradual and benign transformation of Chinas authoritarian regime is in everyone's
interest, the policy message for the United States is clear: stay the course of engagement and do what can be done to
make economic and political liberalization succeed. U.S. policy cannot drive change in China by itself, but it can
help provide the most supportive international context in which such change will thrive.
Failure of economic and political reforms causes massive social unrest in China - More
growth cannot solve
Murray Scot Tanner , Senior Political Scientist, RAND Corporation, Summer 2004
(China Rethinks Unrest, Washington Quarterly, Vol. 27, No.3)
A June 2003 dispatch in a preeminent U.S. newspaper described a rare and short-lived demonstration by more than 100 enraged Shanghai
apartment dwellers protesting their forced eviction to make way for luxury condos. The one discernible error of the tightly researched report was
its characterization of such protests as rare. Public protest in China is now anything but, with such incidents numbering in the tens of thousands
each year, far more than most foreign analysts seem to acknowledge, according to an unprecedented new wave of internal data from Chinas own
police forces. A raft of recent police reports also indicate that protests are not only growing in number but also are increasing in size and
becoming better organized. The histories of China and other developing societies unfortunately provide no yardstick for gauging how serious a
threat such levels of protest pose to the Chinese Communist Partys (CCP) grip on power, let alone a basis for confidently predicting a coming
collapse of China.1 Social unrest has sparked a tremendous policy debate among the guardians of the state in Beijing.
In their internal discussions, the analysts and officials of Chinas public security system are fundamentally
rethinking the sources of unrest in a changing society as well as strategies for coping with it. Many among Chinas
police now frankly concede that economic, cultural, and political changes, not enemy conspiracies, underlie this
emerging crisis of order. Some security specialists even cautiously assert that, unless China undertakes serious
institutional reform, neither coercion nor rapid economic growth will be sufficient to contain unrest. As Chinas new
leadership under General Secretary Hu Jintao struggles to find a more realistic and sophisticated strategy to manage unrest and strike an
effective balance between reform and social control, these internal police debates will form a pivotal part of the counsel they receive. As these
analyses underscore, the struggle to control unrest will force Beijings leaders to face riskier dilemmas than at any time
since the 1989 Tiananmen Square demonstrations. Experiments with less violent police tactics, economic
concessions to demonstrators, and more fundamental institutional reforms all risk further encouraging protest in an
increasingly restive society. Nevertheless, these challenges must be navigated if the party wants to avoid the ultimate dilemma of once
again resorting to 1989-style violence or reluctantly engaging in a more fundamental renegotiation of power relations between the state and
society. The United States also needs to rethink social unrest in China and recognize its potential systemic impact on the Sino-U.S. bilateral
relationship. Underlying Beijings emerging new diplomacy of self-confidence and international cooperation, quiet fears of instability are
increasingly limiting and complicating the relationship by raising Beijings perception of the risks involved in a full range of strategic and
economic issues. Inevitably, Beijing will face major social-control crises as it struggles to find a new and hopefully
less
repressive strategy to ensure social order. Meanwhile, within the limits of our influence, the United States and its
allies must now start crafting responses that will encourage Beijing to accelerate institutional reform rather than
revert to the violence of 1989.
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Overheat links - Social Stratification

Rapid economic development will unleash social tensions that will cause China to implode - bringing
down the global economy
Minqi Li, Department of Political Science, York University, July 2005
(The Rise of China and the Demise of the Capitalist World-Economy, Science & Society, Vol. 69, No.3)
In 2002, China overtook the United States to become the worlds largest receiver of foreign direct investment. While
in terms of market value, China only accounts for 4% of world GDP and 5% of the worlds manufacturing exports, it
accounted for 15% of world GDP growth and 29% of the growth of world manufacturing exports in 2002.5 Many
believe that China is set to become the workshop of the world in the 21st century. When China started the project
of reform and openness to deepen its incorporation into the capitalist world-economy, it had
basically a class structure and a level of wages that were those of a peripheral state. On the other hand, for historical
reasons (Maoist self-reliance and socialist industrialization), Chinas economic structure resembled that of a semiperipheral state. It had the comprehensive technological capability to produce a wide variety of products,
ranging from low to high value added. Therefore, as soon as China was opened, it started to engage in full-scale
competition against the established semi-peripheral states (Lu, 1999). Because of Chinas low wages and low costs,
it has been in a favorable position in the competition and has become the major receiver of the capital relocated
out of the core states. What will likely follow from this? As China becomes the center of world manufacturing
exports, Chinese society is likely to experience rapid industrialization and urbanization. Its class structure will
be fundamentally transformed. The share of proletarian and semi proletarian wage workers in the population will
increase substantially, and the share of peasants will fall. Within one or two generations, Chinas degree of
proletarianization will reach the current levels in Latin American and Southeast Asian semi-peripheral states. As a
result, Chinese workers will demand semi-peripheral levels of wages and the corresponding political and social
rights. The wage gap between the core states and China may be reduced from the present ratio of 40:1 to around
10:1. The demands and increased bargaining power of workers will impose great pressures on Chinas regime of
capital accumulation. To survive these pressures, China must establish itself as a stable and secure semi-peripheral
state. Given the basic laws of motion of the capitalist world-economy and the current conjuncture, is this likely to
happen? One can imagine four possible scenarios. First, China may fail. Its drive toward development may turn
out in the end to be no more than a great bubble. As China sinks back into the periphery, its existing regime of
accumulation will collapse, unable to withstand the exploding social pressures the very process of accumulation has
generated. This scenario, however, may be the least devastating of the four possible ones for the capitalist worldeconomy, for which the problem of China lies with its huge size. China has a labor force larger than the total labor
force in all of the core states, or in the entire semiperiphery. Should China become a fully established semiperipheral state, competing with the existing semi-peripheral states in all commodity chains, the competition
eventually must lead to convergence between China and the existing semi-peripheral states in profit rates and wage
rates. This convergence may take place in an upward manner or a downward manner. Under downward convergence
(scenario 2), Chinas competition will completely undermine the relative monopoly of the existing semi peripheral
states in certain commodity chains. The value added will be squeezed, forcing the traditional semi-peripheral states
to accept lower wage rates close to the Chinese rates.6 In effect, the second scenario is peripheralization of the
semiperiphery. This has dangerous implications for the capitalist worldeconomy.
Social Stratification (Impacts)

Chronic poverty and unemployment causes massive uprisings and military crackdowns - causing China to
implode
Charles Wolf et al, Senior Economic Adviser, RAND Corporation, 2003
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(Fault Lines in Chinas Economic Terrain, p.18-19)

If massive unemployment and rural poverty remain chronic in the next decade, what could happen to the economy?
Two serious consequences are possible: One is an outburst of large-scale labor protests and peasant riots. In urban
areas, migrant workers and deactivated workers are potentially major sources of social instability. Most of the
migrant workers are young, with little savings and no public assistance. Desperate to survive, they could seek refuge
outside the law. Deactivated workers could become disillusioned with the loss of their "iron rice bowls" and angry
about meager unemployment benefits. They could direct their grievances at the govern ment, join forces, and create a
torrent of social unrest. In rural areas, the peasants' income is still relatively low, and the large labor surplus remains
an unsettled, volatile force. A severe natural disaster, decisions by local governments to impose more and larger
taxes, or a sharp drop in farm prices following large imports of agricultural products could threaten their survival
and trigger peasant revolts. Massive demonstrations could deteriorate into sociopolitical crises if party leaders were
to use the military to crush the demonstrators and their sympathizers. By then, the economy, the political leadership,
and China's international relations could be thrown into chaos, as happened immediately after the Tiananmen Square
incident in 1989.
Social Stratification (Impacts)

This will crash the Chinese Economy
Charles Wolf et al, Senior Economic Adviser, RAND Corporation, 2003
(Fault Lines in Chinas Economic Terrain, p.18-19)
Even if no large-scale riots occur, rising unemployment and rural poverty could slow economic growth through
adverse effects on the key parameters of GDP growth. Take, first, their possible effects on savings. The unemployed
and poor usually have little or no savings of their own. They generally have to draw on the savings of others,
including the government, which takes care of most of the urban openly unemployed and the poor in remote regions.
The state-owned enterprises (SOEs) and urban collective enterprises subsidize deactivated workers, workers of
defunct units, and the urban disguised unemployed. Rural households bear the burden of supporting redundant farm
labor. Increases in the financial support of the unemployed and the poor need not affect total savings, if they are
compensated by reductions in household and government consumption expenditures. However, in the next two
decades, it might be difficult for households and the government to continue such compensations for several
reasons. China's population is aging rapidly.17 Household expenditures on health care could rise rapidly because percapita health care costs are generally higher among the aged. Moreover, the ratio of those working to the number of
retirees is dropping fast.18 That means more and more people will be living primarily on their own or others' savings.
Demographic experience also shows that poor families generally have higher crude birth rates. 19 As a result, their
children dependency ratio (the proportion of children age birth-14 years to those age 15-64 years) is higher than in
other families.20 An increase in the number of poor families could dissipate more savings, simply because they have
more children to feed than the average family. Furthermore, household expenditures on housing could rise as a result
of the government's cutting housing subsidies.21 Of course, eliminating subsidies could increase government
revenues, but the savings could be easily offset by the increase in expenditures on such urgent needs as
environmental protection, reserves to liquidate the state banks' bad loans, and building a nationwide social security
system. Moreover, none of this allows for the ongoing defense modernization program. The tightness of the government budget is evidenced by the persistent budget deficits and their growing size (SY 01, p. 245). If income
growth should lag behind that of consumption expenditures, the savings rate would decline and the growth of capital
would be adversely affected.22
AT: We Spur Reforms - Solving Overheat

Beijing will be unable to put the breaks on economic growth - internal problems will cause the economy
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to overheat
There are serious tensions in China between the experts in the central bank and finance ministry and many of the
regional political leaders over the pace and direction of the cooling off process. Leaders in the central and western
parts of China, where living standards are only about l/l0 those of the richer coastal province, resent the pressure
from Beijing to cancel or delay their own investment and growth plans as part of the national campaign to prevent
overheating and over capacity problems from spiraling out of control. The result of this tension has been a delay in
the full implementation of Beijings overall economic program to address the overheating problem. Indeed the
effort a year ago to slow down overall growth in the money supply was abandoned in June of 2004 due to mounting
political and economic strains that disturbed authorities. China doesnt have the financial instruments of more
advanced economies, such as deep bond and other financial markets, to fine-tune economic growth. They have to
depend upon reserve requirements in banks and credit allocation by category and by geographical area. They also
have to rely on compliance by unruly and sometimes corrupt regional leaders to carry out the edicts from the Center.
But forbidden new factories, real estate projects, and golf courses are still emerging in China, according to earlier
reports by Morgan Stanleys Andy Xie, which add up to more credit and monetary creation than Chinas Central
Bank would like, generating ever more overheating in some parts of the Chinese economy and growing excess
capacity problems in other parts of that same.
Turn - Rapid growth causes China to forego necessary economic reforms - Chinese planners will push too
hard too and bring down the entire global economy with them
Top Chinese government officials reporting to the National Peoples Congress in early March of 2005, noted with
concern that troublesome new financial and economic problems keep appearing as soon as they begin to address
existing ones. This is characteristic of a state directed economy attempting to avoid the consequences of ignoring
basic economic principles and powerful market forces. History tells us that such attempts usually end in tears. Many
also believe that Chinas economic planners are running enormous risks for China and for the global trading system
as a whole by attempting to accomplish through excessive credit expansion and ever growing exports the economic
progress in one generation that should have been the work of two. There is often a marked lack of full candor in
discussing Chinas problems in public on the part of foreign business leaders and even some scholars. Those who
wish to do well in China, are sometimes advised to speak well of China. Ultimately such silence or
flattery does not serve either China or the cause of truth. Critical public pressure can sometimes help avert problems
that otherwise could prove highly damaging to Chinas interest in sustainable growth and political stability and in a
healthy global market place.
AT: Slow growth worse / Chinese Economic Collapse

Without a slow down, Chinas economy will overheat and crash the entire Asian economy
John Makin, Resident Scholar, American Enterprise Institute , 2004 (China: The Unplanned,
Planned Economy, American Enterprise Institute Policy Brief, Academic Search Premier)
Chinas creaky financial system, coupled with its wild-west style economy, seems destined for an economic hard
landing this year. Signs pointing to that outcome have already begun to appear. Most important, the Politburo,
Chinas most powerful body, appears already to have mandated credit quotas meaning that additional credit (or in
some cases, rollover of existing credits) is simply unavailable in some overheated sectors like construction and real
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estate. Chinas central bank has mandated higher reserve requirements and interest rates. Meanwhile, industrial
commodity prices and precious metals prices have dropped sharply since March, suggesting an abrupt end to
hoarding that characterized the last phase of the bubble. The emergence of a hard landing in China has already
reverberated in Asian financial markets. Stock markets in China, Japan, Taiwan, South Korea, and Australia, to
mention only the largest, have already dropped sharply. Since March, Chinas stock markets are down over 20
percent, Koreas is down 20 percent, and Japans is down over 10 percent. The rush of Chinese and foreign money
out of Asia and into U.S. cash has also sharply depressed Asian commodity currencies like the Australian dollar
against the U.S. dollar. The Japanese yen has dropped by nearly 10 percent against the U.S. dollar since March even
as the Japanese government has ended its first-quarter massive dollar-buying spree. Private sector Asian dollarbuying is boosting the dollar even as the U.S. external deficit rises. The fact that China has not experienced
a large foreign capital inflow as the Asian Tigers had done prior to the 1997 crisis does not preclude emergence of
sharp capital outflows from China. Local Chinese investors control vast funds. During the booming first quarter of
this year, unrecorded capital flows into China totaled about $30 billion. That represents an annual rate of $120
billion or about $1 trillion in U.S. terms given that the U.S. economy is just over eight times as large as Chinas. One
trillion dollars is nearly twice the annual U.S. current account deficit. As Chinas savvy, wealthy investors
search for a place to protect their wealth, rising U.S. interest rates (as the Fed tightens) offer a tempting
refuge. Chinas heavy capital inflow and incipient currency appreciation will reverse and become an outflow,
unbuffered by any currency flexibility given the rigid peg of the renminbi to the dollar. Pressures for a hard landing
in China will intensify as money and credit contract given the outflow of funds. A possible sharp change from boom
to bust in China would underscore the instability inherent in the combination of a volatile economy and an inflexible
financial system. Chinas emergence as a major force in the global economy might be likened to inserting a very
powerful racecar with poor brakes and steering into a race that normally includes Formula One cars whose brakes
and steering are as remarkable as their engines are powerful. Everyone envies the extra speed of the powerhouse on
the straightaway but wants to avoid it on the corners.
A gradual slow down in Chinese growth is the only way to prevent a crash that will collapse
the global economy
Power and Interest News Report, 5/28/2004
(Chinas Cooling Economy Could Have a Chilling Effect on Oil Prices, http://www.pinr.com/report.php?
ac=view_report&report_id=173&language_id=1)
The U.S. and global economies are much more able to succeed in an environment of relatively high oil prices than
they are with the bursting of the bubble in China's economy. Japan is just beginning to emerge from years of
contraction, largely because of growth in its exports to China. India's service-based economy depends greatly on the
manufacturing base that China provides. China has provided the greatest growth in consumer spending on which
U.S. and European Union countries have come to depend. Global markets from Jakarta to New York have built
straight-lined growth of China's economy into their expansion plans. Should the overheated sectors of China's
economy collapse, it could make the Asian meltdown of 1998 look like a mere statistical anomaly. For this reason, it
is much better for the U.S. to help China gradually cool the overheated sectors of its economy and approach high oil
prices as a fixed problem.
AT: Slow growth worse / Chinese Economic Collapse

Slow growth is the only way to prevent overheat - a hard landing will collapse the global economy
The Economist, 5/132004 (Chinas Economy: The Great Fall of China, The Economist,
http://www.economist.com/opinion/displayStory.cfm?story_id=2668015)
A FASCINATING drama is about to be played out in the world's biggest country. China's economy is growing too
fast for comfort, and the country's leaders know it. In recent weeks they have promised forceful measures to cool
things down, but it is not clear what they will or can do. Rumours are rife that China's central bank may raise interest
rates for the first time in nine years. The authorities have tried to restrain investment, prices and lending through
administrative fiat. The challenge facing them would be difficult for policymakers anywhere: to slow the economy
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enough to ensure sustainable growth, but not so much as to cause a damaging crash, the much-feared hard landing.
But the task of China's policymakers is doubly difficult because they have far fewer tools at their disposal than their
counterparts in developed countries (see article). Thousands of state-owned firms, as well as the banking system, do
not respond much to pricing signals or interest rates. It is not only 1.2 billion Chinese who should hope that their
leaders succeed despite these handicaps. The rest of the world also now has a huge stake in China's continued
economic health. During the past three years China has accounted for one-third of global economic growth
(measured at purchasing-power parity), twice as much as America. In the past year, China's official GDP growth rate
has surged to 9.7%. Even this may underestimate the true rate, which some economists reckon was as high as 13%.
China's scorching growth has helped to prop up other economies by sucking in imports, which surged by 40% last
year alone. While America's industrial output has shrunk over the past three years, China's has increased by almost
50%. As a result, its demand for commodities has skyrocketed, driving up prices. Last year it consumed 40% of the
world's output of cement. It also accounted for one-third of the growth in global oil consumption, 90% of the growth
in world steel demand, and more than the whole of the increase in copper demand. If China's economy slows
sharply, commodity prices will fall everywhere, especially hurting producers in countries such as Russia, Brazil and
Australia, which have gained so handsomely from China's boom.
A slow down checks a hard landing

Anne Krueger, First Deputy Managing Director, IMF, 1/10/05
(China and the Global Economic Recovery, http://www.imf.org/external/np/speeches/2005/011005.htm)
It is therefore too soon to be confident that the much talked-about soft landing has, as yet, been successfully
engineered: the jury is still out. Experience has taught us that achieving an orderly transition to more moderate, and
sustainable, growth rates is, at best difficult. It is a matter of striking the right balance between doing too little, and
failing to check growth and inflationary pressures; and doing too much, with the risk that the economy judders
almost to a halt.
AT: Slow growth is worse / Economy collapse

Short-term slow-down provides political cover for tough economic reforms and we control the uniqueness
because breakneck economic growth is unsustainable
There are, however, a lot of downside local, regional, and global risks at play just now, some political, some
economic. Governments are notoriously slow in dealing with even obviously dangerous financial problems. This is
partly because any major change in the status quo inevitably inflicts pain on powerful domestic constituencies. For
that reason, any major change usually requires sufficient deterioration to generate a crisis of some kind to provide
policy makers with the needed political cover. Current global imbalances, including the U.S. current account
problems, and the Asian regional ones involving China, pose trends that seem unsustainable to more and more
informed people. Before they are corrected, however, we may see once again the truth of that old Wall Street
saying: The bigger the boom, the bigger the bust
Overheat Impact - Military Coup

A. Chinese economic overheat causes a military coup
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By the same token, China too faces its own political tensions and governance problems. For example, in December
2004 President Hu published in the front page of the China Daily a long demand that the military of China obey the
party. Presumably such a prominent demand would not have appeared if there were not problems of insubordination.
Earlier there were reports of strong disagreement between military and party leaders about the role of the military in
business, the budget share to be allocated to the military, and issues such as how firmly to oppose the Taiwanese
aspirations. Some of the local party/military disputes overlap regional issues. Military involvement and interests
may also be complicating the ability of the government of China to address some of the economic problems facing
the country. Issues of who ultimately controls promotion in the army may also be involved in some of these
disputes. Finally, whenever there are governing institutions that face serious popular dissatisfaction, particularly in
societies without a long democratic tradition, the military can become a wild card in the political deck. No one now
seriously expects an open military challenge to civilian party rule under present circumstances. Should, however,
there be a hard landing to the Chinese economy, with banking failures, unemployment, and public disorder, no one
can say what might happen in China..
B. The Impact is World War III

The Straights Times, 6/28/2003
(Tom Plate, UCLA professor, neo-cons a bigger risk to Bush than China,)
But imagine a China disintegrating- on its own, without neo-conservative or Central Intelligence Agency prompting,
much less outright military invasion because the economy (against all predictions) suddenly collapses. That would
knock Asia into chaos. A massive flood of refugees would head for Indonesia and other places with poor border
controls, which dont want them and cant handle them; some in Japan might lick their lips at the prospect of of
World War II revisited and look to annex a slice of China. That would send Singapore and Malaysia- once occupied
by Japan- into nervous breakdowns. Meanwhile, India might make a grab for Tibet, and Pakistan for Kashmir. Then
you can say hello to World War III, Asia style. Thats why wise policy encourages Chinese stability, security and
economic growth the very direction the White House now seems to prefer.
Overheat Impacts - Global Economy

Chinese overheat will collapse the global economy
The Economist, 5/132004 (Chinas Economy: The Great Fall of China, The Economist,
http://www.economist.com/opinion/displayStory.cfm?story_id=2668015)
The biggest losers from a hard landing in China would be its Asian neighbours. China accounted, on average, for
almost half of the total export growth of the other East Asian economies last year. By some estimates, Japan's
exports to China and capital spending linked to its export industries accounted for one-third of Japan's total GDP
growth last year. Indeed, a slowdown in China would expose the chronic weakness of private consumption in Asia.
The recent burst in growth in the region has been much too dependent on exports to China. Although Japan's GDP
grew at an annual rate of 4.5% in the second half of 2003, consumer spending rose by only 1%. In South Korea,
Hong Kong, Taiwan and Singapore, consumer spending fell slightly, on average, last year. A slump in China would
have a much smaller impact on America and Europe, but some companies would be hurt. Exports to China
accounted for about one-fifth of total export growth last year in America and the European Union. However, the
biggest risk to these economies lies elsewherein the indirect effect of a sharp slowdown in China on financial
markets. Another risk lies in the fact that America depends on China to help finance its budget and current-account
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deficits. China's purchases of American Treasury bonds, along with purchases by Japan, have helped to hold down
yields and hence American mortgage rates. If China's economy continues to overheat, its current-account surplus
could soon turn to deficit, and then its central bank would no longer need to buy American Treasuries to hold down
its currency.
Overheat Impacts - Chinese Economy (Nuclear War)

Chinese Economic Collapse Causes Nuclear Conflict
Robert Wang, US Economic Minister-Counselor in Beijing, May 2005
(Chinas Economic Growth: Source of Disorder?, Foreign Service Journal,
www.afsa.org/fsj/may05/wang.PDF)
Another key point that should not be lost is that China is moving forward in this direction not only
because of its international obligations and foreign pres-sure but, more importantly, because the Chinese do see
it as being in their own interest. As they learn to do business in the global community, they have an increas-ing
stake in a peaceful and stable world, whether it is as a market for their products or a source of imports and
investments. At the same time, however, we need to acknowledge that a rising China, even if peaceful, is bound
to be a nation more assertive of its own values and interests. We are already seeing this in various inter-national
fora, whether economic or political. In some cases Beijing may not share our perspectives or interests, so we and
others may see its increasing assertiveness as disruptive. More generally, Beijings growing power and influence
could be seen as a challenge to status-quo powers in Asia (such as Japan) and around the world. Assuming Chinas
economic growth continues, the worlds challenge is to make room for it (as well as India and other developing
countries), and to support its further integration into the global community to ensure that the required adjustments in
the world order pro-mote stability rather than instability. The alternative of a nuclear-armed PRC beset by economic
problems and domestic turmoil would be a far more difficult challenge for the global community.
AT: Overheat
Chinese growth will not cause a Chinese bubble - growth raises living standards and prevents a backlash
Deborah Davis, Professor of Sociology, Yale University, 5/28/2005
(China Joins the Global Economy - Part Two, http://www.globalenvision.org/library/3/542/)
Thus, the growing general prosperity of the Chinese people coincides with growing income inequality. Given this
duality, many questions are inevitably emerging about the future of China's economy. In particular, many ask: Will
the bubble burst? Will the increasing income gap create a backlash that will drastically slow economic growth?
Based on broader sociological data, I believe, that the answer to these questions is no, at least for the next five years.
Even against the somber picture of increasing income inequality, the positive trends of China's improving "human
software" remain impressive and promise to be extremely influential in continuing to raise standards of living by
raising productivity and creating new, higher skill jobs. Among developing economies, China has an unprecedented
demographic advantage in its low dependency ratio: Between 1990 and 2000, the percent of the population under
age 15 and older than 64 slightly declined. (See Table 1). Over the next five years, the overall dependency ratio will
remain within this same range. Even if the growing number of elderly places greater demands on medical services,
the falling percentage of young children suggests that both local governments and families will maintain or even
increase their investment in primary and secondary education. Given the excellent core curriculum across the entire
country, China is therefore well positioned to continue to upgrade its "human capital" over the next decade.
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AT: Overheat
Inequalities and unemployment will not cause a bubble - Economic growth causes necessary reforms
Barry Naughton, Professor of Pacific Studies, Graduate School of IR, UC San Diego , Winter
2004
(An Economic Bubble? Chinese Policy Adapts to Rapidly Changing Conditions, China Leadership
Monitor, No. 9, http://www.chinaleadershipmonitor.org/20041/bn.html)
Some economists deny that there is a bubble in the Chinese economy. To these observers, there are structural
imbalances that need to be addressed, and perhaps a real estate bubble exists, but not an overall bubble. These
analysts point out that although there have been significant price increases in the last year, they have been
concentrated in the prices of energy, raw materials (such as steel) that consume a lot of energy, and grain. Other
observers think these imbalances are harbingers of more-fundamental macroeconomic problems that need to be
addressed now. There is no consensus on the depth of the economic challenges China faces. However, for
policymakers and politicians there has now been a fairly fundamental shift in the political-economic environment.
Ever since the 199697 macroeconomic soft landing, Chinese politicians have faced a fairly friendly economic
situation. This is not to say that China hasnt had plenty of economic problems; it has. Downsizing of the state sector
has created a huge unemployment problem, competitive challenges from foreign firms and imports are significant,
especially after the advent of World Trade Organization (WTO) membership, and persistently sluggish rural income
growth has been a serious problem. But as long as these problems do not lead to a social explosion, they do not
threaten the position or political strategies of the current leadership. In the first place, none of these problems has
had a severe impact on the most powerful and privileged sectors of Chinese political society, many of whom were
becoming wealthy. More importantly, the sluggish economy has encouraged the central government to run
substantial budgetary deficits, giving them additional benefits to distribute to political clients. Spending needs are
obvious, and the economy is sluggish and needs stimulation, so the governing administration ends up with
substantial leeway to spend money and distribute benefits as it wishes. The ability to run deficits has been
combined with a fairly comfortable overall budgetary revenue situation. Since the 1994 budgetary reform, fiscal
revenues have grown strongly every year. With a growing economy, and fiscal revenues increasing as a share of
GDP, central government leaders have had plenty of resources to play with. This situation is beginning to change.
The emergence in the past year of a bubble economy is forcing Chinese policymakers to take steps. This is the first
time in a decade that Chinese policymakers have been forced to impose austerity measures on the economy. China
will not have the same ability to distribute funds broadly to needy recipients and political clients, and political
leaders may have to make difficult decisions about how to allocate the costs of austerity policies. China may have to
rein in its large fiscal deficits, which have been running over 3 percent of GDP. A new set of challenges
is emerging, and it will be very much in the interests of the Wen Jiabao administration to address these challenges
early, before they become more serious.
No risk of overheat - reforms solve

Power and Interest News Report 5/16/05 (Domestic Threats to Chinas Rise,
http://www.pinr.com/report.php?ac=view_report&report_id=299
China has recently begun to emerge as a great power, but much of this power is derived from the perception that its
rapidly expanding economy will continue to raise the boats of its neighbors. Should China's economy begin to
sputter, this newfound power could rapidly dry up, leaving Beijing's future ambitions marooned in the East China
Sea. While much has been said about the possibility that certain sectors of China's economy could overheat and
burden the rest of the country's economy, Beijing has, so far at least, demonstrated its ability to contain this problem
with both heavy-handed and market based approaches. Still, there are many other domestic liabilities that could
bring China's economic expansion to a halt. The vast division between the booming economies of the coastal cites
and the stagnation of the interior, environmental and social problems derived from centrally planned projects and the
"bad" loans that continue to plague China's state- controlled banks could still sink the tremendous growth of China's
economy. Actions from Beijing demonstrate that it is taking these problems seriously, enough at least to put its
foreign policy ambitions not linked to energy security and access to markets on hold. It remains to be seen if Beijing
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will be able to do enough to stave off the domestic threats to its presumed assumption as regional hegemon.
AT: Overheat
No impact to overheat
Beyond Asia, a hard landing in China would have only a small impact. In spite of recent rapid growth, trade shares
with China are lower for countries outside of Asia. For example, preliminary estimates for the United States and the
Euro area point to a decline in GDP of less than 0.1 percentage points even over the longer term. The second
mitigating factor for the hard landing scenario is the likely response of the Chinese authorities. Thus far they have
displayed great caution in trying to bring about the smooth adjustment that we all regard as optimal. This suggests
very strongly that policymakers would respond promptly to any sign of a dramatic slowdown. It is difficult to
imagine that any drop in growth would be sustained for more than a quarter or two without a response from the
authorities. The Fund's analysis takes no account of possible policy responses. So though a hard landing cannot yet
be ruled out, the consequences may be less dramatic than most commentators have argued.
The market will correct an overheat

Far more important in the longer-term will be a shift away from reliance on administrative controls as an instrument
of economic policy. The more rapidly the authorities are prepared to move towards market mechanisms, the greater
will be the benefits for the Chinese economy and its future growth prospects. Letting markets work more freely will
make it easier to achieve rapid and sustainable growth in the future and reduce the need for intervention to avoid
overheating. In the longer term, there is no good substitute for price incentives that for delivering the appropriate
economic signals. The modest rise in interest rates in October was a welcome move in this direction, suggesting that
the authorities are ready to rely increasingly on market signals to achieve a behavioral response. It was also a
welcome sign that the authorities are serious about their commitment to restrain inflationary pressures.
Economists agree that China will reign in overinvestment

China Daily, 11/9/04
(Progress in Cooling Down Economy Hailed, http://www.china.org.cn/english/BAT/111572.htm)
Top Morgan Stanley economist Stephen Roach yesterday hailed the progress China has made in cooling down its
overheated economy. Speaking at a press conference in Beijing, Roach said satisfactory results had been achieved
thanks to the host of macroeconomic and microeconomic policies implemented by the central government. The
Chinese economy should be expected to enjoy a soft landing if this trend continues, said Morgan Stanley's
Managing Director and Chief Economist. A successful slowdown in China would also be good news for the
currently imbalanced global economy, he said. The Chinese economy, which has been rapidly growing for years, has
recently shown signs of a slowdown. Bank credit and trade growth have both shown pronounced deceleration.
Gross domestic product (GDP) growth also softened to 9.1 percent in the third quarter, compared to 9.8 percent in the first quarter and 9.6 percent
in the second. But the pace of the slowdown, especially that of industrial output and GDP, still remains very moderate, said Roach. "More policy
restraint will be required" in order to achieve a soft landing, said Roach. A spokesman for the People's Bank of China, the nation's central bank,
also said over the weekend that the Chinese economy, in spite of the cooling-down, is still facing some problems, including unstable agricultural
development, pressure from rising prices and a still excessive fixed investment scale. The central bank therefore has to consolidate the results of
the macroeconomic controls and adopt monetary policy tools to adjust the economy. And it will try to fully use market mechanism to allocate
social resources, the spokesman said. It is good that the Chinese Government is committed to this policy to rein in excessive
investment, said Roach. And as the State accounts for the greatest amount of fixed asset investment, the authorities
should be able to bring overall investment growth under control.
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AT: Overheat - reforms solve

Chinas economy is rapidly reform and building momentum toward liberalization
Dr. Song Hong, Senior Research Fellow, Chinese Academy of Social Sciences, 7/22/2005
(Chinas Role in the World Economy, Executive Intelligence Review,
http://www.larouchepub.com/other/2005/site_packages/june28-29_berlin/3229dr_song_hong.html)
The second reason is China's economic policies. China adopted opening up to the outside and economic reform
policies since 1978. In the context of this policy framework, China continues to initiate more and more programs
and projects to attract FDI. For example, in 1979 China set up four special economic zones in the Guangdong and
Fujian provinces, which are the important coastal areas of China, and the most important homeland of overseas
Chinese. In 1986, a new policy was initiated by China's government which targetted the inward FDI from Hong
Kong, Macao, and Taiwan. More favorable incentives were provided for the export-oriented and high-tech FDI. In
the early 1990s, Deng Xiaoping's famous south China tour provided a new dynamic for China's economic
development in general and inward FDI in specific. The third reason is the impact of China's WTO accession.
Because China wanted to join the WTO, she made comprehensive commitments. 1) China opened up four new
sectors for foreign investors. Those sectors are telecommunications, banking, insurance, and professional service. 2)
China deepened the extent of opening to the outside world in the already opened areas. For example, full trade and
distribution rights were provided to all firms three years after China's WTO accession, no matter what their type. 3)
The environment of investment in China has improved dramatically because of China's commitments. China joined
the TRIMs [Trade-Related Investment Measures agreement] and TRIPS [Trade-Related Aspects of Intellectual
Property Rights agreement], which would provide more favorable/equitable treatment to foreign investment. The
fourth reason is the favorable international economic background. During the second half of the 1980s, because of
the appreciation of the Japanese yen and the Asian NIEs' [Newly Industrialized Economies'] currencies, the laborintensive industries in those economies lost their comparative and competitive advantages. On the other hand, the
appreciated currency makes outward FDI more favorable for firms from those economies. China's policy of opening
up to the outside world makes it deeply involved in the East Asian industrial restructuring process, and gradually
integrated into regional economic development. More and more manufacturing capacity is transferred to China
though inward FDI. This momentum built up in the second half of the 1980s, and was maintained in the next two
decades. In summary, these four important advantages allow China to attract much labor-sourcing FDI each year in
the last two decades, and to survive the world economic recession and continue to grow faster than other economies
in the last few years.
AT: Overheat - reforms solve

Rapid growth spurs Chinese economic reforms and rooting our corruption
Joshua Kurlantzick, Trade correspondent, US News and World Report, Summer 2002
(China: Economic Power, The Washington Quarterly, www.twq.com/02summer/kurlantzick.pdf)
Most importantly, Beijings leadership has committed itself to eliminating the inefficiencies that plague Chinas
economy and to abiding by international trading rulesreforms that will boost trade flows and help restore
global economic health. Chinas economy doubtless remains backwards, at least by the standards of the
industrialized world. Banks still favor enterprises with close party connections. Piracy remains a huge problem:
walking the streets of Shanghai last winter, I was offered knockoffs of the new Harry Potter movie. Chinese firms
still engage in massive off-the-books transactions. In January, Wang Xuebing, former head of the Bank of China,
was placed under house arrest for financial irregularities during his tenure at the bank. Additionally, Beijings stilldraconian restrictions on the Internet and on print media will retard the development of a truly adventurous Chinese
high-technology industry capable of discovering groundbreaking technologies that would benefit the world. Yet, the
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upper echelon of the Chinese government is not backing down, even though economic liberalization could unleash a
time bomb of unemployed laborers, potentially costing President Jiang Zemin, probable successor Hu Jintao, and
their cohorts their jobsor their heads. On joining the WTO, Beijing pledged to slash subsidies for state enterprises,
reduce tariffs, and ultimately allow wholly owned foreign ventures to operate unimpeded China is striving to banish
its image as an economic loose cannon in China. Indeed, the government has made qing li men hu, getting our
[economic] house in order, its mantra and has spent so much time hyping
WTO accession that decidedly unsexy books on trade rules have become hot sellers at Beijing bookstores. The
government is downsizing the firms it owns and today employs less than 20 percent of Chinas population. Top
bankers who pilfer from the till are prosecuted (and, unfortunately, some-times executed); fifteen years ago, Wang
never would have faced censure. The Chinese police slowly are cracking down on piracy, greatly pleasing U.S.
corporations. Three years ago, there were so many stalls selling pirated software outside our office, even
government officials would stop and buy from them, Ma Ping, a leading Internet entrepreneur in Shanghai, said.
Today, the stalls are gone. China is enacting these reforms despite the existence of 160 million rural Chinese who
are already unemployed, the likelihood of these reforms putting millions more rural laborers out of work, a rapid rise
in China of labor-related protests, and a history of Chinese governments being overthrown by such angry peasants.
These farmers dont know what the WTO is yet, but they willsoon, a Chinese acquaintance said as we wandered through farms in southwestern Chinas Yunnan province. According to Ellen Frost, a fellow at the Institute for
International Economics, The Chinese government has undertaken a heroic effort to adapt to globalization by
wrenching Chinas distorted economy into greater conformity with a mar-ketoriented, rules-based world order.2 Homi Kharas, World Bank chief economist for East Asia, has argued, Other
countries in the region would do well to examine what China is doing.
AT: Growth Cause Poverty

Rapid growth eliminates Chinese poverty
Let me start by putting our discussion in context. We are all familiar with the rapid pace of Chinese economic
growth in recent years. It has been spectacular: real GDP grew by 9.7 percent a year on average from 1990 to 2003.
And as of now, the pace of growth shows little sign of abatingI will return to the issue of the so-called soft landing
later. And this rapid growth has had a significant impact, both within China and around the world. We are all aware
of the extent of the changes that have taken place in recent yearsboth in China itself and in China's impact on the
rest of the world. Rapid growth has had a dramatic impact on the lives of millions of Chinese citizens. Tens of
millions of people have escaped poverty in China in the past decade or more. Yet it is important to remember that
this was an economy starting from a very low base. Per capita incomes remain relatively low by international
standards, even after more than doubling in nominal terms and almost doubling in PPP terms in the past decade or
so. The actual numbers (less than $1,000 a head on the World Bank Atlas method and about $4,000 on a ppp basis)
underline the point that China is still markedly poorer than many of its neighbors, and dramatically poorer than
Hong Kong. It is classed by the World Bank as a lower middle income country. This is an economy with much
catching up to do. Continued rapid growth will be essential if poverty rates in China are to be reduced further. The
challenge for the Chinese authorities is to ensure that growth rates are sustainable over a long period. Yet even now,
China's sheer size, coupled with its rapid growth, makes it a major player in the global economy. In nominal terms,
China currently accounts for almost 4 percent of world outputnot much more than in 2000, incidentallymore
than one and a half times bigger than Canada. Measured on a ppp basis, China's share of global output has risen
from close to 11 percent in 2000 to a shade over 13 percent in 2004. On that basis it dwarfs Canadaand France,
Italy and the UK; and is almost twice as big as Japan. Indeed, on the ppp basis it is the third largest economy if we
count the euro area as a single economy. China's share of world trade has grown more rapidly. In 1990, its share of
world exports was 1.9 percent; that grew to 4 percent in 2000 and 6 percent by 2003. China's share of world imports
grew from 1.5 percent in 1990, to 3.6 percent in 2000 and 5.7 percent by 2003.
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Chinese Economic Collapse Inevitable - Oil Dependence

Chinese oil demand will inevitably cripple its economy
Thomas Kane & Lawrence Serewicz, Professor & PhD, Security Studies, University of Hull,
2001 (Chinas Hunger: The Consequences of a Rising Demand for Food and Energy, Parameters,
Autumn,
http://carlisle-www.army.mil/usawc/Parameters/01autumn/Kane.htm)
In the early 21st century, China's shortage of petroleum is a more immediate problem than its potential shortage of
food. An obvious way for China to get oil is to buy it on the world market. However, as Kent Calder has pointed out,
China's increased oil demand comes at a time when petroleum requirements throughout Asia are increasing.
Petroleum accounts for 51 percent of total regional energy consumption in the Western Pacific, compared to 40
percent worldwide. One of the major reasons for this imbalance is that Asian countries produce large quantities of
steel, petrochemicals, automobiles, and other manufactured goods. This kind of industry requires large quantities of
energy. Not only are Asia's petroleum demands already high, but they rise with each upswing in the Asian economy.
While overall world oil demand was essentially flat in 1993, demand in the Western Pacific rose four percent.
Outside Japan, oil demand in 1993 rose 6.8 percent. Growth reached 11.4 percent in South Korea, as well as eight to
nine percent in both China and Thailand.[15] High demand means high prices, and this exacerbates China's
difficulties. To buy oil, China must make money, and to buy oil from abroad, China must acquire globally
recognized currencies. This makes China increasingly dependent on its export trade. If oil prices go up further,
Beijing would find all these facts yet more troublesome.[16] The price of petroleum could easily become a drag on
China's economic growth. Chinese leaders must also reckon with the fact that their country imports most of its oil
from the Middle East. This makes China vulnerable to price fluctuations and outright shortages caused by political
turmoil in that region. Historically, the United States and its European allies have acted as a final arbiter in Middle
Eastern crises. The 1991 Gulf War serves as a dramatic reminder of this fact, and it is worth noting that China
abstained from voting on UN Security Council Resolution 678, which authorized the US-led coalition to use force
against Iraq.[17] However, China's leaders cannot wish to rely on their potential rivals in the West to guard and
regulate their oil supply. Dependence on Arab oil confronts Beijing with a similar problem on the high seas. Middle
Eastern petroleum comes to China by ship, on a route that leads across the Indian Ocean and through the Indonesian
archipelago. Pirates already plague these routes. Furthermore, China's potential rival India sits astride this line of
communications, and India possesses a considerable fleet.
Chinese Economic Collapse Inevitable - Poor Monetary

Policy
Corruption and remnants of socialism will inevitably collapse the Chinese economy
James Dorn, China Specialist, Cato Institute, 11/13/2004
(China Economic Miracle in Danger, http://www.cato.org/pub_display.php?pub_id=2878)
The recent increase in the benchmark rate by the People's Bank of China is a clear signal Beijing is worried about
overheating. The dismal performance of China's stock exchanges is also a strong indicator of the failure of market
socialism and the need for ownership reform. Without real owners of capital assets and competitive interest rates,
the future of China's economic miracle is highly questionable. The upsurge in inflation from zero to more than 5
percent in the last several months could further weaken the financial system. The People's Bank of China has been
using credit controls and moral suasion to slow the growth of bank credit, which expanded by more than 20 percent
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in 2003. As that growth slows, the non-performing loan problem could worsen. The lack of free capital markets and
competitive interest rates force China to resort to administrative measures, but those very measures are making the
financial system less, not more, stable. If banks keep lending rates fixed at less than the rate of inflation, the demand
for loans will continue to soar. If the PBOC accommodates that demand for money, inflation will accelerate. The
root of the problem is that politics, not markets, determine the magnitude and direction of investment in China's
market socialist system. Nominal interest rates are set at below-market levels causing an excess demand for
investment funds. Those funds are then directed primarily to state-owned enterprises through state-run banks.
Corruption and inefficiency are inevitable in such a system.
Poor monetary policy will inevitably collapse the Chinese economy

(China Economic Miracle in Danger, http://www.cato.org/pub_display.php?pub_id=2878)
The difficulty of offsetting capital inflows was evident in the second quarter when the central bank failed to sterilize
most of the new base money created in the process of acquiring foreign exchange. The PBOC allowed a net increase
of Rmb 211.6 billion in the second quarter and base growth for the first half of the year was 19.2 percent. That
growth must be returned to normal to achieve long-run price stability. Stop-go monetary policy can have
destabilizing effects on financial markets. The PBOC cannot afford to use administrative measures as a smoke
screen to hide the real cause of inflation -- namely, excessive growth of base money brought about by failure to
conduct an independent monetary policy designed to ensure long-run price stability. Credit allocation is a poor way
to organize capital markets. If China wants to become a world-class financial center, market-led investment must
replace state-led investment, and China must recognize the limits of monetary policy. The PBOC cannot peg the
nominal exchange rate and at the same time pursue an independent monetary policy aimed at price stability without
imposing capital controls. With the growth of trade, China is finding it increasingly difficult to enforce capital
controls. Foreign exchange reserves now exceed $500 billion. How much capital does Beijing want to invest (waste)
to maintain the peg?
Chinese Economic Collapse Inevitable - Privatization

Lack of privatization and CCP authoritarianism undermines the Chinese economy and dooms any chance
of political reform
(The Future of Liberalism in China, http://www.cato.org/pub_display.php?pub_id=3206)
There is no doubt that China's economic liberalization has been highly successful. But institutional incompatibilities
between state planning and the market still exist, especially in the financial sector. Real capital markets depend on
private property rights, and China's leaders are in no hurry to sanction those rights for fear of losing power. But there
is a more serious problem confronting China's ruling class -- namely, the need for fundamental political reform to
create a limited government under the rule of law and to end the CCP's authoritarian regime. The future of liberalism
in China will depend on meeting that challenge. According to Cao Siyuan, a leading proponent of political reform
and privatization in China, "If the current political system is not reformed into a civilized political system [i.e., one
in which the citizens are sovereign], it is entirely possible that tragedies like the Cultural Revolution will happen
again." Cao provides a roadmap for reform in his new book, The ABCs of Political Civilization. During the Cultural
Revolution, more than 400,000 people lost their lives, and nearly a million were victimized. Behind that injustice
and violence lay the supreme CCP and its leader. Although China's leaders are now more civilized than Mao, they
and the CCP are still supreme, and Chairman Mao's picture continues to dominate Tiananmen Square. The CCP's
monopoly on power leaves little scope for independent thought or freedom of expression, especially in the political
realm. Open criticism and discussion are a threat to the CCP's supremacy. The Party's powerful propaganda
department, headed by a politburo member, hides the truth by distorting both facts and language. Orwellian
"Newspeak" is pervasive, from the "Cultural Revolution" and "market socialism" to the very name of the nation -the "People's Republic of China."
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Chinese Economy Collapse Inevitable - Laundry List

Other factors crush long-term Chinese economic growth; undervalued currency, non-performing bank
loans, and inefficient state-owned enterprises
Fred Gale, USDA Economic Research Service, February 2005
(Chinas Economic Growth Faces Challenges,
http://www.ers.usda.gov/AmberWaves/February05/Findings/ChinaEconomicGrowth.htm)
Few other countries have been able to match the pace of China's sustained economic growth. With gross domestic
product (GDP) increasing, on average, more than 8 percent annually since 1978, China has become a major player in
the global economy. In the long term, however, this extraordinarily high GDP growthwhich is driving China's
increasing demand for agricultural importsmay be dampened by several obstacles: Undervalued currency. China's
exports rely on what may be an unsustainably low fixed exchange rate. China has maintained its currency at a fixed
rate of approximately 8.28 yuan per U.S. dollar since 1997, a rate that some economists suggest is undervalued by as
much as 40 percent. There is substantial international political pressure on China to appreciate its currency. Any
significant appreciation of the yuan would reduce China's export competitiveness and slow down the growth of
China's exports, a major factor in China's rapid economic growth. Nonperforming bank loans. China's banking
system has historically made loans under government direction to unprofitable state-owned industries, with little
regard for repayment or risk. The result is a substantial portfolio of nonperforming loans estimated at 30 to 100
percent of annual GDP, a larger share than that of Japan, for example. By using its stock of foreign reserves, Chinese
authorities have managed to maintain liquidity in the banking system in spite of the nonperforming loans. However,
at some point a continued escalation of nonperforming loans will restrict further expansion of bank credit,
constraining growth in the business sector. Inefficient state-owned enterprises (SOEs). SOEs consume much of
China's capital through their historical links to the state banks and dominance of the stock exchange in China, but
they produce little or no return on their capital. Many are poorly managed and protected from competition. Private
enterprises are more efficient, but have difficulty raising capital. Many SOEs have been shut down or merged with
stronger enterprises, but fears of exacerbating already-serious unemployment problems are a constraint as China
shifts resources to the private sector. Growing income disparities. In 2003, urban per capita income was more than
three times the rural average, up from twice the rural average during the 1980s. In 2000, China embarked on a
"develop the west" campaign to push both public and private investment into the country's poorest western
provinces. While this campaign should help reduce income disparities, it will take resources away from the most
productive export manufacturing sector, reducing overall growth. Rapid economic growth is a major factor
contributing to China's increasing importance as an agricultural export market. A significant slowdown in that
growth would reduce China's demand for U.S. agricultural products, including soybeans, cotton, wheat, and corn.
Even so, China will likely continue to be a major destination for U.S. agricultural exports.
Chinese Economy Collapse Inevitable - Laundry List

Population growth, income disparities, land constraints, and state-owned enterprises undermine Chinese
economic growth
STATE OWNED ENTERPRISES AND INDUSTRIALIZATION State owned enterprises still exist in China today.
They are responsible for some of the problems associated with the economy and exacerbate other problems.
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businesses continue to employ such a high percentage of Chinese workers, the economy will continue to see low
productivity because of the lack of financial rewards. Other problems in Chinese society such as the high population
growth, agricultural versus industrial reform and income disparities between the coastal and inland regions continue
to inhibit economic development. Despite the apparent success of Chinas economy in the last 20 years, problems
are inherent in its transition to a market economy. Chief among these problems is the continued state ownership of
much of Chinas economy. These state owned enterprises employ about one third of the urban Chinese workforce
and almost half of all state run businesses are unprofitable. Although the state owned businesses operate in the red,
the Chinese government is reluctant to eliminate them fearing massive unemployment and consequent social
unrest.25As a recent Communist party plenum noted, China must instill a greater sense of responsibility among
factory workers in the state run enterprises. Combined with a change in attitude, privatization of state owned
businesses will cut the bureaucracy, enhance efficiency, and increase profits. Realistically though, this type of
change will take time. Chinas chronically high population growth is another major problem which spawns further
problems. The population explosion in turn creates unemployment and diverts capital investment from industry and
into less productive sectors such as housing.
Chinese Economy Collapse Inevitable - SOE

State-owned enterprises undermines Chinese economic growth
Jinglian Wu, Senior Research Fellow, Development Research Center of Chinas State
Council, 2005 (Chinas Economic Reform: Past, Present, and Future,Perspectives, Vol. 1, No. 5,
http://www.oycf.org/Perspectives/5_043000/china.htm)
Along with the change in ownership forms, the Chinese economy has grown rapidly over the last twenty years.
China's status in the international economic and trading system is also steadily advancing. These achievements have
gained international recognition. On the other hand, the achievements of China's economic reforms are still limited.
If we look at the mechanism of economic resource allocation, the major obstacle to reform still has not been
overcome. The Fourteenth National Congress of the Chinese Communist Party (CCP) has clearly pointed out that
the nature of the economic reform is to change the mechanism of resource allocation, so China can move from a
planned economy to a market economy in which the market plays a critical role in the allocation of resources.
Presently, although the state sector produces only about one third of overall GDP, it is still the major user of scarce
economic resources. Reform of state-owned enterprises (SOEs) has been far from satisfactory, and the old system
maintains its influence and continues to impede the establishment and perfection of the new market economic
system. Therefore, we cannot say that the market has started to operate as the primary allocator of economic
resources. For example, the state sector, although contributing to only one third of China's GDP, consumes two
thirds of the country's capital resources. The failure to carry out market-oriented reforms has been the major factor
in the generation of many economic and social problems in China. For instance, the problem of "repetitive
construction" has generated a great deal of official attention and public discussion. At the root of the problem is the
failure to reform the state sector in a fundamental way. To date, capital resources are still largely allocated by the
government through administrative fiat.
State-owned enterprises lead to monetary vulnerability that undermines economic growth

Jinglian Wu, Senior Research Fellow, Development Research Center of Chinas State
Council, 2005 (Chinas Economic Reform: Past, Present, and Future,Perspectives, Vol. 1, No. 5,
http://www.oycf.org/Perspectives/5_043000/china.htm)
We can see such problems in many other areas as well. For example, the inefficiency of the state sector leads to a
vulnerable monetary system. In another example, the sluggishness of the market is partly the result, from the supply
side, of the malfunction of SOEs and the unfavorable environment for non-state-owned enterprises. I also want to
mention agricultural problems that seem to be irrelevant to industry and commerce. How can we pull the farmers out
of poverty? According to development economics, the key to solving this problem is to transfer the 150 to 200
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million excess laborers in rural areas to non-agricultural sectors. Nevertheless, during the last ten years of our
reforms, there appears to have been a suspension or even reversal of such transfers. For example, the number of
farmers in rural areas not only did not decline but actually increased significantly in recent years. This is because the
rate of new labor absorption in SOEs has turned from positive to negative. In addition, some township and village
enterprises in the inner provinces have become paralyzed or even defunct, and some cities have also started to send
peasant workers back to the countryside. The crux of the problem is that SOEs lack entrepreneurial vigor, while the
vigor of the non-state-owned sector has not yet been brought into full play. There are two aspects to the problem. On
the one hand, the reform of state-owned enterprises and the restructuring of the state sector are proceeding at a slow
pace. On the other hand, the non-state-owned sector has not had a chance to develop fully.
Chinese Economy Collapse Inevitable - SOE

State-owned enterprises makes Chinese economic growth unsustainable
Yuanzheng Cao, Chief Economist, Bank of China, 2001 (China, the United States, and the Global
Economy, Shuxun Chen & Charles Wolf, p. 43)
Indeed, in discussing possible constraints on the sources of economic growth, we keep running into institutional
bottlenecks, some of which are legacies of the pre-1978 era while others are the byproducts of the transition. For
example, decentralization of deci-sionmaking motivates households and enterprises to invest in pursuit of higher
profits. Yet the state maintains centralized allocation of financial resources according to some credit plans that are
biased against nonstate enterprises. This inconsistency has not only seriously weakened the financial system but also
made it rather difficult for the more productive nonstate enterprises to accumulate capital. In the case of labor
supply, the critical problem is not the dwindling of new labor supply due to demographic changes two decades ago,
but the massive hidden unemployment, some of which is now surfacing. The fundamental solution calls for
institutional changes, such as building a social safety net, developing labor markets, and financial reforms to ease
the supply of credit to the productive state and nonstate enterprises to increase the demand for labor. In the case of
productivity growth, the debt-laden SOEs have continued to drag down the overall growth rate, and there are still no
signs of an end to subsidies. Moreover, one sees rampant corruption and fuzzy property rights that increase
transaction costs and lower incentives to improve efficiency. To the extent that reform is indeed the key to sustained
growth, one wonders if the primary policy focus should be placed on reform instead of on economic growth.
Economic growth without reform is not sustainable, because the current system persistently drains resources into
unproductive uses and that cannot go on indefinitely. If, however, the institutional framework of a market system
were firmly established, economic growth would follow because it could then rely not just on factor accumulation
alone but also on productivity gains, which in turn reinforces factor accumulation. At this juncture, China's reforms
still have a long way to go. This task will require huge financial costs, painful adjustments, and strong political will.
Earlier reforms were relatively easy. The benefits from these reforms apparently have run their course. The next
phase of high growth must come from new reforms that are more difficult because the economy has become more
interdependent, because the vested interests are now more deeply entrenched, and because the new reforms are
much more costly. But, painful as it may be, does China have any other viable option?
Chinese Economy Collapse Inevitable - Inequalities

Internal problems with Chinese central planning will inevitably collapse the Chinese economy
The general consensus is that China will gradually emerge as a power in East Asia able to challenge the U.S. for
regional dominance. In preparation, every country facing the prospect of Beijing's wake is reassessing its strategic
options in order to gain the best position possible after China sails ahead. Japan is looking for methods to challenge
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China's rising military power in the region and may amend its constitution in order to see this through. The
A.S.E.A.N. states are pursuing a strategy of interlocking their economies with China's, while looking to the U.S. and
India for balance and leverage. South Korea is moving closer to Beijing, though will continue to rely on its special
relationship with Washington. Washington's current National Security Strategy sees about a decade of opportunity
for the U.S. to act in order to achieve permanent security dominance in the region before China will be able to block
such an effort. In the meantime, China's foreign policy has largely been driven by immediate needs -- access to
economic markets and energy resources. Knowing that its geopolitical power is directly tied to China's economic
rise, and the perception that it will continue for the midterm, Beijing has limited its other geopolitical ambitions for
the moment and has pursued the "waiting game," sensing that its hand will increase in value as the game continues,
as long as it is able to get its domestic cards in order. While the U.S., India, Russia and Japan may maneuver to limit
China's expanded reach, there are several domestic liabilities that could potentially limit Beijing's ability to gain its
presumed position in the region. The division between the rapid economic rise of China's east and the slow growth
of the west has left the country divided. The environmental destruction caused by the centrally planned economy,
and that the market economy has ignored or made worse, may cap China's economy before it reaches its full
maturation. The social havoc that centrally planned birth control and an aging society may produce in the near future
could force huge changes in the government's role in private life, or worse it could create a backlash against the
government. Generational and ideological unrest could boil over as new technologies link disparate groups together.
Perhaps the gravest threat is the rapid growth of the eastern coast, generated by cheap loans from poorly managed
state banks, which could potentially undermine the booming economy. Any one of these liabilities could slow
China's growth; all of them could sink China's rise. How China deals with these challenges in the near future will be
a better determinate of its future role in the world than Beijing's current geopolitical maneuvering as it continues to
play the "waiting game." [See: "China's Geostrategy: Playing a Waiting Game"]
Income disparities will inevitably collapse Chinese growth

While China's coastal cities have experienced meteoric economic expansion for the past 20 years, the interior's
growth rate has not been enough to maintain a balance between the agrarian economy of the interior and the
manufacturing economy of the east. Urban incomes have roughly tripled in the past decade, while growth in rural
incomes has lagged behind at two-thirds that rate, creating a widening disparity between the coastal region and the
remainder of China. This imbalance has caused one of the largest migrations in the world's history as peasants from
China's western and central provinces relocate to the booming economies of Shanghai, Beijing and Guangzhou.
More than 40 percent of China's population now live in cities or towns, up from 18 percent in 1978 -- nearly one
percent of the country's population make the move every year, despite regulations such as household registrations
that discourage migration. Recent statistics indicating a shortage of skilled labor in some coastal regions will do
little to alleviate the problem. The interior is largely unable to fill this void, and the shortage will only drive up
incomes for the coastal workers facing increased demand, further enlarging the income gap.
35

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Harvard 2005

Chinese Overheat DA Index

Chinese Economy Collapse Inevitable - Laundry List 44

Chinese Overheat 1NC

1. Link - The Plan Accelerates Chinese Economic Growth (Insert)

Money News 7/20/2005

Chinese Overheat 1NC

And, Global Economic Collapse Causes Nuclear War

Overheat Uniqueness - Soft-Landing Now

Overinvestment has been curbed - growth will remain in equilibrium

Overheat Uniqueness - Soft-Landing Now

Current 8-9% growth rate is sustainable

Overheat Uniqueness - Soft-Landing Now

Economic soft landing now

Growth rates are stable at 8% - no risk of a overcorrecting decline or overheat now

Overheat Uniqueness - Soft Landing Now

Chinese economic growth has stabilized

Overheat Uniqueness - Soft Landing Now

Current decline is a healthy correction - preventing overheat

Overheat Uniqueness - Reforms Now

Overheat links - General

Overheat Links - General

Overheat Links - General

Overheat Links - General

Overheat Links - Asset Depletion

Overheat links - Inflation

Overheat links - Overinvestment

Overheat Links - Overinvestment

The Economist, 5/13/04 (Chinas Economy: Time to hit the Breaks,

Overheat links - Overinvestment

Overheat Links - Overinvestment

Rapid investment will collapse the Chinese economy

Overheat links - Overinvestment / Banking

Overheat Links - Rapid Growth Undermines Reforms

Overheat links - Rapid Growth undermines reforms

Economic growth short-circuits needed reforms - undermining CCP legitimacy

Overheat links - Rapid Growth undermines reforms

Overheat links - Social Stratification

Social Stratification (Impacts)

(Fault Lines in Chinas Economic Terrain, p.18-19)

Social Stratification (Impacts)

AT: We Spur Reforms - Solving Overheat

AT: Slow growth worse / Chinese Economic Collapse

AT: Slow growth worse / Chinese Economic Collapse

A slow down checks a hard landing

AT: Slow growth is worse / Economy collapse

Overheat Impact - Military Coup

Robert McCormack, US Ambassador to China, 4/13/2005

B. The Impact is World War III

Overheat Impacts - Global Economy

Overheat Impacts - Chinese Economy (Nuclear War)

No risk of overheat - reforms solve

The market will correct an overheat

Economists agree that China will reign in overinvestment

AT: Overheat - reforms solve

AT: Overheat - reforms solve

AT: Growth Cause Poverty

Chinese Economic Collapse Inevitable - Oil Dependence

Chinese Economic Collapse Inevitable - Poor Monetary

Poor monetary policy will inevitably collapse the Chinese economy

Chinese Economic Collapse Inevitable - Privatization

Chinese Economy Collapse Inevitable - Laundry List

Chinese Economy Collapse Inevitable - Laundry List

Chinese Economy Collapse Inevitable - SOE