China’s balancing act

China’s crackdown on dissidents has intensified in recent weeks, a development that is starting to get some traction in the mainstream US media. In this weekend’s New York Times:

BEIJING — Teng Biao is no stranger to the wrath of the Chinese authorities.

One of a handful of lawyers in China pressing for human rights and the rule of law, he has been repeatedly detained, beaten and threatened with death.

But this latest spell of detention — he has been held by Beijing security officers for three weeks, with no word from him or his captors — has struck a new chord of anxiety in his wife and friends… Mr. Teng is one of many prominent rights defenders and advocates who have disappeared and are being detained, some with no legal authority, in what critics say is one of the harshest crackdowns in many years. The detainees’ relatives and supporters say previous periods of confinement did not last this long and in such total silence.

The crackdown is part of a broader push to enforce social stability that has grown more intense in the past three weeks. This is an especially uneasy time in China, with anonymous calls for a “Jasmine Revolution” similar to the uprisings in the Middle East popping up on some Chinese-language Web sites. That has coincided with the annual meetings of the National People’s Congress and a consultative legislature in Beijing. Security officers have also clamped down on foreign journalists in the strictest such action in recent memory.

The rising social tensions in China have important implications for economic policy, as I argued on this blog a few weeks ago:

No doubt Beijing will do whatever is necessary to stamp out any protests and ensure political and social stability.

But with Hu and Wen in their final year of office before China’s leadership transition in 2012, they face a very difficult balancing act. Rising inflation is leading to increasing social tensions in China, exacerbating another simmering source of discontent: rising income inequality between rural areas and the big cities.

Beijing has already increased the pace of rate hikes in 2011. Facing a potential political time bomb if food inflation gets further out of hand, will they opt to increase the pace of tightening even further to ward off social unrest? And if they do so, what is the risk of overdoing it and plunging the economy into a sharp slowdown that could forment more of the very type of dissent that they are trying to ward off in the first place?

China simply cannot afford a sharp slowdown in growth at a time when cries for political freedom and an end to one-party rule across the Middle East are giving their own dissidents ideas for a home-style “Jasmine revolution.”

And indeed, all the indications are that the Chinese leadership is feeling the heat. At last week’s National People’s Congress, speakers from Premier Wen Jiabao on down have reportedly been emphasizing issues like soaring house prices, rising inflation, environmental issues and stagnant wages.

One of the biggest problems for China is that the benefits of its growth are not being distributed equally. The extent of regional inequality in China can be seen in this striking graphic from The Economist:

Along similar lines to the arguments above, Francis Fukuyama has an interesting essay in the weekend edition of the Wall Street Journal. I’ve taken some of the highlights below, but the full article is worth a read:

Over the course of three short months, popular uprisings have toppled regimes in Tunisia and Egypt, sparked a civil war in Libya and created unrest in other parts of the Middle East.

They also have raised a question in many people’s minds: Are all authoritarian regimes now threatened by this new democratic wave? In particular, is China, a rising superpower, vulnerable to these forces?

The Communist government in Beijing is clearly worried. It has limited news coverage of the recent uprisings and has clamped down on democratic activists and foreign reporters, acting pre-emptively against anonymous calls on the Internet for China to have its own “Jasmine Revolution.”

A recent front-page editorial in the Beijing Daily, an organ of the city’s party committee, declared that most people in the Middle East were unhappy with the protests in their countries, which were a “self-delusional ruckus” orchestrated by a small minority. For his part, President Hu Jintao has urged the strengthening of what has been dubbed the “Great Firewall”—the sophisticated apparatus of censorship and surveillance that the regime uses to control access to the Internet… It is certainly true that the dry tinder of social discontent is just as present in China as in the Middle East.

The incident that triggered the Tunisian uprising was the self-immolation of Mohamed Bouazizi, who had his vegetable cart repeatedly confiscated by the authorities and who was slapped and insulted by the police when he went to complain. This issue dogs all regimes that have neither the rule of law nor public accountability: The authorities routinely fail to respect the dignity of ordinary citizens and run roughshod over their rights. There is no culture in which this sort of behavior is not strongly resented.

This is a huge problem throughout China. A recent report from Jiao Tong University found that there were 72 “major” incidents of social unrest in China in 2010, up 20% over the previous year. Most outside observers would argue that this understates the real number of cases by perhaps a couple of orders of magnitude. Such incidents are hard to count because they often occur in rural areas where reporting is strictly controlled by the Chinese authorities. The most typical case of outraged dignity in contemporary China is a local government that works in collusion with a private developer to take away the land of peasants or poor workers to make way for a glittery new project, or a company that dumps pollutants into a town’s water supply and gets away with it because the local party boss stands to profit personally.

Though corruption in China does not reach the predatory levels of certain African or Middle Eastern countries, it is nonetheless pervasive. People see and resent the privileged lives of the nation’s elite and their children. There is, moreover, a huge and growing problem of inequality in China. The gains from China’s remarkable growth have gone disproportionately to the country’s coastal regions, leaving many rural areas far behind. China’s Gini index—a standard measure of income inequality across a society—has increased to almost Latin American levels over the past generation. By comparison, Egypt and Tunisia have a much more equal income distribution.

Fukuyama goes on to note that there are some important differences between China and the countries above, but that this doesn’t rule out trouble further down the road:

In China, the People’s Liberation Army is a huge and increasingly autonomous organization with strong economic interests that give it a stake in the status quo. As in the Tiananmen uprising in 1989, it has plenty of loyal units around the country that it could bring into Beijing or Shanghai, and they would not hesitate to fire on demonstrators. The PLA also regards itself as the custodian of Chinese nationalism. It has developed an alternative narrative of 20th-century history that places itself at the center of events like the defeat of Japan in the Pacific war and the rise of a modern China. It is very unlikely that the PLA would switch sides and support a democratic uprising.

The bottom line is that China will not catch the Middle Eastern contagion anytime soon.

But it could easily face problems down the road. China has not experienced a major recession or economic setback since it set out on its course of economic reform in 1978. If the country’s current property bubble bursts and tens of millions of people are thrown out of work, the government’s legitimacy, which rests on its management of the economy, would be seriously undermined.

The central moral imponderable with regard to China is the middle class, which up to now has seemed content to trade political freedom for rising incomes and stability. But at some point this trade-off is likely to fail; the regime will find itself unable to deliver the goods, or the insult to the dignity of the Chinese people will become too great to tolerate. We shouldn’t pretend that we can predict when this tipping point will occur, but its eventual arrival … is bound up with the very logic of modernization itself.

As Fukuyama argues, it’s very unlikely we’re going to see China fall into political chaos anytime soon.

But the fact remains that the only source of legitimacy for China’s Communist Party today is its ability to maintain high levels of economic growth. Some serious cracks are appearing in China’s model. Which means it’s very dangerous to assume (as many policymakers in Australia and elsewhere seem to) that China’s current pattern of growth is sustainable, or that it is consistent with long-term political stability.

China has a 5,000 year history that includes long periods of stability punctuated by political revolutions and violent protest. In the big sweep of history, we shouldn’t be at all surprised if the Jasmine revolution eventually arrives.