China And Stability
Western attitudes toward China tend to
oscillate between two extremes, often
with confusing rapidity. Not too long
ago China was widely portrayed as an
emerging military and economic threat to
the West. Its total economic output was
projected to surpass that of the
United States in two decades. Its military
modernization was expected to
provide China the capability to project its power
far beyond its borders (and
the recent Cox report on nuclear espionage has
revived those concerns). And
its authoritarian regime was supposed to be able to
retain its grip on power
for a long time. Nowadays, however, the speculation
about China's future has
generally inclined toward pessimism. The influential
British magazine The
Economist openly speculated about the break-up of China in
its last issue of
1998. Not long before that, the same publication ran a cover
editorial
opining about the imminent collapse of the Chinese economy. And in a
speech
delivered in April of this year, President Bill Clinton warned of the
dangers
of an unstable China which failed to reform. Even within China, signs
of
danger and nervousness abound. Arguably, the Chinese government now faces
the
most severe challenge since the Tiananmen Square demonstrations a decade
ago.
Unemployment is rising at a frightening rate. Several key
anniversary dates
fraught with symbolic and real political dangers (such as
the 50th anniversary
of the People's Republic, the 10th anniversary of the
Tiananmen Square
crackdown, and the 40th anniversary of the uprising in
Tibet) have prompted the
government to maintain a tight watch over the
country's tiny dissident community
lest something akin to the 1989 movement
break out again. In my judgment, the
current pessimism about China's short-
term prospects is as exaggerated as the
previous optimism about its long-term
economic outlook. In fact, China is likely
to retain its short-term political
stability despite many signs of potential
turmoil, but will face rising
instability if the regime fails to undertake
significant political reform in
the next decade. CHINA'S CURRENT DIFFICULTIES
While parallels between the
problems China faces today and those it confronted
during the Tiananmen
crisis a decade ago may be alluring, they are misleading.
In 1989, the
Chinese Communist Party (CCP) faced a genuine crisis of political
legitimacy,
which had its origins in 1978-79, when the leaders promised, but
repeatedly
failed to deliver, political reform. By contrast, the challenges
confronting
the Chinese government today are primarily economic, although
weaknesses in
the political system make potential solutions more elusive.
Specifically,
China's economic difficulties today originate, externally, from
the aftermath
of the East Asian financial crisis (falling exports and foreign
direct
investment) and, internally, from weak consumer demand and severe
structural
problems. The internal problems are far more daunting than the
external. It
is well known that China's two most perilous economic challenges
are an
insolvent banking system (which has total bad loans of between 25 and
30
percent of gross domestic product) and rising unemployment due to
the
restructuring and privatization of the loss-making state-owned
enterprises (SOEs).
Many analysts believe that the latter poses the
clearest threat to the Chinese
government, because any unrest by the
unemployed, who are concentrated in urban
areas, would lead to a political
crisis akin to the Solidarity movement in
Poland in 1981-82. Given the
sheer numbers of unemployed and underemployed
people in China, this analysis
is not without merit. The official China Daily
reports that, among urban
dwellers, unemployment is about 11 percent (or 16
million people). In
addition, as many as 120 million rural laborers are
considered underemployed.
However, unemployment alone is unlikely to generate a
high level of political
instability and is even less likely to bring down the
regime. (Can you recall
the last time a regime was toppled by unemployment?) In
analyzing the
political consequences and implications of economic crises, we
must
understand that not all economic crises are created equal. Although all
of
them are nasty and harmful to the societies they hit, they produce
different
political outcomes because their effects are filtered through the
political
system differently. In the case of high unemployment, its impact on
political
instability tends to be limited for two reasons. First,
unemployment principally
affects only one segment of society, namely,
manufacturing workers. It would be
difficult for these workers to find
political allies in other sectors. In China,
workers being laid off from SOEs
are viewed as industrial aristocrats who have
had it pretty good for the last
fifty years at the expense of the other segments
of society. Second, the
ranks of the unemployed are relatively fluid. Many
unemployed, especially the
most able, can find alternative employment. This
leaves the ranks of the
unemployed without permanent leaders and unorganized. By
contrast, a
full-blown banking crisis is far more lethal, because it
triggers
hyperinflation and a massive run on banks. Unlike unemployment,
which tends to
hit one segment of society especially hard, a banking crisis
would hurt
virtually everyone (except the very wealthy). Such a crisis sends
out a
political signal to the majority of the population that something is
terribly
wrong, thus facilitating unity and coordination among all the
disaffected
elements, from the peasantry to the unemployed to the
middle-class. A broad
anti-regime coalition is therefore more likely to
emerge following a banking
crisis than high unemployment. This reasoning
leads us to question the
conventional wisdom about the connection between the
recent crackdown on
dissidents and the country's economic problems. Most
analysts believe that the
government's crackdown was motivated by the fear
that dissidents would form a
Solidarity-type coalition with the
unemployed to challenge the Communist Party's
rule. This analysis, while
appealing, overlooks another probable explanation.
The government's
crackdown could well have been motivated, not by the fear of
unemployment,
but by the fear that any signs of political instability would
shake the
population's confidence in the government, and hence in the security
of their
assets. Fearing the loss of their life savings, ordinary Chinese (who
have
over 80 percent of their total assets deposited in the banks) would unleash
a
run on banks, which would force the government to print more money to
cover
the withdrawals, in turn sparking hyperinflation and massive popular
discontent.
THE VULNERABILITIES OF THE COMMUNIST PARTY To be sure, the
current economic
difficulties have caught the Communist Party in a
particularly vulnerable state.
Specifically, the ruling party faces the
following structural and institutional
weaknesses: 1. Narrower base of
support. Despite the Western media's caricature
of the ruling regime as a
communist dictatorship, the nature of the Chinese
regime has changed
profoundly in the last two decades. If we may call the
pre-reform Chinese
regime a socialist one with a broad base of support among
workers and
peasants, pro-market reforms have seriously eroded the broad social
base of
the CCP. This change has come about, ironically, precisely because of
the
relative success of the economic reform under Deng Xiaoping. For
the
peasantry, market-oriented reforms have resulted not only in direct
economic
benefits and independence from the state; they have fundamentally
eroded the
Communist Party's political control in rural areas and left
the regime without
means of mobilizing political support there. As for urban
SOE workers,
market-oriented reforms have begun to hurt their interests by
making their jobs
insecure and benefits less generous. They blame their
plight on the government
and have begun to display their discontent openly
and violently. The regime's
political support today comes primarily from only
four groups: the bureaucracy,
the military, the security forces, and the
rapidly increasing urban middle-
class that will have much to lose (such as
the value of their stocks and real
estate) in the event of political
instability. 2. Organizational deficit. The
CCP previously controlled a
vast network of social organizations, including the
official labor unions,
women's associations, the youth league, and many
professional associations,
which in turn controlled most segments of the
population. But that is no
longer the case. Official organizations closely tied
to the party have lost
credibility, enjoy little grassroots support, and cannot
be expected to serve
as instruments of control or political support. Other
organizations, notably,
religious groups and professional associations, have
become more independent
and will likely resist manipulation by the party. 3.
Weak institutional
channels of resolving state-society conflict. A related
weakness of the
present political system is the absence of credible institutions
that would
allow individuals and groups to articulate and pursue their own
interests. In
democratic systems, electoral and legislative processes do this,
but in
China, no institutions perform such functions reliably. In their
absence,
collective grievances will accumulate, leading in the long term to
political
instability. In the short term, collective grievances are
increasingly expressed
in violent protests. In fact, the government admitted
there were 5,000
collective protests in 1998. 4. Absence of effective
institutions to resolve
conflicts within the state. China also has no
functioning institutions that
might resolve conflicts among the various
components of the state. The absence
of such institutions, which would
typically be provided for by federalism,
causes cyclical opportunism
characterized by frequent policy changes by the
central government and
resistance to those policies from local governments.
Consequently, the
policy environment is uncertain and law enforcement weak. In
fact, the most
serious problem facing China is not that it does not have
democracy, but that
it does not have federalism. That is, it lacks a clear
division of
responsibilities between the central and regional governments.
HIDDEN
STRENGTHS OF THE REGIME I have listed a series of structural weaknesses
of
the party-state in China. However, it would be wrong to conclude from
the
above observations that the system is about to collapse, for there are
several
strengths that help offset these weaknesses. Weak opposition.
Domestically, the
CCP faces no real threat.Because opposition to the
regime is unorganized and
dispersed, for most people there is simply no
credible alternative. This is
perhaps the most important factor working in
the CCP's favor. A party song
states, "Only the CCP can save China," but it
should be, "Only
the CCP can govern China" -- at least for now. Relative
elite cohesion.
Political turmoil in China in the last 50 years has
always come from disunity
and power struggles at the highest level of the
regime. Today's top elite is
much more unified than during any previous
period. The political differences
between top elites today are mainly over
policy and personality, rather than
over ideology. The CCP remains a
formidable force of control. Because the party
maintains a relatively
effective system of control in dealing with top-priority
issues, in the short
term it should be able to confront any challenges to its
hold on power. The
CCP has also learned a key lesson from the 1989 movement:
never to allow a
minor incident to develop into a full-blown political crisis.
That
explains why the government reacted swiftly and harshly against the
leading
dissidents in the last few months. The Chinese are beginning to
tackle their
long-term problems. It is encouraging to see that some of the
top leaders seem
to have realized the long-term threats to the current system
and have begun to
take some tentative steps to address them. It seems that
ideas of federalism are
beginning to influence institutional designs in
China. Among the most promising
steps taken so far is the reform of the
central bank along the lines of a
Federal Reserve-style system. Moreover,
the 1994 tax reform, although far from
perfect, was the first step toward
fiscal federalism. CONCLUSION Although
localized incidents of social unrest,
sparked mostly by economic difficulties,
are likely to increase, the
Communist Party should be able to avert significant
political turmoil in the
near future. However, even if the Chinese government
gets through 1999
without a repeat of 1989, it must soon confront the issue of
political reform
more seriously, because the challenges it poses will only
increase as time
passes. If no significant institutional change is undertaken,
China will
experience rising tensions that its current political system will
be
incapable of handling. Failure to implement political institutional
reforms may
lead to rising instability through three mechanisms, either
simultaneously or
sequentially. First, failure to reform will reduce economic
efficiency as the
costs of insecure property rights, poor contract
enforcement, and exorbitant
rents become more baneful. This will inevitably
reduce the rate of growth, which
will further exacerbate social tensions and
damage the legitimacy of the
Communist Party. Second, failure to reform
will allow corruption to worsen,
inequality to rise, and poor governance to
persist, eventually causing a massive
social explosion such as occurred in
Indonesia in May 1998. Third, failure to
reform will cause rising division
within the current moderate-conservative
ruling coalition as the more liberal
elements become disenchanted and frustrated
with the slow pace of reform. A
split within the elite has led to political
instability before, and could
easily do so again. Indeed, although China is
unlikely to become another
Indonesia today, it is very likely to become one in
ten years' time if its
leaders are lulled into
complacency.