October 8, 2015
Pitfalls in the Next Stage of China’s Rise
By Xue Li, Director of the International Strategy Research Office, World Politics and Economics Research Institute of the Chinese Academy of Social Sciences.
Essay written on the Chinese website essay of the (UK) Financial Times
This article is eighth in a series of commentaries on the “The Silk Road Economic Belt, the 21st-century Maritime Silk Road and the Transformation of China’s Foreign Policy”
Chinese scholars who frequently travel abroad have all had this experience: now that China’s rise is attracting attention all over the world, we often hear this “International conferences cannot do without Chinese participation.” Once the “The Silk Road Economic Belt and the 21st-century Maritime Silk Road” strategy succeeds, China will certainly have risen up to a new level. However, the rise of an enormous country with 1.3 billion inhabitants is something that has never happened before in all human history. China faces many challenges both domestic and foreign. Some of these challenges we can call pitfalls. This essay reflects some of my thoughts over the past several years about those pitfalls.
Conclusions Drawn from China’s Rapid Development
Over the past thirty-plus years, several factors have made it possible for China to enjoy rapid economic development and to maintain overall social stability. The most important factor has been the political legitimacy that economic effectiveness has brought with it (GDP-based legitimacy). An enormous amount of capital has been expended on maintaining social stability. However, we face constraints on the rate of increase and intensity of spending on social stability. Social stability expenses already exceed military spending and there is just limited room for further increases. Another factor is that officials have co-opted political, economic and cultural elites. Elites are allowed to join the Party on political grounds. They are given status as members of the people’s congresses or as members of the political consultative congress. They are invited to join government leaders’ delegations visiting foreign countries etc. Elites enjoy special permissions and support for their commercial activities (Jili’s purchase of Volvo is a classic example). In the cultural arena, elites are given some authorities and advantages. This is particular obvious in the academic world. Some elites there get opportunities to participate in politics, participate in planning and policymaking, and thereby earn a comfortable income. Most people, and particularly elites, fear chaos. They feel that once they have finally been able to achieve some stability in their lives, although they have less than some and more than others, they’ll say “Let’s not make waves. What the people really want is to be left alone to tend to their own affairs.”
Two Social Phenomena Worthy of Note
There are two social phenomena worthy of note in China today. The first phenomenon is that people have a general feeling of dissatisfaction. No matter whether we are talking about leftists, moderates or rightists, no matter whether we are talking about activists, advocates of the status quo or conservatives, no matter whether we are talking about high-ranking cadres, mid-level leaders, grassroots cadres, no matter whether are talking about the wealthy strata, the not-so- wealthy strata or the poor strata, everyone is dissatisfied with the present state of society and with their own personal situation. Many people hate the rich and hate officials.
The second phenomenon is a general feeling of insecurity. Many officials, owners of small and medium sized enterprises, and scholars – especially those intellectuals in the humanities and in the social sciences – workers, migrant workers, and peasants for different reasons have a feeling of insecurity. Some are feel insecure about their property, some about their official position, and some because of the views that they have expressed and still others because of their health insurance. Still feel insecure about the prospects for their businesses, and others feel insecure because of their right of residence in a big city and the related problem of their children’s right to an education in that city. Some feel insecure about their fields or mountains that they have cultivation rights to under the contract responsibility system and so on.
Some officials transfer their property and send their wives and children abroad. Some rich people move a large part of their property abroad. Some entrepreneurs register their companies outside the mainland. Some peasants focus on short term maximal exploitation of the fields, mountains (or forests, grasslands and orchards) that they work under the contract responsibility system. These are all manifestations of feelings of insecurity. Most people are familiar with this. What not so many people understand is the fate of the middle class in the big cities, especially in Beijing and Shanghai. They have been working hard in the big city for ten-odd years; they have a home and children. They no longer fit in to their old homes in the countryside. Except for a city resident household registration, they have already become city people. Suddenly one day they find that their child, because of the household registration problem, can’t get into a good local primary school or lower middle school. Even worse, their child can’t attend a local high school and so must return to their old home to take the high school entrance examination. They face these choices: either they give up their job in the city and the whole family return to their former home and stay there for several years or the husband and wife live apart while one returns back to their former residence with the child, or the child returns back to the former place alone to study. Or the child settles for a mediocre high school in the city and then takes the examination for a technical vocational school. Any choice they make will have serious consequences. They feel deeply conflicted. You can just imagine the dissatisfaction, the feelings of insecurity and even anger that this leads to. These are a relatively small number of people but they are symbolic. This is to remind the government that the household registration issue is the main reason for the pain that 274 million China migrant workers feel. The problem goes beyond the issue of maintaining rights to land in the countryside or land for a house. They are the touchstone of China’s urbanization and the foundation stone of China’s social stability.
These two problems did not exist in the 1980s, became apparent in the 1990s and have now become serious. This means that our society has become sick and needs treatment. Many people say that these are the problems of development and that “The problems that arise during the course of development can only be solved by further development.” Some of these problems, however, are not closely tied to economic development while others are not related to it at all.
The Challenges and Pitfalls China Faces Today
The first is the pollution of the environment. This is the great challenge that China must face during its next stage of development. Everyone has gradually come to realize this. Some localities persist in the view that development must take top priority. Some other localities however, are already willing to make some sacrifices of economic development for the sake of the remediating the environment. Some localities which although they are still backward, have consciously chose low-pollution modes of economic development. From the experience of the developed countries we know that remediating pollution problems and restoring the environment is possible but expensive. That falls within the category of “solving problems through development”.
Second, China lacks a political and economic model for sustainable development. More than thirty years have passed since beginning of opening and development but China has yet to create a political and social model for sustainable development. On the economic side, by and large and in the main, the market economy has taken the leading role although there are some serious shortcomings. The government intervenes too much in the economy. The problem of improper intervention in the economy has not been solved; even worse the stock market bears clear policy-driven market characteristics. The recent classic example is the “violent intervention to rescue the market”. Regrettably, the evidence soon showed that this action was not only ineffective, it also became strong evidence to those abroad who doubt that China has a market economy. Fortunately, the government has taken note of that, and is making suitable adjustments. The new recalibration very possibly will suit the needs of the market economy.
Although enterprise in the private sector have already in the main solved the employment problem for most of China’s labor force and account for most of China’s GDP. However, restrictions and discrimination against private sector enterprises remains a problem. Many fields restrict or forbid the entry of private enterprises. The proportion of state-owned enterprises (SOE) is too large. SOEs are less efficient and still often get special treatment such as being granted monopoly status or special subsidies. This leads to unfair market conditions and to the waste and reverse flows of economic resources. Politically, leaders at every level of government have too much overall influence on the area which they govern. The problem of inadequate oversight of the top leaders at each level has not been solved. A change in leaders brings on a cascade of changes — big changes in planning for economic development, in urban construction and planning and in the bureaucratic system. There is no mechanism for effectively constraining the growth of local debt. According to European and US standards, some Chinese local governments are in fact already bankrupt.
Thirdly, China lacks core values in which both officials and the people widely believe in and is reflected in their actions. This can be understood as a system of cultural and political beliefs. The religion of worshiping money and material things is widely manifested in China. A classic example is that when Chinese people make pilgrimages to temples throughout the country, not only do they make offerings of money but they also have the custom of donating coins to express their various prayerful religious and non-religious requests. Therefore we see piles of coins on the back of dragons, thrown into pools, on the feet of Buddha. These sparkling coins seem to be reflected in popular sayings such as “use money to communicate with spirits”, “if you have money you gets ghosts to do something” and that “celestial beings can also be bribed”. It is understandable that this phenomenon can appear at a certain stage in the commodity economy but it is not normal. This phenomenon reflects the lack of religious belief among the people and the rule of the religion of worship of money and material things superimposed on the pragmatic psychology of the Chinese people.
From the perspective of culture, core values reflect the cultural characteristics of a group of people. These are the sources of the group’s cohesiveness. Looking at the issue from an economic perspective, we can see that core values influence types of economic behavior – Puritanism, Islam, and Judaism are classic examples. Politically, core values are the source of the state identity. For a multiethnic state, this has implications for the unity and stability of the state. That is to say, the absence of the support of a set of core values, will affect the existence and stability of a state. Such a state would lack a solid foundation for its development and rise. Therefore, establishing a shared system of cultural and political beliefs is a fundamental problem that China needs to solve. Solving this question will not be easy. This is a very difficult problem. However China must face up to this problem and the sooner, the better. Only if we realize this and develop a consensus about it will we be able to solve this problem.
Fourthly, let’s consider splittist forces. This is related to the third issue but not completely the same thing. China has two kinds of splittist forces: splittist forces in the mainland of China and Taiwan splittist forces. In mainland China, representative splittist forces are “Xinjiang Independence” and “Taiwan Independence”. Splittist forces in Hong Kong, although they are a new phenomenon, are unlikely to become predominant although they need to be watched and the central government must find a way to way to resolve the problem by addressing the fundamental issue. On “Tibet Independence” we perhaps should seize the moment and start negotiations with the Dalai Lama. This would be to China’s advantage since the Dalai Lama and the Chinese government has a long history of contact spanning decades. They understand each other fairly well. The Dalai Lama’s views are more moderate compared with the younger generation; at least the Dalai Lama has not openly supported independence. He is already 80 years old.
The Chinese government has for several years taken a multi-pronged approach to “Xinjiang Independence”. The government has resolutely attacked “Xinjiang Independence” forces and actions; it has developed of “group defense and group solution” which aims to destroy even the first sprouts of “Xinjiang Independence” forces. The government has strengthened border controls to prevent “Xinjiang Independence” forces from fleeing across the border while at the same time taking measures to facilitate the entry and exit of ordinary citizens. The government has invested in economic development in order to weaken the economic factors that favor the rise of the “three forces” — religious extremism, ethnic splittism and violent terrorism. These measures include directed assistance from development partners [Chinese provinces or major cities], the establishment of special economic zones, creating industries and commerce that meets the needs of the people, boosting employment, etc. This also involves supporting education and boosting the ability of the people to earn a living and to learn to identify and become better able to protect themselves from the “three forces”.
The measures above had a clear effect on the preventing and attacking the “three forces” within the borders of Xinjiang. The grassroots must note, however, that while attacking the “three forces” they should avoid causing inconvenience to the normal religious activities of ordinary people. Other provinces as well should, when attacking the “three forces” avoid causing inconvenience to Xinjiang merchants, tourists and other people from Xinjiang.
The problem confronting us today is that the “three forces” are spreading outside Xinjiang to Chinese provinces as well as beyond China’s borders. Terror attacks have taken place in big cities like Beijing, Guangzhou, Shenyang and Kunming as well as in medium-size cities like Wenzhou. It is already an undisputed fact that splittist forces have appeared in some Southeast Asian countries. The number of cases in which the “three forces” leave China for training and then returning to carry out terror attacks is increasing. Obviously, it can’t be expected that every province implement prevention and enforcement measures the way that Xinjiang has. Naturally even less can be expected from the governments of other countries. The “root” of violent terrorism is still mostly in Xinjiang. Therefore attacking the root of the problem is a big challenge that Xinjiang and the central government face. I don’t want to discuss in detail but I should special attention should be paid to the fact that the violent terrorists amongst the “three forces” and the ethnic splittists because they caused some incidents have fairly large influence on the media etc. However, the real threat to the long range stability and development of Xinjiang is religious extremism. Religious extremists infiltrate the ethnic culture of the Uighurs thereby influencing the daily lives and worldview of ordinary people. They plot in this way to weaken local governments.
“Taiwan independence” is certainly a challenge. During Ma Yingjeou’s time, cross-strait economic relations were relatively stable and economic ties strengthened. However the successor of Ma Ying-jeou is very possibly Tsai Ing-wen. Her spiritual leader is Lee Teng-hui and Lee Teng-hui is someone of those of whom it is said “every pore exudes the odor of Taiwan independence”. Lee Teng-hui in 1999 proposed the “Special Two State Theory”. Tsai as a council member contributed to planning on the “National Security Council” and “National Reunification Council”. Chen Shui-bian in 2002 proposed “A country on each side of the Taiwan Strait” and Tsai Ying-wen as chair of the “Mainland Affairs Council” made important contributions. She is a knowledgeable person, a strategic thinker who believes in “Taiwan independence” who will certainly show that she is inferior to none of her male colleagues. We should not because of some words that she spoke during an election campaign lightly assume that she has changed her political views. Once she assumes office, she will very possibly use some opportunity that comes up to push for the “legal recognition of Taiwan independence”. If the mainland China economy goes into a slump and intensifies the contradictions in society, she will very possibly take advantage of that to push for “legal recognition of Taiwan independence”. If she does that, she will hit on the mainland’s red line. Once the mainland takes military action as a result, the US and Japan will, according to the terms of the “Taiwan Relations Act” and the “US – Japan Mutual Defense Treaty”, get involved. The expanding scope of the war will severely damage China’s foreign trade and make China’s economic situation even worse.
Fifth, economic issues. Economic growth has a cyclic character. The Chinese economy, which has already grown rapidly for several decades will at some point change to low growth, zero growth or even negative growth. All this would be normal. Once that happens, it will create many different chain reactions. These reaction will come from domestic sources (such as mass incidents in Chinese society) or from within the Party. The case of the Soviet Union shows that some party cadres from rich families are always looking for opportunities to legalize and become open about their personal fortunes. This kind of attitude that “the misfortune of the country is my good fortune” becomes under certain circumstances a threat to state stability. The threat can also be an external one (if the USA decides to take advantage). If there are economic issues then there are also political issues. These political consequences might arise on the mainland or on Taiwan (if Tsai Ing-wen takes advantage of them).
Today’s market economy is highly dependent upon the virtual economy. Bonds, futures and financial instruments are to a certain extent a kind of credit economy. This means that the economy is much more subject to psychological influences than before. This point is very unfavorable for countries that fallen upon economic hard times. Moreover, excessive stress should not be placed upon economic growth and GDP. According to calculations that can be made from PRC National Bureau of Statistics data, the Chinese GDP in 2014 was 293.57 times its GDP in 1978. In 1990, the Chinese GDP was 68.61% of the Russian GDP. By 1995, the Russian GDP had become just 54.77% of the Chinese GDP, falling in 1999 to 18.07% of the Chinese GDP. In 2014, it was just 19.81% of the Chinese GDP. This shows the importance of a stable model for political-economic development. The Chinese economy has already entered a new normal. The slowing of the economy has been remarked upon by many economists as the changeover to a new period in which the economy will grow at a different rate, in which there will be a period of painful economic adjustments and the digesting the policy stimulus of the previous period. Over the next ten years the potential economic growth rate for the Chinese economy is about 6.2%. But that is just one view. But what if things don’t turn out that way and China enters a period of slow economic growth? How would China respond to that? That would be a difficult problem for any government.
Sixth, the foreign threat comes principally from the United States. Westernizing China is the long term goal of the United States. The medium term goal of dragging China into the current world order is also a westernization tactic. Americans, who hold a pragmatic philosophy, do not make westernizing China a short term goal while the Chinese economy is in good shape. Over the short term they are working hard to establish win-win cooperation with China. But if China should fall into difficulties, the US will adjust its policy goals. If economic stagnation and mass social disorders should appear in China, the forces aiming to divide the mainland will grow stronger, Taiwan will push for “legal recognition of Taiwan independence”, and mainland China will attack Taiwan. Under those circumstances, westernizing China and fundamentally obliterating China’s capacity to challenge the United States will become the realistic goal of the United States.
Ever since China began its opening and reform policy, the principal strategy of the United States has been “engagement first and hedging second”. However, about 2010, this changed to “both are equally important”. Since 2014 this has been trending towards “hedging first and engagement second”. The South China Sea issue has become the touchstone for the United States in its monitoring of trends in Chinese foreign policy. US South China Sea policy has already changed from “no position” to “having a position” and from “indirect involvement” to “mostly direct involvement” and from “being the director” to being the “both director and star”. However the South China Sea cannot become the trigger and the main line of effort for westernization of China. The principal goal of the US in acting this way is not to contain China (as it contained the Soviet Union during the Cold War) instead to “maintain the regional balance by balancing China, maintain regional stability, and to protect its interests”. In order to do this, the US needs to have a fairly clear understanding of China’s policy goals in the South China Sea. Therefore the US finds it hard to accept China’s “fuzzy policy”. However, the South China Sea is not a core interest of the United States and so it is unlikely to fight a war with China over the South China Sea. Neither China nor the United States have any intention of fighting a war in the South China Sea. The disagreement about the South China Sea is being controlled effectively by both sides. China is adjusting its own South China Sea policy in order to facilitate the accomplishment of its “21st Century Maritime Silk Road” strategy. China and the United States need to maintain communication about the South China Sea issue so that they will be able to reach more understandings and to avoid miscalculations.
To summarize, if China is able to successfully respond to the six challenges above, it will not stumble on the threshold of becoming a developed country and it will continue to develop under it becomes the country with the greatest comprehensive power in the entire world. This is the goal of the Chinese renaissance. However, if China is not able to respond effectively, these challenges could become pitfalls on the road to China’s rise.
The author thanks Professor Wang Yizhou, Dr. Lin Minkuang, Dr. Li Kaisheng, and Mr. Xue Jiang for the profound insights which they have contributed.
Note: This article represents the personal views of the author.