China underlines its superpower status

As the People's Republic marks 60 years of communism with a show of might, its economy looks to lead the world out of recession.

China's formidable military strength underlines the country's position as a superpower but the diplomatic muscle is all about economics.

The state-of-the-art rocket launchers and tanks and perfectly choreographed troops parading through Tiananmen Square yesterday to mark the 60th anniversary of the foundation of the People's Republic of China (PRC) were a powerful symbol of how far the country has come in six decades. The display highlighted China's much vaunted "soft power", backed by formidable military strength, underlining the country's political position as a superpower. But this diplomatic muscle is built on China's astonishing economic rise in the past three decades and the country's emergence as the world's third-largest economy, one seen as a saviour for the rest of the world.

The tanks, rocket launchers and well-dressed children waving flags and banners were intended to represent a country in robust economic health, while the rest of the world still struggles with the Great Recession. Indeed, China is well on track to achieve 8 per cent economic growth this year, propped up by one of the biggest fiscal stimulus plans the world has ever seen, where bank lending accounted for a staggering 25 per cent of GDP in the first half of this year.

Gazing down on the parade was the image of Chairman Mao Zedong, founding father of the PRC, the "Great Helmsman" who steered the communist course for many years. His portrait also featured on a float borne aloft through the crowds. But the first 30 years of the People's Republic were characterised by grinding poverty, of grain production targets oversubscribed on paper while the people starved during the disastrous agricultural reforms of the Great Leap Forward, and of the political instability of the Cultural Revolution (1966-1976) which kept China closed to the world. Mao was, frankly, bad for business.

Much more in evidence at yesterday's parade were Mao's successors: the great reformer Deng Xiaoping; the incumbent and similarly reform-minded leader, Hu Jintao, and, surprisingly perhaps, Jiang Zemin. Mr Jiang, president Hu's immediate predecessor, appears to be given more credit than ever for steering through the system of socialism with Chinese characteristics which, heading into the second decade of the 21st century, looks an awful lot like capitalism with a strong element of state involvement.

The real star of the parade, however, was Mr Hu, who has held fast to the economic reforms introduced by his predecessors while distancing himself from calls for greater democracy in China. "The development and progress of the New China has fully proved that only socialism can save China. We will unswervingly continue to follow the policy of socialism with Chinese characteristics," he said in his keynote address.

Unusually for an administration that has sought to distance itself from the cult of personality that caused so much damage in the latter days of the Mao era, a float carried a huge portrait of Mr Hu through the crowds. It broadcast a message outlining his version of stakeholder capitalism: "Work hard to achieve new victories in building a moderately prosperous society in all respects and write a new chapter of happy life for the people!"

Significantly - and China is a country where symbols are a hugely important way of reading political realities - Mr Hu wore a suit in the style of Sun Yat-sen, the great Nationalist leader who founded the Chinese Republic in 1911, a style also favoured by Chairman Mao. The rest of the State Council, or cabinet, wore the blue business suits the Chinese leadership has favoured for years now. The message is China means business as usual, but Mr Hu will continue to rule with a firm hand.

It would be wrong to think China has abandoned its Marxist-Leninist principles entirely. The Communist Party has always been suspicious of the idea of a totally free market, largely because that makes it difficult to enforce political control, and the leadership needs that to ensure single-party rule. Mr Hu's obsession with stability is generally seen as a positive sign for the country's growth prospects as it means the government will provide stimulus as necessary to keep the economy growing.

"Growth can be sustained," said Wang Tao, a UBS economist. "We expect a sustained recovery of GDP growth to 8.2 per cent in 2009 and 8.5 per cent in 2010. The massive credit growth in the first half of 2009, coupled with local governments' drive for investment and growth, has and will continue to lead to rapid fixed investment growth in the coming months," she said. Her bullish tone is borne out by China's official Purchasing Managers Index (PMI) which rose to 54.3 from 54.0 in August, a sign that the country's manufacturing sector continued to gather strength last month as a pick-up in new orders boosted both output and jobs. Export orders gathered force to reach a 16-month high, as did employment, which hit the second-highest reading on record.

"These conditions show China's economy will continue to recover and, following the relatively quick increases in employment and incomes, the recovery is sustainable," said Zhang Liqun, a researcher at the State Council's Development Research Centre. Premier Wen Jiabao and other senior officials have spoken of how they are confident China can overcome the economic crisis. But they also urge caution, saying ongoing uncertainties mean the authorities must guard against risks.

Liu Tienan, the vice chairman of the National Development and Reform Commission, China's top planning agency, said in Hong Kong recently: "China's economy is at a crucial time of recovery. Stability is the foremost task in front of us. We should guard against all sorts of risks, including inflation." Following the military parade was the mass parade that featured all kinds of floats. One represented advances in agriculture, the great achievement of post-revolutionary China being to feed its 1.3 billion people.

Another was supposed to represent industrial development, with a focus on car production and the transportation industry. Then came the energy float, which featured model oil derricks and coal-fired power stations alongside green energy options such as wind and solar power. Green energy even got its own float, which illustrates the fact that China is aware of its responsibilities as the world's biggest emitter of carbon dioxide, and highlights, perhaps, the challenge it faces in dealing with these issues.

As the parade wound down and the tanks and rocket launchers headed back to base, the next battle facing this leadership will be to see how it can maintain this kind of growth beyond the end of the stimulus programme. [e-mail]