Rising power, anxious state

Tensions between China’s prosperous middle classes and its poor will make it a harder country to govern

The Economist

AMONG those with most to celebrate as the Chinese Communist Party marks its 90th birthday on July 1st are the country’s bourgeois reactionaries. Perhaps now the most important pillar of the party’s support, China’s middle class was virtually non-existent until it was recreated in the late 1990s. So far, the communists have amply fulfilled their side of a tacit bargain in which well-off city-dwellers have traded political choice for fast-growing prosperity. But as the economy slows over the next decade, the party will struggle to keep its word. Indeed, peace and prosperity may depend on the very sort of political reform the party has tried so hard to avoid.

An affair to remember

In the past 15 years the middle classes have supported the party because of what it has done for them. Its rule has produced incredible economic progress, asserted China’s rightful role as a global power and, crucially, kept the country from falling back into the chaos that plagued it during so much of the 20th century. The post-Communist travails of the former Soviet Union have been valuable as what the party used to call “teaching by negative example”.

However, the love affair between a party that calls itself the vanguard of the proletariat and its actual, middle-class supporters is now under threat. At the root of this is an inevitable slowing in economic growth. As our special report on China in this issue explains, the first decade of the century, with its relentless double-digit growth, may well have seen the peak of China’s economic exuberance. A sudden crash is not impossible: there could be a botched attempt to tackle either the property bubble or what the prime minister calls the “uncaged tiger” of inflation (now at 5.5%, its highest level in nearly three years). But an immediate upset is still unlikely: inflation is not yet out of control, still far below the 27.7% it reached in 1994. The danger is more in the medium term: growth will inevitably slow over the next decade, as China settles into its status as a middle-income country, and the burden of caring for an ever larger number of elderly people in a slower economy may make middle-class life far more uncomfortable.

To compensate, the party will have to usher in wrenching change. It is struggling to shift China away from the current unsustainable model, where growth is propelled by vast investment and export-led manufacturing, towards one where domestic consumption plays a bigger role. The country still has a long journey ahead in its efforts to build health-care, pension and social-security systems to reassure citizens: all of these are necessary to persuade the middle class to save less.

In addition, China’s state-owned businesses have an insatiable appetite for capital, which many of them waste. Curbing state companies means taking on all of the well-connected people who ride on their coat-tails, including parts of the middle class. The party’s creed (“Marxism-Leninism-Mao Zedong thought”) means nothing to most such people. The party is secretive about recruitment to its 80m-strong ranks. But an official report in 2008 said that, of new applicants for membership, by far the biggest category comprised university students over the age of 18. Although the decision by these young careerists to sign up shows the party’s clout, they have very different ambitions from those of the old ideologues.

The party will also have to work harder to sustain the urbanisation that has fuelled the economy. China has done the easy part: attracting underemployed young rural residents to urban jobs. But the supply is beginning to slow. It would help if farmers could sell or mortgage their rural land and use the money to help gain a stronger foothold in the cities. But the party remains overly fearful of privatising farmland, partly for atavistic fears of a destitute peasantry, and partly for ideological reasons.

Worse still, the system of household registration, or hukou, defines even long-staying urban migrants as rural residents, cutting them out of housing, education and other benefits. No wonder that the migrants are increasingly restive. Of the tens of thousands of protests each year, most are still rural, typically by farmers enraged by inadequate compensation for land appropriated for development. However, urban unrest, such as recent riots by factory workers in the southern province of Guangdong, is now more common. If the party is to keep the peace in cities and if it is to continue to attract migrants in sufficient numbers, it needs to find ways to turn them into full-fledged city-dwellers, with the consumer power to match.

Of taxation and representation

Here it runs up against the middle class most directly. To give migrants the same housing and other benefits as urban hukou holders, and to build a proper social safety-net will be expensive. And if more tax is the solution, then the middle class could well begin demanding a greater political say.

That is a day the party dreads. Since the nationwide student-led protests of 1989, the educated urban elite has mostly been politically quiescent. But the party fears them far more than it does unruly farmers or migrants. Beijing’s centre was flooded with police earlier this year when calls for an Arab-style “jasmine revolution” circulated on the internet.

The middle class’s anxieties have not yet fermented into a broader anti-government rage. But then the inevitable erosion of some of their privileges has barely begun. If the bourgeoisie does start to protest, the party will be faced with an old dilemma: liberalise or step up repression. All the evidence of the past—and of the recent crackdown—is that it will choose repression. But that in itself may help politicise the middle class. In other Asian countries a taste for democracy has risen with income; and repression would mean withdrawing freedoms from people used to their liberty gradually increasing.

In 2012 the party’s leadership—and the task of managing these tensions—is to pass to a new generation. The most recent leadership transition, in 2002, went smoothly. But every previous generational shift in the party’s 90 years has been chaotic, and, a decade on, the tasks faced by the leaders who took over in 2002 look almost easy by comparison with today’s.