Stanley's blog

China’s policies in the face of the global financial and economic crisis are vitally important both to China itself and to the rest of the world. Identifying and understanding these policies is difficult, both because of the lack of transparency of the decision-making process and the absence of frank, open discussions with other leading countries.

Not being an economist, and there being no consensus between economists, my observations are purely political in nature.

Beijing has been under pressure from the West for some time to reduce the trade deficit by facilitating imports, and encouraging the people to spend rather than save.

The recently announced stimulus package of nearly $600m is huge but, too much of the explanation is opaque. The size of the stimulus may be smaller than advertised. The money is to be spent only by the end of 2010, and it is unclear how much is actual new spending. Despite the size of the stimulus may be smaller than advertised. The money is to be spent by the end of 2010, meaning it will be spread over nine quarters and not in one go. How much is actual new spending?

Like the rest of us, Beijing is faced with the unknown: how deep and long is the abyss?

And herein lies a special problem for China. The government recognises that growth must be substantial and sustainable. The credibility of the government and the CCP, however, depend on maintaining this growth.

Beijing is inevitably focusing on maintaining as high a growth rate as possible seen as vital to maintaining employment and therefore social stability. We are unlikely to hear too much about “scientific development” because sustainability has to be sacrificed at the high altar of economic growth.

Economic decision-making centrally and locally will always be driven by the question of social stability. Boosting demand and consumption are seen as the only solution to the short-medium term problem of a slowing growth rate – slowing but still the world’s fastest.

Reducing unemployment – currently at least preventing increased unemployment – is always a primary concern. However, increased efficiency, including advancements in technology, have the opposite effect.

Low-skilled export industries, which are high employers, were already closing down as commodity prices rose and margins narrowed. The European and US recession will expedite this process. Increased friction from the US is expected on trade issues. An unknown Barack Obama and a Democratic-controlled Congress (with protectionist leanings) only increase the uncertainty.

The steel industry, a bastion of Chinese heavy industry and an underwriter of many other segments of the economy, is facing a significant contraction. The stock market has already crashed. The real estate market, another staple of Chinese middle-class investment and a field in which many of China’s SOEs have significant investments, is flagging.

In sum, the Chinese leaders are running as fast as they can simply to stand still. Social stability will continue to take precedence in Beijing. This means that, despite the stimulus package, the focus will remain on growth, high employment export industry and limited reforms. The fear is being expressed in some quarters that the various areas of discontent will grow and lead to a serious social and political crisis. Environmental protests are regularly increasing. Laid-off workers, frequently dismissed without pay, are beginning to protest. The deep economic divisions between China’s wealthy coastal areas and its interior, is a constant concern as a source of social unrest.

Implementing economic reform in a bad international economic climate is unwelcome. The government’s preference would be to build up the cash reserves so as to deal with the social dislocation caused by economic restructuring. Beijing will have to take into its calculations that the US and European economies will not recover for one to two years at least.

Xi Jinping

What impact does the serious economic deterioration have on reform discussions within the CCP? Xi Jinping’s speech at the Central Party School on 1 September – two weeks before the Lehmann Brothers collapse – is well worth studying. According to Chinese observers, he believes that a strong central collective leadership must be formed in practice, and the authority of the central authorities must be resolutely safeguarded to ensure the correctness and effective implementation of the Party’s decision-making.

The 17th National Party Congress effectively confirmed the governance pattern between the ‘princeling’ and Youth League factions. The development of China’s politics in future will depend largely on how this pattern evolves. This has already degenerated into a power struggle in which cliques form to pursue selfish interests.

Xi Jinping would appear to believe that the possibility of the princeling faction destroying itself is not great. It does seem from the outside more likely that both sides will keep on playing the game of avoiding trouble and leaving problems to future generations.

An interesting issue is thus whether the governance of the princeling and Youth League factions can possibly provide an opportunity for these new political mechanisms. The latter must not only promote the effective control of officials by public opinion and cut the excessive expansion of bureaucratic interests, but should also be able to reach a constructive balance between rich and poor, between winners and losers in the market. This constitutes a double challenge to the rule of the princeling and Youth League factions: first, whether they have the ability to overcome huge bureaucratic interests; second, whether they have the political wisdom to form a pattern of competition for power, able to lead China into a two party politics ( ( balancing the interests of the poor and the rich, or whether (and perhaps more likely), multi-faction politics.

Superficially, at least, this competition provides space for imagining such a possibility. The reality is that there’s little possibility of this occurring in China. More troublesome is that, in representing the poor, the Youth League faction lacks the support of popular opinion, and as representatives of the rich,the princeling faction is detested by many.

Political progress without violence in China is, of course, possible. Xi Jinping’s stress on safeguarding the authority of the central authorities shows that he feels the competitive pressure coming from local bigwigs. The real hope for China’s political development in the post-Olympic era thus lies in the Party leadership.

There is a search for the middle way, reforming the system without confronting the régime. This means more rights but not necessarily more elections. Opposed are, inevitably, the vested interests. For, as Machiavelli said, the reformer has enemies in all those who profit by the old order.”

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Comments

  1. At the time of financial crises we need to come together united and try to solve the problems which are responsible for such a hazard. We need to overcome it. It is meant to bring calm to the population and markets and display government strength and stability.

  2. Hi

    Some how I am agree with Stanley Crossick as India’s economic conditions is not much differ from China. As both are growing economy but to maintain that growth rate in current demotivated economic environment is difficult as well.
    As we know the major victim of the financial crisis is western country (USA) affects directly the developing country economy, due to their export and outsourced business. As red tapism and political instability always prevail which affects the right decision at right time.China and India are more growing country than any other countries in the world, So we can continue our growth sagra by maintaining our growth rate to 7-8% annually and be self dependent in all field.

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