Chinese challenges?

Updated 4 February, 2014

Over 25 years anything can happen. So, on this and the next pages we are going to do our best to highlight political pitfalls that could seriously impact the future.

China is in, what mathematicians would call, an unstable equilibrium. It looks stable, but could be tipped over one way or the other depending on how it faces certain challenges. The challenges we envisage are:

  • The continuing ability of the Chinese Communist Party (CCP) to retain the loyalty of its citizens.
  • The patience of Chinese ‘have nots’ in tolerating the rich and party officials in their ‘unfair’ share of wealth, sometimes through corruption.
  • Need for the Chinese government and the CCP to listen and respond to the people.
  • The ability of the Chinese central government to continue its sway over Tibet and Xinjiang.
  • The continuing smooth transition of one cohort of senior Chinese leaders by the ‘next generation’ every 10 years.
  • The success with which the CCP gradually loosens its grip and opens up to legal and political reform or lose its mandate.

We will address each of these in turn.

The continuing ability of the Chinese Communist Party (CCP) to retain the loyalty of its citizens

According to Martin Ivens, political correspondent, London’s Sunday Times: “Twenty years ago, after the Tiananmen Square ‘incident’, the Communist Party imposed an awesomely successful settlement on its subject population: you will have economic freedoms and capitalist-style growth provided you don’t challenge our monopoly of political power.”

That ‘settlement’ has been in force for 20 years, bolstered by continuing export-led economic growth at around 10% pa, lifting 100s of millions out of dire poverty. Starting with the so-called banking crisis of 2008, export no longer looks to be a certainty.  The Party has acknowledged that and in his recent address to the 90th anniversary of the CCP, President Hu lists domestic consumption as one of the new thrusts for the next five-year plan.

That is all very well if inflation has not raised its ugly head.  With affluence comes its twin brother, increased consumption. But the world, according to some experts, is reaching its natural capacity to provide adequate food for the population, slated to grow from today’s nearly 7 billion to 9 billion in 2050. If they are correct, then food price inflation is inevitable. Never mind shortage of water. Incidentally, there are global knock-on effects of Chinese inflation.

The other potential pitfall is the amount of debt many cities are piling up to improve their infrastructure. The number of airports, metros, business and residential estates being developed is mind boggling and so is the debt – estimated at $2.2 trillion often through special investment instruments such as Local Government Finance Vehicles (LGFV) off the cities’ books – usually backed by inflated land valuation. So, on the one hand there is a surplus of $3 trillion, but on the other hand there is a huge national debt. If any unexpected event triggers foreclosure on some of these major project loans … ! Additionally, from data available, it would appear that loans to state corporations are cheaper and easier to get than that available to private firms.

Recently, Foxconn maker of iPhones and other mobile gadgets announced it will be increasing its use of industrial robots from today’s 10,000 to 1 million in three years. This is partly to offset labour costs which has doubled due to industrial relations issues including suicides by factory workers. At present it employs over 1 million workers in China. It has not revealed how many of these will be let go. What is clear is that its performance from $35m profit to $280 million loss is largely due to labour costs. If this replacement of labour by robots is not a one-off case. Trouble lies ahead for China.

In conclusion, without continuing improvement in living standards, the ‘settlement’ will fall apart. it is finely-balanced unstable equilibrium.

See also:

The patience of Chinese ‘have nots’ in tolerating the rich and party officials in their ‘unfair’ share of wealth, sometimes through corruption

President Xi‘s various initiatives include the so-called Mass Line Campaign which essentially is about re-aligning the party with the people.  And tow of the major planks in this campaign are anti-corruption and party and government austerity. Six or more month into this campaign, instead of easing off, things are hotting up. Firstly, the charges are now being levied at very senior party officials. Secondly, the People’s Liberation Army is not immune and has been taken to task for extravagance. Thirdly, the austerity measures are not letting up.

The worst part about corruption is not only that money is siphoned off into private pockets but often the results are devastating in terms of health and food safety, such as melamine-tainted baby milk, or medicines that contain no active ingredients, or meat fed with chemicals (clenbuterol) that help to reduce fat to produce lean meat but could cause human heart palpitations, shoddy public buildings – such as possibly schools that collapsed in the Sichuan earthquake in 2008, never fully investigated, and highways or railways.

On 23 July 2011, a high-speed train was halted purportedly by lightning at Wenzhou on the Beijing-Shanghai line. A second high speed train ploughed into it, allegedly because of traffic signal failures. Government’s initial reaction was two-fold, to physically remove evidence of the train wreck and to order the media not to report adverse information.  The power of the Internet and the rage of the citizens, both directly affected and at large put paid to the latter. Thousands of citizens descended on the site with flowers and other tokens of sympathy. Demands for an open and honest investigation have been acknowledged by the government.  Even the official paper People’s Daily joined in with an editorial that said that although China needed such modern developments it did not need “blood smeared GDP”. Premier Hu visited the site and paid his respects. he also promised that anyone found to be guilty will be punished. Railway Minister Liu Zhijun had already been suspended in February along with some other senior officials. More heads are likely to roll. Not least because, in addition to this accident, there have been many incidents of faults along the network due to its accelerated development and opening to coincide with the 90th Anniversary.

Following the rail accident, news is emerging that several bridges built in the last 10-20 years seem to be suffering from early decay. It now transpires that the prime contractor who won the tender, not always in open competition, would then pass the work down to a lesser company, sometimes several levels below, each level with bribery, so that by the level the work actually took place, the funds were not sufficient for quality materials or work! Perhaps China needs a Anna Hazare!

China is now instituting a safety overhaul.

Unless corruption is brought to brook, the credibility of the Party itself is at stake.

A second aspect of the have’s and have not’s is the disparity between urban dwellers and migrant workers from the countryside. It is not well known that migrant workers do not have the rights of urban residents. In some ways they are just tolerated. There is growing frustration and also growing awareness by government that this state of affairs cannot carry on much longer without major unrest amongst mainly young males living in dormitories with basic amenities. China is reviewing the rights of migrant workers.

Another aspect is that of land seizures where farmers and small holders have their land seized, often well below market value in the cause of factories, infrastructure projects or urban development. This has given rise to increased petitions. But that is seen by many as a waste of time. Those with Internet access, which is growing phenomenally, online complaints and exchanges of frustration is on the increase. China is reforming rural land ownership and registration.

Unless government can deal with these issues effectively – and we do not mean by suppressing online interactions – things will boil over from electronic to flesh and blood, sooner rather than later. China is discovering that a sophisticated knowledge economy and authoritarian one-party rule may not be entirely compatible.

There is also a marked increase in reported inciden