Part 1: China: An imperial power in the image of the West?
Part 2: Capitalism with Chinese characteristics
Part 3: China’s economy: Powerful, yes, but vulnerable
Internal power struggles are a central factor in shaping China’s relations with the rest of the world. At the same time, China’s global presence has had a feedback effect on domestic politics. One cannot fully understand the domestic power equation, for instance, without taking into consideration the major weight of groups, agencies, regions, and individuals associated with China’s highly successful export-oriented manufacturing strategy.
Who rules China? From one perspective, the answer is simple: the Communist Party.
Reality, however, is not that simple. It is perhaps best to describe the party as the canopy within which different party factions or coalitions associated with certain policies, ministries, regions, and enterprises struggle for dominance, though within limits imposed by the party structure, traditions, informal understandings, and the internal power equation. The dominant coalition may be termed the “power bloc,” by which is meant the group or coalition of groups whose interests the country’s political economic configuration primarily serves. To determine which is the reigning power bloc, it might be useful to look at the struggle over economic policy over the last 3 decades.
One identifiable faction was constituted by the liberalizers, who were committed to transforming the economy into a more full-fledged capitalist economy marked by a stronger role for market forces, which they believed would promote a more efficient allocation of resources.
Then there was the set of interests that had developed and congealed around the export-oriented strategy that had made China the “world’s manufacturer.” This coalition of elites, whose geographical base was the coastal provinces of southeastern China, writes Ho-fung Hung, “had germinated after China’s initial opening to the world…grew in financial resources and political influence with the export boom and became increasingly adept at shaping the central government’s policy in their favor. Their growing leverage in the central government’s policy-making process secured the priority given to enhancing China’s export competitiveness and the country’s attraction to foreign investment.”
A third grouping was made up of party leaders, government officials, and SOE managers from the western and inland regions that felt that their areas had been left behind by an economic growth process.
Complex and fluid alliances marked the relations of these groups with one another, though the two main rivals appeared to be the liberalizers and the export lobby.
Their growing leverage in the central government’s policy-making process secured the priority given to enhancing China’s export competitiveness and the country’s attraction to foreign investment.” A third grouping was made up of party leaders, government officials, and SOE managers from the western and inland regions that felt that their areas had been left behind by an economic growth process. Complex and fluid alliances marked the relations of these groups with one another, though the two main rivals appeared to be the liberalizers and the export lobby.
The coastal export industrial complex
The export industrial complex dominated by the eastern and southeastern coastal elites developed into a powerful force over time, and its main argument in debates in the leadership was that China’s very success as an exporting superpower meant that economic policy should not harm the interests and policies that had been responsible for this. They saw many of the liberalizers’ initiatives as doctrinaire and harmful Western liberal prescriptions.
The lobby included government planning bodies like the National Development Reform Commission and the Ministry of Finance, both of which had fathered the strategy of export-led industrialization; export-oriented state and private enterprises; local government and Communist Party bodies in the coastal provinces; and, not to be underestimated, state-owned construction firms whose infrastructure projects undergirded the export-led strategy.
This is not to say that the liberalizers and the export industrial lobby did not share some interests and points of view. Both favored China’s cheap labor policy. Both supported the break-up of the institutions of job security of the Mao era, including the withdrawal of state subsidies for loss making state enterprises that had not adapted to the export-led strategy. Financial policy was, however, another matter.
Here, the battle lines were drawn. Reformers wanted a more rapid reform of the financial system, pushing for liberalizing the low interest rates on deposits that had subsidized the export lobby as well as ending the virtual monopoly on bank loans enjoyed by the latter. Not only would the allocation of resources be more efficient, they argued, but millions of long-exploited savers would benefit, as would private businesses that had no access to credit from the state banks. The export lobby, however, was able to slow down reforms, and they were helped in no small measure by the conflict between the liberalizers at the People’s Bank of China and anti-reformists ensconced in the big state banks.
Hijacking the stimulus
The leadership of President Hu Jintao and Premier Wen Jiabao that took over in 2002 tended to conciliate the export lobby but at the same time, it was worried that China’s economy had become too dependent on exports and was sensitive to criticisms that the export lobby was cornering most the country’s real and financial resources, leading to greater inequality in the country and serving as kindling for social protest, to which the Communist Party was extremely sensitive.
When the Chinese growth rate began to dip as a consequence of the global financial crisis, the Hu-Wen leadership rolled out the $585-billion stimulus program, which, in relation to the size of the economy, was bigger than the concurrent $787-billion stimulus that the Obama administration injected into the US economy. The aim was not only to serve as a countercyclical instrument to reverse economic contraction.
It was also meant to trigger a macroeconomic reorientation of the Chinese economy from export-led to domestic-led growth by increasing the purchasing power of consumers. The move was also meant to address the complaints of party and state officials from the inland provinces, whose state enterprises were less internationally competitive, that their regions had been left out of the boom. In fact, even before the crisis, the Hu and Wen leadership had already taken some steps to address these inequalities.
The stimulus did arrest the recession, but, for the most, part, the funds did not go directly to consumers to enhance their purchasing power.
Since they controlled the channels through which trillions of renminbi could be quickly deployed – the big state banks, local governments, and big state and private engaged in infrastructure – the export lobby didn’t just neutralize the plan to make domestic consumption the cutting edge of the economy. It was also able to hijack the massive stimulus program that had been intended to place money and resources in the hands of consumers.
According to statistics Wang cited from Caijing Magazine, some 70% of the stimulus funds went to infrastructure while only 8% went to social welfare expenditures like affordable housing, healthcare, and education.
Xi and the export industrial complex
Under Xi Jinping, who took over as president in 2012, the strategy has apparently been to impress the world with the rhetoric of reform but, in practice, going in the opposite direction, that is, promoting the interests of the coastal export industrial complex.
That the interests of this faction have been enhanced under Xi is perhaps not surprising, for as Ho-fung Hung points out, Xi Jinping, like former president Jiang Zemin, has come from the coastal export industrial lobby, and their promotion to the party-state power center “definitely increases the leverage of the coastal local elite, many of whom are the top leaders’ former proteges and acquaintances, to lobby for policies in their favor.”
This is not to say that other interests and policy preferences are not promoted by the dominant bloc. Coalition politics are fluid and there are issues with cross-cutting appeal to a range of forces that may not see eye to eye on all issues, such as the necessity of purifying the party of corrupt elements or checking the most socially destabilizing effects of the market with safety nets.
A new phase in coalition politics may have taken place since 2013, with the launching of the Belt and Road Initiative (BRI). The BRI might be an effort to reconcile the different interest groups struggling for dominance – among them, the coastal coalition, the faction pushing the interests of the inland provinces, the state-owned-enterprise-infrastructure-industry lobby seeking an outlet for overcapacity, and state banks looking for a way to stop the unprofitable state-owned enterprises’ drain on their resources. BRI has, in fact, been promoted as a “win-win” solution for all factions.
To be effective, the interests of the power bloc must be seen as advancing the general interest. This is where vision and ideology come in, and in this area, Xi Jinping’s “Chinese Dream” has played a critical role in legitimizing his faction’s claim to party and state leadership.
Elements of this dream include the doubling of incomes by 2020, comprehensive national economic and military modernization, rejuvenation of the Chinese nation, and regaining China’s historic place in the international system through such programs as the Belt and Road Initiative. This is not to say that Xi is not sanguine about achieving these goals; it is simply to acknowledge that one of their functions is to instill legitimacy for the reigning power bloc.
Contrary to the popular image of a stable authoritarian China, Xi and China’s rulers have to deal with a restive population. Protests are not uncommon in China. Before it stopped publishing statistics on “mass incidents” after 2008, such events went from 10,000 in 1994, increasing yearly, with 58,000 in 2003, 74,000 in 2004, and more than 100,000 in 2008. In the three years before he was seized by police in 2016, the indefatigable chronicler of protests, Lu Yuyu, and his girlfriend, recorded over 70,000 outbreaks of social and political protest.
Protests range from rural actions against land grabs by local authorities in rural areas to workers’ strikes to environment-related mobilizations. While repression appears to be the dominant response to peasant protests, there have also been concessions, such as “people’s centered governance” focused on providing better social welfare benefits and restraining local officials during the Hu Jintao-Wen Jiabao era.
Authorities have been more careful in the cities, where concessions have also been part of the government response. In a landmark action, for instance, Honda’s local affiliate, with the agreement of local authorities, gave in to workers’ demands in Guangzhou in 2010 after the workers’ strike spread to other sectors of the automotive industry.
In 2018, with the economy slowing down, there were 1700 workers’ actions throughout China protesting mainly against unpaid wages and factory relocations, up from 1250 in 2017. While there were reports of protesters and activists being arrested, one analyst monitoring workers’ actions said there were “far too many protests to crack down on” and in most cases police didn’t get involved.
According to labor researcher Elaine Hui, “The Chinese government seems to be aware union reform could help stabilize labor relations. To make the [government-linked ACFTU [All-China Federation of Trade Unions] and its affiliates more responsive to workers’ grievances, during the 2000s the government pushed for workplace unionization, especially in foreign-owned Fortune 500 companies, through a top-down effort. Following a major strike wave in 2010, the government tried to strengthen enterprise-level union organizations, along with implementing pilot workplace union elections and collective bargaining.” There has, however, been a pushback under Xi.
Environment-related protests have also been widespread, though most of these take place on the internet. Owing to its large support from the middle class, the government is perhaps more sensitive in the area of environment than in its handling of labor and peasant protests. Civil society organizations and personalities have been allowed much space to air grievances, although this is narrowing. Perhaps, the greatest achievement of environmental activists has been pushing the government to come out with a new raft of laws, action plans, and regulations that provide a framework for tackling air pollution.
This is not just talk. Beijing cancelled 85 new coal fired power plants and pledged not to approve new projects until 2018 in as many as 13 provinces, though as Elizabeth Economy points out, “the other eighteen provinces and regions—primarily in the interior and western parts of the country—presumably have greater latitude to consider new coal-fired power plants.”
Nevertheless, the government has made “undeniable progress in advancing clean energy production and consumption,” says Economy, who closely monitors of China’s environmental sector, and this has been in response to citizen action.
Iron fist and velvet glove
The government’s oscillation between the iron fist and the velvet glove reflects its nervousness about manifestations of instability. In fact, the Communist Party is obsessed with stability, which is the reason party and government officials often go to great lengths to ensure that worker discontent does not spill out into the streets by making concessions, like keeping loss-making state enterprises on life support.
As one analyst observes, “Regardless of how a successful official has been at generating growth, one protest above a certain size automatically puts an official’s promotion prospects on ice. Social instability, broadly defined, is the one thing that renders all others achievements moot, providing officials with the motivation to keep companies alive, their workers employed, and their pensions intact.”
Despite the party’s fears, the vast majority of protests are single-issue affairs, motivated by concerns about the welfare of local communities or groups. As a rule, protesters don’t reach out across localities to other groups with “systemic demands.” Some analysts have wondered about why there are so few protests calling attention to conditions of great inequality, as in other countries.
There is, of course, fear of repression, like the massacre at Tiananmen Square in 1989. But perhaps equally or more important, some point out, is that while inequality has indeed grown, incomes have risen even faster. Average per capita income in China rose between 1988 and 2008 by 229 per cent, ten times the global average of 24 per cent and far ahead of the rates for India (34 per cent) and other developing Asian economies. “For most of the past three decades, all boats have been rising,” one economist speculates, “and most people pay more attention to their own boat than the boats that have risen higher…They may, in short, have bought into Deng Xiaoping’s motto early in the reform era that ‘some people and some regions should be allowed to prosper before others.’”
With China’s economy entering its time of troubles, however, the question is how long it is before the different social sectors move from articulating single-issue concerns to formulating “systemic” demands. – Rappler.com
This is the fourth of seven articles on the China’s political economy based on the study titled China: An Imperial Power in the Image of the West published by Focus on the Global South and authored by Walden Bello, retired Professor at the University of the Philippines and currently the Adjunct Professor of Sociology at the State University of New York at Binghamton. The study can be accessed here.