How much longer can China carry on like this?

November 30, 2012

–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–

Breakneck economic growth alongside staggering (and rising) inequality, much of it attributable to blatant corruption, seems like an explosive mixture, but until very recently, I would have said that there was at least a 50-50 chance that China could stay on track for another generation (albeit with some slowing in its growth rate). In recent months, however, I have noticed one or two straws in the wind to suggest that the odds may have tilted against the maintenance of the status quo.

For the masses, the bottom billion, the Party’s original promise of an end to famine, the iron rice-bowl, has turned into something like a-chicken-in-every-pot, which the Party seems well capable of delivering for the foreseeable future, so I can’t see a problem there.

But viewed from the Government Compound in Beijing, the masses are nowhere near as important as the mighty middle class, for whom the deal is more complicated, but amounts to the guarantee of an endlessly growing supply of consumer durables, housing, medical care, university places and foreign holidays in exchange for tame acquiescence in the current regime. In short, they can aspire to a Western standard of living, but not to Western freedoms. The odds against this sort of social contract holding for another generation seem to me to be lengthening.

From close up, China looks like Dickensian England, supersized and speeded up. With rivers as filthy as the Thames at its mid-nineteenth century worst and far worse air-quality, it is a society throbbing with the same raw, untamed energy, the same life-or-death struggle to survive, the same extremes of altruism and cruelty, the rich as arrogant and the poor as ubiquitous as in Victorian England, with the submerged underclass eking out a living in trades you never knew existed. The middle class, prosperous, often contemptuous of the poor, may look as self-satisfied and confident as the nineteenth-century nouveau riche, but underneath it all, they are only too well aware that, once you fall, the bottom is a long, long way down. The new rich can easily become the new poor, and the skilled worker is rarely more than one accident or illness away from sudden, total penury.

But there is one all-important difference between China today and the world of Dickens. However cruel or unfair, life in industrial revolution England was still more or less constrained by the rule of law. In particular, property rights were largely respected and contracts could usually be enforced without recourse to violence – indeed, the debtors’ prisons were solid stone proof that property rights were inviolable, whatever the social cost.

The same is far from true of China today, where politics, connections and outright gangsterism frequently count for far more than legal rights. In the end, it remains, as it has always been, a country ruled by men (and a few women), not by law, and it is this difference which explains much of the insecurity felt by its middle class.

What keeps ordinary folk awake at night is not human rights in the most general or abstract sense – freedom of speech, freedom of association etc – but worries about their own personal security. They know only too well that they need protection from the arbitrary power of officialdom, the venality of the judicial system and the pervasive corruption which in the end sucks everybody in, making everyone culpable and therefore everyone vulnerable. The more prosperous people get, the more they want to feel some sense of confidence that the good life is really there for good. Yet the closer China’s middle class get to Western standards of living, the more they become aware of the routine everyday threats to their security, which seem at first to bear no link to politics.

For the ordinary motorist, for example, a road accident could spell disaster. If the other driver is a powerful official, or related to one, he (or she) is unlikely to be charged, let alone convicted, even though they may have been too drunk to stand up at the time of the crash. The insurance company may pay up, but if not, taking the insurer to court is risky without the support of a judge who is a distant relative or friend of a friend, or who can be induced in one way or another to become a friend. And, more than money, if the motorist lands up in hospital after the accident, he has to hope the antibiotics he is given are the real McCoy, because all too often they are inferior rip-offs which may be ineffective or positively harmful.

Accidents and disasters apart, more and more Chinese are worrying about air pollution, about the quality of the food they eat (a series of recent scandals) and about the crime rate, which may seem quite low to Western visitors, but is enough to set the older generation reminiscing about the good old days, when you could safely leave your door unlocked (mainly because you had nothing worth stealing anyway). Even a person’s home is not truly safe. In fact, China’s reputation as a can-do country (think of the Beijing Olympics) is in large part maintained by giving private or public sector developers license to bulldoze people’s homes at will, with little or no compensation.

The pervasive sense of insecurity is magnified by the routine suppression of bad news, which leaves a vacuum to be filled inevitably with rumours spread by mobile phone or by internet wherever there are holes in the Great Firewall of China.

You might think that a safety net is all that is needed to calm middle-class angst, and indeed a rudimentary welfare state is already work-in-progress (for example, a majority of the population is now said to be covered by a basic pension scheme), but the trouble is it may be unwise to count on it when the time comes, because the scheme is largely unfunded and, worst of all, it is mostly under the control of local Government and Party officials who are at best a law to themselves and, at worst, little more than gangsters.

The Bo Xilai scandal may have crystallized many middle-class fears. Here was a man who displayed all the corruption, arrogance and thuggery they have come to associate with local party bosses, but combined in his case with a personality cult explicitly harking back to Mao, which apparently went down very well with millions of workers in Chongqing, said to be the world’s biggest city.

What is to be done about it all?

To a Western observer, there is a blindingly obvious link leading from accountability via good government to security, but to people imbued with the Confucian ideal of the intrinsically honourable mandarin-official, this sort of connection is far less clear, and in any case, until very recently it made no difference whether or not they joined up the dots – most Chinese had no choice but to live with things as they were.

But nowadays, there is increasingly another available option. A growing number of people from the upper middle-class are voting with their feet. We can see it in the torrent of Chinese money into overpriced real estate in cities London, Paris, New York, even the South of France, most of it coming nowadays from several levels below the billionaire class, and in the flood of students into Western universities and into our most expensive private schools too. Ostensibly, the motivation is investment in property or in education, but the decision is often made with one eye on the prospect of picking up en passant some form of residence permit to guarantee a bolt-hole if things turn sour for the family back home, or indeed if the country as a whole suffers a political upheaval – and there would surely be many more following this route if China allowed joint nationality.

As yet, very few even of these “insurance immigrants” seem to see the link between their own insecurity and the need for accountability, transparency and the rule of law. Indeed, many are members of the Communist Party. So far, very few of them seem to realise that they will only get the security they really want when they have accountable government. Instead, the prevailing view appears to be: “The system is fine. The problem is just with the few (million) bad eggs.” Nonetheless, at some point the penny will drop for enough of them, and history suggests that a disenchanted middle-class is often a precursor to change.

Of course, it remains to be seen whether any change turns out to be a bold step forward into a more relaxed, free-wheeling future or a retreat into Maoist authoritarianism. The good news is that we can almost certainly rule out a return to the anarchy, warlordism and disintegration which has recurred at irregular intervals throughout the millennia of recorded Chinese history. The bad news is that this is because the leadership will head off any serious threat of disunity by playing the nationalist card, with incalculable effects on its neighbours and on the rest of the world.

In the end, reformers face the Gorbachev problem that no amount of plastic surgery can ever give Communism a human face. However liberal the economy, the dictatorship of the Party is ultimately just dictatorship – and that means real reform is impossible.

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