China wants to have a compliant middle class

Arūnas SPRAUNIUS

From time to time, especially in the public domains of Russia and China, calls are made to create a so-called de-Americanised world. In one of the most recent comments discussing this inexorable expectation, an editorial in The Wall Street Journal weekly on October 21^st wrote that the frontrunners to the leaders of a de-Americanised planet get their allies, if any, mainly through the use of coercion.

For instance, in trying to keep pro-Russian Edgar Savisaar in the post of the mayor of Tallinn (it is unclear, however, how much de facto pro-Kremlin he is), Moscow even announced an international search of his main competitor. Kremlin efforts to restore the Soviet empire by any means caused concern in the official Riga in late October.

On the other hand, Western negligence sometimes leads to the aggression of other countries, and especially Russia. For example, the suspension of the U.S. government because of rather futile ambitions and a lack of responsibility among Washington politicians, and reoccurring rumours of a potential bankruptcy of the United States, evoked a variety of opinions in the world. Lone China in the Southeast Asia might think: “...Why not me?” It is a circumstance that speaks for itself – when U.S. President Barack Obama refused to take part in the Asia-Pacific Economic Cooperation summit in Bali in early October because of the crisis, the current Chinese leader, Xi Jinping, became the main celebrity of the summit. So this time, a Chinese breakthrough did occur, at least symbolically.

Towards a liberal economy...

Moreover, Beijing was forced to follow the crisis in America with anxiety. After all, China is a major creditor of the United States; its central bank holds U.S. government securities worth more than 1 trillion U.S. dollars. This means that, despite the tensions, Beijing still trusts (or simply has no other choice) the U.S. financial and political system. However, in the editorial article of The Washington Post of October 9 “Does the U.S. deserve its world-class credit rating?”  they point out with sarcasm that at the time, Washington’s crazies can be actually be dangerous to political stability not only in the United States, and not only theoretically. However, these and similar reflections in the American and the global media had no significant effect on Chinese actions, because in the modern world, the big players are too dependent on each other to afford any ambitious movements, and focus on instantaneous problems, rather than the long-term balance of power.

In any case, the fact that China is buying U.S. securities, rather than vice versa, suggests that the economic model based on the needs of the U.S. is currently still operating in the world. And the day when Beijing, declaring from time to time that the communist system is better than American "capitalism", will disengage from the U.S. economy, has yet to come.

But it would be wrong to say that China is not satisfied with this situation. Being pragmatic, the Chinese are very well aware that the principle according to which the global economy functions today provides highly favourable conditions for China to earn U.S. dollars and thus transform its economy and increase its potential. After all, now the Chinese can quietly but surely build themselves a bridgehead, and victoriously take over the control of the global financial pyramid. But, as usual, China is only ready for change with the condition that everything remain under control, and without risk to the Communist Party’s hegemony.

This approach also dominated in the ruling Chinese Communist Party’s plenum on November 9-12 – it outlined the country's economic development guidelines for the next decade. As announced by the Western media with a certain satisfaction, although the wording is traditionally vague, it is clear that the free market will play a key role in the future. According to the Financial Times, the state is planning to gradually abandon price regulation in a number of economic sectors, as well as to eradicate the disparity between the status of urban and rural land. It is believed that this will facilitate more rapid urban development. The plenum also set the stage for the liberalization of the exchange and interest rates.

Plus, there are also signs of abolishing the compulsory registration which keeps rural residents attached to their place of residence. The Chinese communists have already realised that the registration hampers the country's development, as it prevents villagers from settling in cities with their families – currently, in coming to the big city illegally, family members lose their right to education and medical care. Beijing also promises to change the rights of ownership so that non-urban residents have the same rights to land as the urban population. This could mean that Chinese peasants moving to large cities might be allowed to sell their land in the future.

But again – strictly under the guidance of the Communist Party…

However, the summarizing plenum document (communiqué) points out with obvious authority that the state-owned companies will maintain their power and monopoly in economic sectors such as banking, energy, telecommunications and transport. Although the communiqué states that the free market will play a key role in the country’s economy, the decisive impact of the Communist Party has not been omitted. This is reflected in the actions of Xi Jinping – he promotes the old-fashioned rhetoric of supporting the Communist Party as the main ideological power, while at the same time suppressing the political free mind, in particular among online commentators (some have already been arrested and are awaiting trial).

Interestingly, the Chinese Communist Party is planning to set up a State Security Committee, which is likely to reinforce the powers of the country's president to control the military. Western press sources predict that this committee will act in the same way as the U.S. National Security Council. So, this is another, although formal, copycatting of the U.S., but of course, adapted to the realm of a huge country still liberating itself from totalitarianism.

Paradoxically, in many areas of the economy and even in social infrastructure, the Chinese attempt to copy the West, but at the same time have a paranoid fear of not only changing the economic, but also the political system. This paranoia can be explained by the fear characteristic to all autocratic leaders of the state that as soon as you release the reins, multinational corporations will exploit your vulnerabilities and impoverish your country in the blink of an eye. That explains why the current Communist Party elite is driving the Chinese economy towards a liberal free market (by the way, the main economic adviser of the ruling class is a liberal, Liu Sheng), while adhering to conservative communist ideological traditions.

Integration with international structures such as the World Confederation of Labour, the World Trade Organization, and the International Monetary Fund also forces adherence to the rules of the world. This can also be seen in competition all throughout the world. Globalization habits and in particular, the rules of global capitalism as "tested" by the U.S., penetrate China, sometimes in unseen forms. For instance, among 820,000 foreign students in U.S. universities during the academic year of 2012-2013, a total of 235,000 Chinese students were leading without competition.

The Forbes magazine issue of July 30 cited Ruchir Sharma, an economist of the Morgan Stanley financial services company and author of the book Breakout Nations, who stated in an interview with the officious China Daily, that China will be the only country of the four major developing countries (the other three are Brazil, Russia and India) to achieve a high living standard, as defined by the World Bank (more than 12,000 U.S. dollars per year). If the country's economy grows by 5-6 percent over the next few years, the average income per capita in China will double to about 20,000 U.S. dollars per year. But the most important question is not whether they will achieve it and when it will happen, because the process is beneficial for the global economy in the first place, but what will happen to China when it has a large middle class.

The young capitalism is being exploited by everyone who can…

After numerous scandals of the Taiwanese Foxconn company related to the tragic deaths of its young workers who could not bear the stress of working there (the company has earned the nickname, “the Suicide Factory”), at the end of July, the focus shifted to a U.S. corporation, Apple Inc. In order to diversify its production, it cooperates with another Taiwanese company, Pegatron. A New York based NGO, China Labour Watch, raised the question of how Pegatron succeeds in reducing the cost of its production. This turned out to be, by using methods that were prevalent in America during the first half of the last century.

China Labour Watch's report refers to 80 violations of the labour, production and environmental codes that were found to exist at Pegatron, ranging from failure to comply with environmental laws, taking away the passports of workers (preventing them from fleeing to another company), to unbearable conditions in the factories, exploitation and child labour. Moreover, low wages force the company’s staff to work overtime. It turned out that 700,000 workers employed in the three Pegatron factories are forced to work an average of 66-69 hours per week.

Of course, Apple received a serious blow to its reputation – after all, the Pegatron companies make​​ components for its new iPhone model. However, only hypocritical representatives of China were surprised by these reports. It was as if they had forgotten that China's success story began with a cheap labour force. So, it will take some time before what has become a normal practice to become an intolerable thing of the past (and, if China's non-governmental organizations actually begin to fight for the rights of working people, rather than simply run propaganda against Chinese manufacturers, Huawei's competitors).

In any case, it is clear that the era of uncontrolled cheap labour in the world is about to end. Multinational corporations will have to seek a new location for their manufacturing operations or have to adapt, which usually means paying more. That would be one of the changes benefiting China's economy, and raising the per capita income level. However, when we talk about the actions of China Labour Watch defending the rights of the working people, which may be useful for the Chinese economy and certain Chinese companies, we should not overlook other phenomena that could symbolize much deeper tectonic fractures in society.

On November 13^th, the Japanese newspaper Asahi Shimbun announced a publication with a revealing title, Explosion in Shanxi: What is wrong with China?, telling the story of several bombings in a provincial capital in the western part of China near a Communist Party headquarters.

Accurate identification of what the cause of the explosions was is not easy. However, it should be noted that Shanxi produces most of the Chinese coal that fires the majority of the country's power plants, which in turn, supply cheap electricity to maintain the economic competitiveness and growth. Public corporations and many small and medium-sized enterprises operate within the province, and a number of businessmen were able to capitalize on the government-controlled economic promotion policies of the backward western regions, ignoring work safety in the mines or slave labour, where kidnapped individuals and even people with mental disabilities were forced to work. In addition, many people had to flee their homes because of the development of the coal fields (in this case, it should be noted that aggravating environmental problems cause public discontent in China).

The Chinese people have become increasingly intolerant to such injustices – especially to social exclusion, which is particularly rampant in China as compared to the rest of the world. A Japanese newspaper has presented statistics that allegedly show that the number of demonstrations and acts of resistance in the country is growing fast – from 60,000 in 2003 to 180,000 in 2011. Accordingly, the cost for Beijing to maintain public order (in China it is called the cost of public safety) has increased from 330 billion yuan in 2007 to 700 billion yuan in 2012, surpassing the defence budget.

The growing protests indicate that the Chinese are following what's going on in the world, and learning to fight for their rights. The only difference is that they convey their protests in Chinese forms and use Chinese phraseology. For instance, peasants, deprived of their land by corrupt officials in the course of the current reform, write in their appeals to a higher authority that their goal is not to turn over the Communist Party, but that the government should not violate the so-called “heaven mandate” granted to it (in China, the rule of law has been based on it for centuries).

While the Chinese Communist Party leaders see each new issue as an opportunity to promote economic growth by investing the U.S. dollars earned from foreign trade, simple Chinese people have to live with these problems.

Is it possible to control the middle class?

According to the Sinology lecturer of the Centre for Oriental Studies at Vilnius University, Vytis Silius, China's economic model is approaching the Western model. Undoubtedly, it has specific Chinese features. So far, it is only in the level of testing and social experiment. For example, some provincial towns have attempted to install a democracy, where a local community solves its problems by voting and elects the local government. It is argued that the Chinese are satisfied with this, because traditionally, democracy for them is most important at the grassroots level – local communities – and they do not really care about electing the highest powers in the country. However, monarchs that once had power in many countries of the world, failed to preserve it. So nothing is eternal. Everything changes. Traditions are also not forever, no matter how strong they are. Therefore, while watching the solutions currently being implemented by China, both China and the Western countries will have to answer a lot of questions – which will determine what the world will look like in the 3^rd decade of this century.

First of all, the question is whether China, in seeking to free itself from economic dependence on the exports of cheap labour and to create a strong middle class, which might boost and stabilize consumption within the country, will be able to perform this transformation without the democratisation of its political system. This question is very interesting – after all, a democratic environment is more favourable to creativity and innovation, so during the migration from textiles to high-tech industry, and in order to be a leader in a transparent competition, the dominance of an infallible party can become a nuisance. On the other hand, the current system makes it possible for China to consolidate its business stronghold in the global market, making use of the state apparatus and control, together with structural and financial support, to achieve positive results. However, in this case, the U.S. and the EU will have to answer the question of how long they will tolerate the competitive distortions where private Western corporations have to compete with Chinese state-owned companies involved in banking, energy, telecommunications and transport.

However, a key question that the future will inevitably answer is this – Will the emerging middle class of China want to live in the shadow of an ideological and unerring political regime? It may be all very well for Russia to control the situation, when individuals serving oligarchs account for a greater part of Russia's middle-class. Therefore, by controlling oligarchs you control the middle class. How China will control their own middle class and how much the latter will allow itself to be controlled is still a mystery, as tales about the dangers of democracy because the Communist Party could lose power and then everything would come under the control of a mid-level clerk of a U.S. company, can be only told to the exploited and poor part of the population, while it is much more difficult to deceive the middle-class. Its representatives understand what the leaders fear most, and who is responsible for the assets of certain players to grow by billions every year, while they end up living in a polluted environment.