Is China Unstable?

Assessing the Factors

David L. Shambaugh

• Publisher: Routledge
• Year: 2016
• eBook ISBN: 9781315291994
• Topic: Social Sciences
• Subtopic: Ethnic Studies
• Index: Social Sciences

Focuses on the potential for instability in China from political, economic, and historical perspectives. The book considers elite (national) and local politics, micro- and macro-economics, urban and rural conditions, attitudes among intellectuals, and minority areas. The high profile contributors include Thomas Bernstein, Pieter Bottelier, Bruce Dickson, June Dryer, Merle Goldman, Steven Jackson, Nicholas Lardy, H. Lyman Miller, David Shambaugh, and Dorothy Solinger.

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Introduction: A Typology for Stability and Instability in China

Steven F. Jackson

"I have stated our position that with regard to the political disturbances in 1989, had the Chinese Government not taken the resolute measures, then we could not have enjoyed the stability that we are enjoying today."

—Jiang Zemin

President Jiang's statement during his televised debate in Beijing with President Clinton may be the "bottom-line" rationalization of the Chinese leadership for the Tiananmen Square massacre, but it begs an even more important question today: Is China unstable? The question may not be easy to answer, but it is vital for the interests of America, Asia, and the world. Consider for a moment what is at stake in China's stability:

• The lives and welfare of more than 1.3 billion people;
• The world's fastest growing economy over the past two decades, the second largest recepient of foreign direct investment, and possessing the world's second largest cache of foreign exchange reserves;
• One of the world's largest trading economies, with total annual trade exceeding $300 billion including $90 billion in U.S.-China trade;
• A nuclear power, with missiles capable of striking the continental United States, and an increasingly powerful conventional military power;
• A nation bordering fourteen countries, many of them with their own problems of stability, and a permanent seat on the UN Security Council.

The stakes are extraordinarily high, and there is ample evidence to warrant careful consideration of the issue and its potential. Consider, for example, the impact on Asia of a large-scale refugee exodus from China—stimulated by social or political instability.

The financial crisis of East and Southeast Asian economies that started in Thailand and then spread to Indonesia, South Korea, and elsewhere has led to a crisis of confidence in Hong Kong and has affected China. There is evidence that China's economy is faltering. China has more unemployed workers today—as many as 150 million in all categories—than most countries have people. The reform of state-owned enterprises (SOEs) has imperiled the jobs of millions more who work in inefficient factories dating from the Stalinist era, particularly in the interior and Northeast regions of China. Rural discontentment has also manifested itself in a variety of forms, ranging from protests and petitions to riots, some involving thousands of people. Burdened by arbitrary and often unfair taxes and levies, Chinese farmers have shown a willingness to resort to extreme means to gain attention and redress. In areas populated by ethnic minorities, the central authority of Beijing must be exerted by force—often brutally. As Martin King Whyte's contribution reminds us, these and other sources of instability are increasingly straining the state, as channels to vent popular grievance are far from sufficient.

Within the ruling Chinese Communist Party (CCP), the loss of any sort of Marxist ideological drive and the booming economy has resulted in opportunities for self-enrichment for one's self and family. This corruption has become an endemic and corrosive drain on the system. There is substantial evidence that the top leadership of China constantly worries about the stability of their country and sustenance of their rule. Perhaps indicative of this insecurity was the recent formation of a high-level Leading Group for Comprehensive Public Order. Examples such as the collapse of the USSR and the downfall of President Suharto of Indonesia serve as constant reminders that the apparently firm hold of a ruling party or leader may indeed be very fragile.

All of this evidences a plain fact: China is facing enormous problems. But, as H. Lyman Miller's chapter reminds us, this characterization has been true for the past 150 years. The question is whether these enormous problems threaten the fundamental stability of the world's most populous country?

It is worth remembering that for any country in the late twentieth century, too much stability can be deleterious, too; the Brezhnevian Soviet Union was stable, to be sure, but at enormous long-term costs. Stability and instability are merely points along a continuum of change and dynamism. The question becomes one of how much change and what kinds of popular reaction to change exist? The appended matrix is an attempt to summarize the stability continuum, from hyperstability to complete collapse a la Yugoslavia or the former USSR. The vertical axis indicates the social segment, starting from the most powerful at the top (elite), and working downward toward the least powerful segments, farmers and minorities, much like the order in which the conference papers were presented. For each cell in the matrix, conditions and political actions are described. The relationship of the cells is not completely independent, particularly the relationship of the higher cells to the lower cells.

Leadership Stability, Army Loyalty, Party Corruption

Despite the considerable evidence of substantial pockets of instability in places and segments of China, David Shambaugh's contribution suggests that there is little evidence of leadership or military instability as far as can be known. President Jiang Zemin appears to have a firm leadership position, and the factionalism that characterized past decades of Chinese leadership is not in evidence. The triumvirate of President and Party leader Jiang Zemin, National People's Congress (NPC) head Li Peng, and Premier Zhu Rongji achieved not only a remarkably smooth transition of power after the death of paramount leader Deng Xiaoping, but also a solidification of their power at the 15th Party Congress. Rival leaders such as Qiao Shi and others are now demoted into comfortable retirement, and the last echoes of even mildly leftist thinking in party elder Deng Liqun is being marginalized. Economic Czar Zhu Rongji's position, however, is neither clear nor consolidated. Although some believe that Zhu has managed to promote a few key members of his group into second and third-tier advisory positions, others think that Zhu has risen beyond his base of support. In any case, Zhu's emphasis and association with economic policy does make him politically vulnerable—some might say expendable—should the economy have serious problems such as dropping significantly below the target figure of 8 percent annual growth (this figure has often been cited by the leadership as the desired necessary rate for national growth, above which inflation becomes likely and below which there may not be enough opportunity to keep citizens happy or at least quiet).

Beneath the top leadership lies the military, whose leaders have been undergoing a rapid overhaul and professionalization in recent years. With one or two exceptions—Chi Haotian being one—the new army commanders are characterized as former unit commanders, not the commissars or personnel of the General Political Department (GPD) of the People's Liberation Army (PLA, which also includes the navy and airforces). These officers tend to be highly professional but hardly cosmopolitan, and have little foreign travel outside of the invasions of Vietnam (1979), India (1962), and Korea (1950). There is no reason to question their loyalty to the regime at the present time. The regime also has at its disposal another large coercive instrument in the People's Armed Police, a paramilitary force which not only has riot control equipment, but also is composed of "demobilized" army units with heavy equipment.

Impressive though the coercive instruments of the top leaders may be, Bruce Dickson's contribution shows that Chinese Communist Party cadres and rank and file are in much worse shape to direct the country. The traditional membership base of the CCP, the workers and peasants, form considerably less of the party's membership today, and are being replaced by more educated urban elements. The one group that has been fairly successfully recruited into the Communist Party has been, ironically, businessmen and women. Party recruitment at lower levels in the fastest growing parts of the Chinese economy, the non-state sector, however, has been disappointing; highly mobile non-state sector workers simply do not bother joining the party. Recruitment among the "floating population" is almost impossible, nor is it desireable. The result is that other forms of authority are forming: managers on the workshop floor, in villages the leaders of clans and in some areas religious groups. The reaction of local party officials to these new groups has not been simple or consistent, sometimes violently opposing them, sometimes cooperating or attempting to co-opt them.

The Critical Context: The Economy

There is little doubt that the economy is the key to Chinese stability; the core question is how good or bad the economy really is, and whether it can withstand the short-term shocks of State Owned Enterprise (SOE) reform in the transition to an almost wholly market-based economy. Nicholas Lardy's contribution shows that the reasons for pessimism are primarily financial: China has little ability to moderate and finely control its macroeconomic fluctuations through monetary levers. This has led in the past to only two speeds for the Chinese economy: full-speed to the point of overheating, and all-stop (though some participants pointed out that the Chinese economy has shown a greater ability to "land softly" in the 1990s than before). A slowdown could lead to significant pressure on the banking system, because many Chinese enterprises are highly indebted to banks, and up to 25 percent of these loans are—by Western accounting methods—non-performing. The situation of bad debt is not helped by the low real interest rates charged by Chinese banks, which has led to a flood of credit to uncreditworthy firms. Many Chinese firms own six times more debt than equity, a ratio worse than South Korean chaebol before the economic crisis of the summer of 1997. As summarized by Nicholas Lardy, "... loans outstanding from all financial institutions in China increased almost 40 fold, from RMB 190 billion at year-end 1978 to RMB 7.5 trillion at year-end 1997. Relative to the size of the economy loans doubled over this period and by year-end 1997 were fully equal to gross domestic product." The key to the situation is SOE reform, which will help stop the conversion of good loans into bad debt, though this has its own risks:

. . . pushing through fundamental reform of state-owned enterprises is fraught with risks. Rising unemployment, even if it is only transitory, could precipitate massive labor unrest, which could easily derail the real sector restructuring that is so badly needed. Delaying or slowing the current reforms in the short run might mitigate some of the adverse social and political consequences of reform. But its long term consequence would be the loss of the opportunity to create a more efficient system of resource allocation and utilization. Thus delay almost certainly would eventually cause an even lower pace of economic growth, an even slower pace of job creation, and ultimately an even greater challenge to political stability. Thus the leadership may have little alternative but to push its current reform agenda aggressively.

The aggressive approach to SOE reform associated with Zhu Rongji has so far continued, but it is likely to have serious consequences in those industrial areas of China which are less export-oriented and competitive, such as the Northeast and the interior. Even relatively efficient Shanghai could see a large number of firms closed.

These problems, however, do not necessarily mean that China is on the verge of economic collapse—far from it. As Pieter Bottelier demonstrates, China possesses some substantial economic advantages. First and foremost, China is not directly vulnerable to the Asian financial crisis in the ways that other countries in the region have been. China's massive foreign exchange reserves of $144 billion, minimal short-term debf exposure, and its current account surplus provides the ability to ride out short-term trade deficits. China also does not have a freely convertible currency for capital account transfers or a large amount of short term debt as did South Korea, and thus the Renminbi (RMB) is not vulnerable to monetary speculation in the ways that the rupiah, won, baht, yen, and other currencies have been in the last year. In fact, the RMB has appreciated against the U.S. dollar, the only Asian currency to do so. In short, Bottelier concludes, "...the probability of instability in China due to external economic pressures or macroeconomic imbalances remains low." Second, China continues to have a high rate of GDP growth, though it has slowed in recent years. The key question is whether the government can maintain a rate of growth around 8 percent. Third, rural discontentment notwithstanding (see below), harvests in China have been good for the past three years and grain stocks are at an all-time high, a relief for any nation which must feed 1.3 billion people. Externally, China has great strengths, but internally it must solve its financial problem before it becomes a crisis.

Intellectual Quiescence, Dissidents in Exile

Merle Goldman's contribution is a reminder that students and intellectuals who had formed the vanguard of the 1989 democracy movement are now largely alienated or apolitical in China. The main targets of recent government control has been those activists who were involved in previous protest movements, such as Wei Jingshen and Wang Dan, both arrested and exiled. Wei and Wang, however, have very different perspectives on events in China, and whereas Wang has made extensive contacts in the Chinese exile community, Wei is much more of a loner, and years of imprisonment have left him somewhat out of touch with current conditions in China. Chinese authorities have clamped down especially hard on those activists who have attempted to link up different and isolated groups such as labor activists. Government control over dissidents is made more complicated these days by the growth of the "virtual democracy wall" in China and the rapid growth of the World Wide Web. It is not surprising, therefore, that Chinese police often confiscate dissidents' computers when they arrest them.

On a different side of the political spectrum, the remnants of the leftists who question the pace and scope of reform in China are in an increasingly marginalized position in China as well. Led by party elder Deng Liqun, this group has been somewhat critical of the rapid pace of economic reforms. The Communist Party subsidies to their activities are likely to end soon, leaving them without a major mouthpiece or institutional home.

China today faces a difficult situation; on the one hand, experiments with village-level elections are occurring, and there has been a very impressive opening of the atmosphere of discussion and discourse during the past year. Although many conference participants disagreed with the characterization, others felt that the current political climate in China is one of the most open since 1979, something the American media has failed to adequately report. The possibilities of political reform are again being discussed in the scholarly journals in China, such as Li Shenzhi's 1998 article in Gaige and other journals. On the other hand, it is clear that no reappraisal of the June 4, 1989 "incident" is imminent, dissidents are still closely monitored (particularly if they try to make connections with other dissidents or labor leaders), and the extent to which village level democracy will be allowed to "trickle up" the system has not yet been determined.

Worker Games, State Losses

Urban unrest and, in particular, labor actions form another area of potential instability in China. This is the subject of Dorothy Solinger's chapter. Given the large number of unemployed workers and soon-to-be unemployed workers if SOE reform is pushed vigorously, one might expect to see organized strikes, wildcat strikes, sit-downs, protests, and other worker actions. These are occurring in China, have been occurring for more than a decade now, but are accelerating in scale and scope. Furthermore, both management and workers have developed arsenals of tactics for gaining what they want from the other. Workers want to keep their jobs, and management (and directly or indirectly the state) wants them to keep working and the situation to remain stable. But in a rapidly changing economic environment, workers are often implicitly or explicitly threatened and respond. Sometimes the response is harassment, demonstrations, petitions, letters to higher government levels, protests, slowdowns, and even strikes and plant vandalism.

The state has its own arsenal, too, and it not only consists of the coercive "sticks" of police, and the heavily-armed People's Armed Police; the state also possesses "carrots": bailing out factories and firms which cannot make their payrolls. The cost of such bailouts, however, is likely to mount as SOE reform proceeds, and runs directly opposite the fiscal policy of Zhu Rongji. As reform proceeds, this tension is likely to be seen more frequently, though to different degrees in different areas: higher in the industrial Northeast and interior, and less along the coast and South. What remains unclear is the degree to which worker resentment will be directed against their factory managers, local party leaders, or against the pinnacle of the system: the top leadership and the Communist Party.

The reaction of workers to recent SOE reform efforts is still tentative and it is probably too soon to tell how they will react to large-scale layoffs. The research that has been done on the issue would indicate, however, that workers retain a faith in the commitment of the state to provide the most basic of welfare assurances (food at a minimum) and a pessimism in their own ability to do much more than protest. Workers at foreign-owned firms in coastal regions are too disorganized to mount more than short-lived labor actions. Although the Communist Party no longer has control of the shop floor in the "neo-tradiiionalist" manner of divide and conquer in the way it once d...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• Preface
• 1. Introduction: A Typology for Stability and Instability In China
• 2. How Do We Know If China Is Unstable?
• 3. The Chinese Leadership: Cracks in the Façade?
• 4. Political Instability at the Middle and Lower Levels: Signs of a Decaying CCP, Corruption, and Political Dissent
• 5. Sources of Macroeconomic Instability in China
• 6. How Stable Is China? An Economic Perspective
• 7. The Potential for Urban Unrest: Will the Fencers Stay on the Pisté?
• 8. Instability in Rural China
• 9. The Potential for Instability Among Alienated Intellectuals and Students in Post-Mao China
• 10. The Potential for Instability in Minority Regions
• 11. Chinese Social Trends: Stability or Chaos?
• Contributors
• Index