China Today

As everyone knows, China today is eagerly undertaking market liberalization while suppressing meaningful political reforms. This approach has led to breathtaking results: the World Bank reports that China’s annual GDP growth since 1990 has on average hovered above 9 or 10 percent. Yet not a day goes by without the West asking whether the Chinese Communist regime can continue down its current path or be forced to relinquish political control.

Bottom Up Reforms

For China’s leaders, the sizzling economy provides them with continued legitimacy to govern. But even with China’s economy growing at its current pace, Chinese leaders confront numerous challenges to their monopoly on power.

Two and a half decades of economic liberalization has resulted in clear side effects. The state’s withdrawal from the economy and social welfare network has engendered massive unemployment and unrest, and bottom-up pressures for political change abound.

• While the official registered unemployment rate in urban areas hovers at 4.2%, unemployment in rural areas is as high as 20%. At any given moment, there are over 120 million rural migrant workers roaming the streets of Chinese cities looking for jobs.
• In addition, riots take place in China every day. The Ministry of Public Security reported that in 2005, there were 87,000 protests throughout the country.
• Ordinary citizens--in particular peasants--are clamoring for the central government to address their grievances on the local level on everything from corruption to poor health care. In 2004, they filed 10 million petitions for intervention from Beijing; in 2005, they filed 30 million.

All of these instances of unrest are complemented by increasing diversification and pluralism in the expression of dissent in Chinese society.

• Petitioners and disgruntled citizens are aided by a new thriving civil society, which once did not exist in China. Some estimate that there could be as many as 3 million NGOs throughout the country today.
• Protestors and activists are aided by booming information resources. In 1997, China’s Internet population was a paltry 620,000. At the end of 2005, the population had reached 111 million.

In many ways, bottom-up pressures for change are intense, spontaneous and multi-faceted. Every day, Chinese leaders worry about the challenge to regime stability. They feverishly aim to keep annual GDP growth at no less than 7 percent, which translates into the creation of 25 million jobs each year. They know that the day that they fail may well be the day that they will be swept out of power.

Top Down Control and Reforms

Yet in the short run, it is hard to see bottom-up pressures leading to any large-scale reform, as the central government continues to exert brutal and sophisticated top-down control. Here are some examples.

• The government may allow the vibrant NGO sector to operate in politically safe areas such as environmental protection, health education (HIV/AIDS) and services for the disabled, but it bars them from broaching sensitive subjects such as human rights, labor and religious freedom.
• Similarly, the government has promoted rapid growth of the Internet but has neutralized this medium’s democratizing effects through adoption of the world’s most sophisticated online censorship and surveillance system.
• The government may see daily peasant and worker protests as huge headaches, but because most of these protests are spontaneous, leaderless and unorganized, the government diffuses them with a combination of intimidation and cash payoffs. Where the uprisings are organized and are aided by veteran democracy activists or intellectuals, the party severely cracks down on them before they spread.

Essentially, Chinese leaders have been willing to allow enormous diversification and pluralism in Chinese society in part to prevent social discontent from being bottled up too tightly. They have zero interest in undertaking top down democratization. To them, economic development continues to be the first and foremost priority, and suppressing market liberalization’s side effects is an absolute necessity. In the words of Chinese President Hu Jintao, the leadership must build a "harmonious society," which would alleviate regional economic disparities, combats corruption, placates protestors and resist free elections.

Implications for Western Business

For western businesses, this means that, assuming that China’s economy does not slow significantly, the Chinese government will continue to be the key actor with which they must interact for the foreseeable future.

The current regime will continue to press forward with market liberalization and opening to western investment, but it will also eagerly welcome--and increasingly expect--help from western companies to engage in corporate responsibility efforts to build its "harmonious society." Examples of such corporate responsibility have included:

• Microsoft partnering with local labor bureaus to provide IT info and training to laid off workers; and
• Coca Cola and Motorola giving some $2 million apiece (in 2002) to an official charitable project that builds rural schools and supports education for rural students; and

Meanwhile, western companies will continue to face fundamental problems in the China market. They include:

• Widespread corruption, unclear regulations, cumbersome bureaucracy;
• Systemic intellectual property rights violations, and
• An ineffective legal system

The good news is that the Chinese leadership is seriously and aggressively trying to tackle these problems. In addition, western businesses at least won’t have to worry about the problem of rampant strikes and worker protests. Those have been by and large directed against Chinese state-owned enterprises and Asian foreign-owned enterprises that deny workers pensions, pay and health benefits.

Nevertheless, the nature of the Chinese regime will continue to be a hindrance to western business. By thwarting democratization, China for now may be able to prevent massive rebellion and nation-wide uprisings that will cause major disruptions to business, but the government will also continue to subject western business to the criticism of human rights constituencies in their respective countries. For instance:

• Without substantive improvements in China’s human rights practices, the US-EU arms embargo, put in place after China massacred its own citizens in Tiananmen Square in 1989, will continue to have sound reasons for being.
• In addition, western business will continue to be blamed for aiding and abetting Chinese repression. Just recently, American Internet companies like Yahoo, Microsoft and Google faced serious pressure from the U.S. Congress to either get out of China or stop abiding by mandatory Chinese censorship laws.

In sum, the near-term political environment in China may offer predictability and therefore limited political risks. Yet without meaningful political liberalization, China will never offer western businesses, especially those in the defence trade, all that China could be.

Ying Ma is an NRI fellow at AEI.