Platt Perspective on Business and Technology

China and its transition imperatives 44: thinking through Xi Jinping’s current realities in a larger context 2

Posted in macroeconomics by Timothy Platt on April 15, 2017

This is my 52nd installment, counting supplemental additions, to this ongoing and even open-ended series on China. Basically, what I am doing here is to trace how China has changed under the rule of Xi Jinping, with this series narrative starting approximately one year after he first took leadership of their Politburo Standing Committee, and through that of their entire Communist Party of China and of China as a whole (see Part 1, as written to first go live on this blog on February 8, 2014.)

I focused in Part 43 of this, on economic challenges that China and their government and their one allowed political party face. And as one key element of that, I offered a recalculation upward of the level and pace of the flow of personal wealth out of their country, and by essentially anyone and everyone with anything in the way of significant wealth to hold or move. And as part of that analysis, I also made explicit note of the level of wealth inequality in China and how that disparity has only increased in recent years.

These factors and the potential that they create for public unrest constitute a vast source of risk and uncertainty, and of potential crisis that government and Party in China have long sought to forestall. It is just that now, the potential risks faced have reached immense proportions, and their responses have too.

Controlling the conversation in China by controlling and limiting, or at least by attempting to control and limit what China’s citizenry can know is a piece to that self-protective response that has been in place for a long time now, and certainly for government initiatives such as their Golden Shield Project, or the Great Firewall of China as it is also called. But that is only one element of what they have been doing.

China as a matter of at least public policy, has also sought to discourage and where possible block the flow of privately held wealth out of their local economy and their country too. And they have sought to present their government and Party as being supportive of their people. But they have found themselves in basic conflict with themselves and with the wealthy and powerfully politically placed when doing so, and for these measures and for others also undertaken.

• Consider their Great Firewall: this is a massive undertaking that employs more than a quarter of a million people who screen and report on foreign online content for possible allowance through, or blockage. Most of these screeners are young tech-savvy adults who are at an age when they might be loyal to Party and government but when they might be more open to new ideas and to new sources of influence too. They see themselves as having future prospects without having already invested their futures in their country’s or its Communist Party’s current status quo. And here they are, being pointed at outside online content that in many cases differs from the allowed and supported, received wisdom of their Communist Party and its one officially true Party line. So the very tool that China’s government and Party use to protect themselves from possible outside New, and from information and perspectives that could potentially lead to public dissent is also one of their greatest threats faced, as it creates risk of radicalizing the very same people who would be in among the strongest positions to become threats to their status quo.
• As for wealth flight: many of the worst offenders there for the volume of wealth leaving China are in fact drawn from among the most powerfully placed members of their government and Party hierarchy and power structure. Some of them have individually moved the equivalent of billions of US dollars worth of personal wealth out of China and into more fiscally stable and secure safe haven economies – and with a great deal of that in fact going to the United States.
• And as for presenting an image of public support for China’s proletariat: its workers and peasants: Xi Jinping and others from his inner circle do actively seek to present themselves as being men of the people. And this follows an already familiar pattern that goes back to the founding of the People’s Republic of China and to Mao Zedong himself. But the same smart phone and tablets and laptops and personal computers and the same all but ubiquitous connectivity that has become available in China, that is seen as essential if that country is to remain competitive globally, means that news and opinion that the government and Party would not want known, can and does travel fast, including scandal coming from their crown princes and powerfully placed. Politically embarrassing online content might be taken down from public view fast, and certainly on a posting by posting, shared video by shared video, and story by story basis. But people in China know to share and view quickly while online videos and other short-lived content are still available, and before their Great Firewall censors can take it down. And many Chinese have come to take the more comforting, public-friendly Party line with a large grain of salt, while at least tacitly assuming that the “real” news is being blocked from view.

I have at least touched upon all of these issues for years now in this blog. So I only bring them up again here in order to put another such two edged sword challenge that China faces into clearer perspective. And that issue is China’s actively pursued plan for moving vast numbers of their overall citizenry into their cities and into urban settings and out of the countryside.

This means displacing literally hundreds of millions of people from their traditional communities and ways of life and into tightly packed high-rise building communities that are not of their choosing. And that creates vast opportunity for the generation of widespread angst, alienation and anomie and across equally large swaths of their overall population as well. So why are China’s leaders doing this, and particularly when larger in China for population centers and for population density, inevitably seems to correlate positively with greater levels of palpably visible and unavoidable air pollution and with the corresponding degradation of quality of life that reduced environmental quality brings? Why are they doing this when this massive move is certain to create tension and at least low-level ongoing resentment and unrest and an erosion of public trust?

The bottom line answers to that are all fundamentally economic in nature and they all relate to China’s centrally designed and centrally run attempts to maintain stability and order in their nation.

• Displaced and relocated people do not have the same types of stable local support systems that they had in their traditional communities and in the communities that they were born into. This certainly holds when they individually find themselves living among strangers, but it also largely applies when entire small communities are moved en mass into larger urban settings where they are surrounded by seas of strangers too, and particularly where they have to learn new ways and live and work in different ways too. That creates tension that could lead to unrest but it also creates uncertainty and even fear of speaking out too.
• But this is only part of the underlying rationale at work here. Taking people off of the land this way can effectively end small holding farming with its inefficiencies. And that holds potential for reorganizing arable land into large and even vast holdings that can be farmed on a more industrial scale and with automation where that would create greater efficiencies for their feeding their people and cost-effectively.
• At the same time this disempowers all of the local Party and government bureaucracies of those communities and all of the sources of friction that they have maintained as they have maintained their own personal power prerogatives.
• Turning back to those new and burgeoning urban centers again, this mass migration and the concentration of population that it creates, makes it easier to offer centralized social services including support services for the elderly and particularly for those who do not have sons. Traditionally, it should be noted, sons have supported their aging parents in China, and have shared this burden amongst themselves within individual families in accordance with pre-Communist, Confucian principles. And there have never been government or Party supported social safety net systems in place to carry this burden if needed for those elderly who do not have their own family support systems to turn to. But as China’ age distribution-skewed population ages, with more and more elderly having no family to care for them in the traditional family-based support system manner that China has always assumed, offering government and Party-based support is going to become vitally important if China is to avoid unrest there. Now a growing number of elderly have no son to take on this responsibility and China and its leadership is looking for new solutions that it can afford and that it can ideologically support. This bullet point specifically addressed a core element to a solution that is emerging in China as their government and Party face the emerging unintended consequences challenge that their failed One-Child Policy has created for them, so I include this here as an example of a self-inflicted challenge and a big one.
• That example has both sociopolitical and economic ramifications. But some of the most pressing reasons faced that would compel this population relocation, at least when viewed from China’s central planning perspective, are essentially entirely economic in nature. And one of them that is particularly important now is in how that change can help China to remain competitive in the global marketplace and with lower priced products offered to the world and with lower personnel and related costs helping to make that possible.
• Bringing everyone and everything that would go into global market facing business together in single places means shorter and faster and more efficient supply chain and other systems. But it also means that for every person who would secure any particular job in this economy, there are many more living in the immediate area that they do, who would compete for it too. This makes the job market a buyer’s market for employers, and both for government owned and controlled enterprises and for more privately held ones as well. And this, coupled with looser regulatory control as to employee rights, means much lower pressure to offer larger compensation packages and higher pay. Salaries remain low and manufacturers can afford to offer what they produce at lower price points and still remain profitable from that. Of course this is all being carried out in a context of already significant and rapidly growing wealth inequality in China and when much of this profitability is being moved out of China and out of their economy, where it is most needed if it is to contribute to their overall national stability and security. But that is just a small part of the list of two edged sword trade-offs that China’s government and Party face.

What happens when half or more of China’s peoples live in a relatively small number of vast tightly packed urban settings? Let me offer a nightmare possibility that cannot be ignored in any risk management planning and certainly if public health is in any way taken into account. What would happen to China and its one Party-based system if its increasingly tightly packed and increasingly urbanized population were to confront an event such as the 1918 flu pandemic? Remember, most new flu strains in fact arise in and around China and from within China in particular. That is the country that any new flu strain of such virulence would most likely arise in. And the masks that many Chinese wear for protection from the air pollution they face, does not block that and cannot reliably stop the spread of readily contagious viral infections either.

I have written in recent postings of how the new United States president Trump creates challenges for China and their leadership, and that is a legitimate topic for consideration and discussion, as are issues related to China’s neighbors in and flanking the East and South China Seas. And no one should forget to add North Korea to any list of outside issues that impact upon China. But it is vitally important to remember that many and even most of the issues and challenges that China faces either arise essentially entirely within their own country, or at the very least build from decisions made and actions taken there – and from within too.

I initially approached this posting and the prospect of writing it with a somewhat different list of issues and puzzle pieces to address, but decided to re-center this series discussion of China, more explicitly on China itself. All of the issues that I raise here and all that I mention and even just in passing, stem for their instabilities and risk potentials on the flaws and inconsistencies inherent in their Communist system with its essentially built-in inefficiencies and corruption. So I offer this, as a reminder by way of at least briefly sketched example, of what Xi Jinping starts from and has to build from as he seeks to become China’s new Mao Zedong and its next absolute ruler.

I am going to continue this series and its narrative in a next installment that at least as of this writing, will probably go live to this blog in approximately one month. Meanwhile, you can find this entire series and all of its postings at Macroeconomics and Business as postings 154 and loosely following for Parts 1-12 and for a supplemental posting: Part 12.5. And see Page 2 to that directory for subsequent main sequence and supplemental installments to this. You can also find other, China-related postings and series at those directory pages, and at Ubiquitous Computing and Communications – everywhere all the time too. (And as a time stamp, I wrote this as a single draft on April 14, 2017.)

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