Some veteran China watchers are saying this is the beginning of the end for the Communist Party, citing factors such as an anti-corruption campaign led by President Xi Jinping, which they claim shows the party is divided or even tearing itself apart. They point to signs that growing numbers of rich officials and citizens want to leave China and take their millions with them. On top of that, there is continued repression of political dissidents and those who refuse to toe the party line in the arts, media and academia, indicating a restless populace. And there are officials who clearly show little conviction or enthusiasm for party doctrine even as they implement policies designed to revitalize the party’s ideological appeal.
Such problems have long existed in China. So why would now be the beginning of the end? It comes down to growing pessimism about the country’s economic future. As Premier Li Keqiang admitted to delegates at the 12th National People’s Congress in his notably candid annual “work report” on March 15, meeting the revised target of 7% annual economic growth will be difficult.
Even if the premier is correct that China can still contain systemic risks to its economy, there is now a broad consensus that the country’s best economic days are behind it. The problem, according to a growing band of skeptics, including China expert and Washington insider David Shambaugh, is that the party’s legitimacy and ability to stay in power depends above all on rapid economic growth. Achieving it will serve to paper over cracks in the country, while failure to do so will cause these fissures to widen.
Demise greatly exaggerated
This is the primary reason why those who once lauded the staying power of the party — or resisted predicting its demise out of professional caution — are now changing their minds. But contrary to the (new) conventional wisdom, the party’s longevity owes to more than just a rapidly growing economy. The Chinese Communist Party has now been in power longer than any in the world. It has learned the lessons of recent history — its own and those of other authoritarian regimes — and is far more cunning than most of its foreign detractors give it credit for. It is not so much meeting GDP growth targets that matters as which people are benefiting from the party’s continued rule, even as the economy slows. In this respect, the party still appears well-positioned to hold on.
The relevant historical lessons stretch back to the 1989 Tiananmen Square protests, which involved millions of people in around 350 cities throughout China. After its “near death” experience, and having observed the fall of the Berlin Wall and the subsequent implosion and breakup of the Soviet Union, party leaders and scholars spent several years analyzing their circumstances and the crumbling of the authoritarian world. They concluded that in addition to maintaining the party’s extensive coercive apparatus, the future well-being of the urban middle-classes needed to be intricately tied to the one-party system. In a rapidly industrializing environment, which China remains, the party faithful realized that it was the urban elites — not peasants, rural outsiders or other countries — that ultimately determined the fate of authoritarian governments. Even ossified and corrupt Leninist regimes need a determined push from well-organised urbanites to fall.
The great lesson was that authoritarian regimes become irrelevant to their own elites at their peril.
The party’s plan to take back the levers of economic power and privilege — reversing the pre-1989 trend toward the rise of an independent middle class — was cobbled together from the mid-1990s onward. In essence, it involved further expansion of the private sector and a sharp reduction in the number of centrally managed state-owned enterprises. But the party reserved all the most important and lucrative sectors of the domestic economy and the bulk of the country’s capital for state-owned companies. Such entities’ investment in China’s industrial and financial sectors has exceeded outlays by the private sector every year since the late 1990s.
No wonder only five of China’s 50 largest companies are privately owned, with Huawei, the largest, ranked 39th. Critically, the cozy relationship between the party and the state-owned enterprises has continued, in terms of who runs these companies and how. The party positioned itself as the dominant dispenser of business, professional and even social opportunities. Through continued control of the estimated 155,000 centrally and locally managed state enterprises — and by wielding the power to grant or deny both these and private concerns the right to do business or bid for government contracts — the party maximizes loyalty from actual and hopeful elites, as well as revenue.
The success of this assimilation can be illustrated by the composition of party membership. Of its approximately 85 million members, well over four-fifths come from the business elite. Those who have joined — and the tens of millions more on the waiting list — are upfront about the fact that they belong to gain access to opportunities from which they would otherwise be excluded. Over 90% of the country’s 1,000 richest people are party members, according to the annual Hurun Report, a who’s who of the country’s wealthy. Unsurprisingly, and despite the many wealthy people wanting to protect their money and future lifestyles by leaving the country, Chinese elites remain the strongest supporters of the one-party system.
Staying in charge
Despite talk of reform, Xi is clear that state enterprises are to remain dominant in all key industrial sectors, with reforms focusing more on forcing these giants to be more efficient and less corrupt than on loosening their grip on the economy. If political survival rather than rapid economic growth is the ultimate objective, why would the party undermine itself by weakening its ability to co-opt those who could push it over the edge? Why would it listen to liberal-minded economic advisers who insist the private sector holds the key to China’s future growth?
And what of China’s well-heeled urban elites? A slowdown could hit them hard. But having invested a great deal acquiring and developing party connections, most will be loath to see its downfall. It is the party, after all, that gives them insider privileges in a country where more than a quarter of the population still live on less than $2 a day, and where income inequality is the worst of any in Asia. The collapse of the party would put at risk all they have gained. Better, then, to protect their share of the national pie, even if it is growing at a slower pace, by supporting the political status quo. However, in the case of a (not inconceivable) economic meltdown, the implicit social contract between the party and elites would be severed.
What does all this mean for the much-heralded “Asian Century,” which depends on China’s continued rise as its driving force? If the party remains in power, it is likely the reforms China needs to escape the dreaded middle-income trap will stall. These include dismantling the state-enterprise-dominated economy to allow the private sector to raise productivity and spread economic opportunity. If the party retains its stranglehold, China will almost certainly suffer a graceful decline, much like Japan has experienced since the 1990s. The Asian Century could thus prove disappointing.
But if the authoritarian structure crumbles, what follows will be drastically different — for better or worse. Without authoritarian inhibitions, it may be that China could more easily build the institutions it needs to become an advanced economy with a thriving private sector, including rule of law and intellectual property rights that protect personal and corporate assets from state-sanctioned theft. Alternatively, it may suffer a long period of chaos that will shatter the intricately linked supply chains and commercial networks in the region of which China has become a hub. Either way, the ride will not be smooth.