China's delicate social contract is under strain now that economy has slowed dramatically and the number of unemployed is rapidly rising.
On the 30th anniversary of China’s “second revolution’ — completion of three decades of reform in December 2008 — President Hu Jintao espoused “sinicisation of Marxism” and a renewed focus on the “four cardinal principles”, paraphrasing old Maoist dictums long-buried in the annals of time. The cardinal principles include virtues such as adherence to the socialist road and continued dominance of the Communist Party. President Hu spent the Chinese New Year with “ordinary people” to underline empathy with the masses. China’s mandarins are turning to socialist rhetoric and populism now that the “factory of the world” is feeling the heat of global recession.
Factories located in China’s eastern coastal region, which is also known as the ‘golden coastline’, never stopped booming until now. This region is home to China’s Special Economic Zones (SEZs) and has consistently attracted hordes of eager skilled and unskilled workers — a phenomenon described as “peacocks flying east”. But with shrinking external demand and declining exports, which registered the largest drop in a decade, the busy buzz has been replaced by a sense of uneasy calm. Official figures cite the closure of 670,000 factories, still others are scaling down production leading to massive lay-offs. This alone has led to almost 20 million migrants — a sixth of the total floating population of 120-140 million — losing their jobs. The actual figure is likely to be higher, some estimates place the number at 33 million unemployed migrants. The government has conceded that it is the “toughest year since the turn of the century” and announced a 4 trillion yuan or $586 billion stimulus package, slashing taxes along with a generous rural subsidy aiming to “maintain stable economic growth, improve living standards, expand domestic consumption and policies supporting the undertakings related to senior citizens”. With the boom going bust, there is a wave of restlessness and the Communist Party is feeling the pinch.
China’s magic two-digit growth figure averaging about 10 per cent over the last 30 years has dropped to a single digit figure. Exports have been the mainstay of the economy — but with the downturn in Japan, Europe and America, exports have fallen 17.5 per cent on a year-on-year basis. While foreign direct investment fell 36.5 per cent from a year earlier, imports have also declined dramatically. The IMF estimates that growth will decline to 6.8 per cent and the World Bank has cut the growth forecast to 7.5 per cent in 2009. Add to this, the war of words with the United States — while former US Treasury Secretary suggested that China’s vast pool of savings had created the crisis, his successor Timothy Geithner triggered off a diplomatic row by indicating in writing to the US Senate Finance Commission that President Barack Obama believed that China was “manipulating” its currency, keeping the yuan artificially low to bolster exports.
The Communist Party has ‘legitimised’ its mandate to rule by delivering economic growth. But with this floundering, domestic woes are on the rise. Not only is China embattling with drought in its northern-central wheat-growing belt, but joblessness is also threatening its social stability. Party circulars have noted the rise in “mass incidents” i.e. rioting and protests in the countryside and the industrial belt that have taken place last year — the number of such “mass incidents” are reportedly on a par with the 87,000 cases reported in 2005.
According to official estimates, migrants account for almost 40 per cent of the average net income of rural Chinese. The lay-offs have also disrupted rural incomes. Most migrants are heading back home to their rural roots or desperately flocking job fairs. The Party is wary of unemployed migrants — in the past decade, the Ministry of Public Security has associated migrants with rising crime rates in municipalities such as Shanghai, Beijing and Tianjin.
Besides migrants, other workers have been hit by joblessness which is causing concern. Of the 100 economists surveyed by the China Monitoring and Analysis Centre, 90 per cent concurred that unemployment was the top challenge the country has to face. The official registered urban unemployment rate is estimated to touch 4.6 per cent — up from 4.2 per cent in the fourth quarter of 2008. The Chinese Academy of Social Sciences, however, places the urban unemployment rate at 9.4 per cent. There is little clarity or transparency on the extent of unemployment as official figures are elusive. The official figures for unemployment, for example, exclude the migrants who are not registered urban citizens. Add to this scenario of joblessness, a greying society, inadequate social safety nets, and increasing user-fees. China is an aging society and 12 per cent of its population is already over 60 years old.
Predictably, China’s mandarins are working on overdrive. Besides the stimulus package, Premier Wen Jiabao has indicated that new measures are on the way. The state council and the central committee of the Communist Party jointly issued the first document of the year which outlines policies that focus on agriculture and rural areas. The document pledges more fiscal input to rural areas, rural employment, rural-urban integration, market monitoring and resolution of land rights. The government has also proposed an ambitious rural subsidy scheme to boost rural consumption. Besides this, it has promised social security schemes that will strengthen farmers’ land rights and the employment rights of migrants. Further, the government plans to roll out jobs for 9 million new-urban labourers and 5 million laid-off workers among others. Public projects — roads, railways and housing — are underway in several provinces.
The stimulus package is showing some results, with the economy slated to expand 6.6 per cent in the second quarter, after slowing to 6.3 per cent in the first quarter. However, the famous aphorism ‘China road’ or ‘way’ has not been for the lack of vision or commitment of its technocratic leadership. Rather, the malaise is the appalling lack of transparency and curbs on civic activity. Local authorities at the provincial level, eager to win brownie-points, frequently tamper with statistics. The extent of lay-offs and jobless migrants is hard to determine. This underscores a need for independent institutions and a greater role for civil society — but it got a bashing with a clampdown on the recent Charter ’08. The Charter written by dissident Liu Xiaobo and co-authored by political scientist Zhang Zuhua, was envisioned along the lines of the famous Charter 77, written by Vaclav Havel. It articulates the need for greater political democracy and independent judiciary.
For the Communist Party, the astounding economic performance has been the legitimising factor, therefore, the pressure to perform is enormous. More populism may be on the cards as China’s legislative body, the National People’s Congress, convenes in March. With the Sino-American relationship getting frayed, China may well move to reform its currency control mechanisms.
While China will not collapse, its socialism is on the edge. As it marks the 60th year of its founding, it may well remind itself of the lesson of Tiananmen, 20 years ago. The trade-off between development vs accountability and transparency cannot continue indefinitely.