Where are the Chinese reforms going?

Harmony' Poster by Christian Strang | Displate in 2021 | Chinese calligraphy, Harmony art, Chinese symbol tattoosLet us look at the extraordinary non-covid changes now happening in China. The country has been reforming rapidly the last 20 months and I want to muse about the trajectory these reforms are setting China upon. Many commentators see in them the start of another Cultural Revolution in China that will end up with millions dead and huge disruption. The upshot of my post is that I don’t see that happening quite yet, but I do see a further power-concentration that is not sustainable.

Let us first list the quite amazing non-covid policy changes that have happened the last 20 months, using no more than what is debated within the state news.

  1. School children are now given lessons in Xi Jinping thought. So the leader of the China, the first one since Mao that is leader-for-life, now has his ideas about the country codified in school curricula taught to the nation’s young children.
  2. There is a social points system in which those who engage in behaviour thought badly by the authorities (which includes saying the wrong things) are restricted in their movements and job opportunities, with even their children’s opportunities reduced. This is being enforced via the most advanced system of surveillance, AI, facial recognition, and data-bundling ever constructed. Big Brother has an office in Beijing.
  3. The government has cracked down on the emerging super-rich and the most powerful home-grown tech companies. This has included forcing top-executives to hand over billions in tax arrears, the break-up of some of the biggest companies, and the regulation of the entire tech sector, effectively making them subservient to the Chinese government. They reportedly locked up Jack Ma, who runs the huge Alibaba firm (rival to Amazon), for month and got him to neuter his own company and cough up billions.
  4. They have encouraged the emergence of unions within large companies that effectively bargain for more training, higher incomes, and more labour rights, particularly for the least well paid.
  5. They have put in a huge drive against the most visible forms of showing off wealth. This includes the tax-evasion of media celebrities, open speculation in the housing market, over-investment in private education for children, regulation against too-expensive medical equipment catering for the super-rich, regulation against over-medication, and a health investment drive towards diseases had by the poor.
  6. A drive towards a positive Chinese self-image wherein wealthy families donate to the poor. So a kind of early Victorian ‘noblesse oblige’ ethos for the rich to emulate. This has included a crackdown on ‘anti-Chinese identity politics’ and an ethos of ‘common prosperity’ wherein the rich get praised for their works for the poor.
  7. [I find this one the most interesting one] A move against the distraction-based business model of the internet, with a decree that children under 18 can only play online games for less than three hours a week.

These moves are truly extraordinary in how much they impinge on social and private life in China. They include directions I am very much in favour of, such as bringing Big Tech into line, celebrating a ‘noblesse oblige’ ethos among the rich, an empowered labour movement that champions the poorest, and moving against the excesses of internet distraction and of conspicuous consumption. Yet, it also includes methods that go towards a degree of top-down social control that asks the impossible of people (total monitoring of one’s every move) and hence will make the social system dysfunctional and pre-revolutionary. And there are signs that the youth is being indoctrinated towards a personality cult that involves a radical departure from the past 35 years, wherein China saw the celebration of individual economic success.

It is hard to know what to make of this as my sources on what is happening socially in China are limited. One needs a network of ‘normal’ Chinese to get any realistic feel, even if only how to read certain official statistics. With my limited (but not zero) supply of those, uncertainty is high.

In stead of making actual predictions, let me thus simply say what pieces of data support or contradict two alternative readings of the trajectory.

The narrative of ‘a new Cultural Revolution’.

As I have explained at troppo before, the Cultural Revolution of 1966-1976 should mainly be understood as Mao trying to isolate and destroy his enemies inside the Communist Party by inciting revolutionary zeal among the youth against his ‘bourgeois’ opponents. The destruction of the relics of ancient China that the war on the bourgeois entailed was simply collateral damage in that political fight. The same held for the loss of an entire generation of urban intellectuals sent to the countryside because their parents were supposedly bourgeois party members. The inner logic of the actual ideology was that it wedged Mao’s particular opponents (urban sophisticates). This is how politics plays out in China, with the zeal of the youth as a mere instrument of state.

What data have we got to indicate we might be at the eve of another such internal bloodbath? Well, Xi Jinping now of course has been leader for well over a decade; he has apparently had 1.5 million party members punished for ‘corruption’ (which is just a purge of opponents by another name); he is allowing a personality cult to develop (just as with Mao); his censors have become increasingly strict on anything remotely critical of the party line (just as with Mao); dissent coming from Hong Kong was repressed; control of the media was strengthened further to stifle any opposing voice; critical artists (like Weiwei) were exiled (I saw an exhibition of him in Portugal this year); there was a crackdown on independent powers (the rich); increasingly aggressive rhetoric against foreigners; and the tentative beginnings of fanatical teaching among the youth.

An impressive list of signs that point to serious internal strife, no?

There is another, less well-known sign that comes from Australia. A big sign that life is actually quite unpleasant for many of the Chinese upper-middle classes is that despite the fact that their kids are not allowed to travel to Australia, the number enrolled in Australian universities via online learning (they enroll in the GO8s, not the regional unis) is higher than previously was enrolled physically, whilst fees are just as ridiculously high. That tells me upper-middle class parents in China are even more desperate than before that their kids should escape China. It tells us life is increasingly unpleasant for a large group there.

What data goes against the narrative that internal strife is coming soon? For one, many of the reforms should reduce tensions rather than increase them because they reduce inequality and improve life for the poorest, unlike the changes in the Cultural Revolution which amounted to a dramatic impoverishment. Secondly, Xi Jinping is nowhere near as unpredictable as Mao was: Xi is far calmer and also seems to be more loyal towards those in his inner circle, meaning that he has less need to mobilise the population against his enemies close by. Third, the reforms are nowhere near as sudden as Mao’s were: the changes, such as the social points system, were trialed in provinces before slowly extended over the whole country. Ditto for the moves on the tech giants, the financial industry, and health: reforms in how they are handled are more incremental and thus less designed towards polarisation than towards letting people get used to new things. So the authorities are trying to take the roughest edges off their reforms. Fourth, the trajectory of the economy and the whole education system is still towards massive expansion so the population is still getting better educated, healthier, and wealthier. Hence there is less reason for great discontent.

These are all pretty high-power reasons to doubt revolution of any kind will soon break out in China. A large and fairly rich section of Chinese society might be unhappy, but one has to doubt that there is high pressure throughout society. Indeed, it is fairly simple to see how some tensions can be solved amicably. Take an out-the-box possible consequence of the reforms, which is that social credits might hamper family formation as young people become afraid of taking any risks in their courtship. There is something obvious the Chinese government can do against that, which is to give out social credit points for people who are having more children or who are looking after children. So one problem (lack of kids) can be solved by another problem (social credit scores). There are many other tweaks one can imagine to take the sting out of most of the items on the list of troubles.

Note in all this that what foreign countries do is irrelevant. I have deliberately not included things like tensions over Taiwan and trade wars. What ‘we’ do is just not that important in Chinese politics. I discussed the likely international dynamics in an earlier post.

The narrative of a socialist paradise

How about the main alternative story then, which is that China is building the true socialist paradise where ‘new humans’ that are perennial do-gooders are being raised? A paradise that requires reforming the economy from one serving the super-rich to one in which production is high but oriented towards a high level of welfare for all. A paradise in which everyone lives harmoniously in a manner they should, with no conflicts or unnecessary arguments.

What speaks in favour of this story is that this is pretty much the official rhetoric. Inequality is being confronted; economic power within firms is being redistributed towards the bottom; the visual benefits of riches are being curtailed; a kind of ‘puritan behaviour with Chinese characteristics’ is being propagated and increasingly followed; a control system is built to measure and ensure compliance; and there is the fact that this kind of vision fits the Chinese very well. The latter is perhaps the strongest thing this story has going for it: it is in the nature of Chinese collectivism to see a perfectly harmonious society as the thing to strive for. The vision is of a well-behaved child-like citizens, with benevolent leaders that are like stern parents overseeing that populations lead the good life. This is also the vision the emperors propagated, elevating social harmony to the highest good. Hence this kind of vision can naturally count on a huge deal of goodwill from within the Chinese population, particularly the bottom half. Xi Jinping doesn’t have to push much to get such a view enthousiastically endorsed.

What goes against this vision however? The main problem is that they have tried this ‘total harmonious society’ story many times already in their history, failing spectacularly every time, most clearly at the end of their last communist experiment. Umpteenth time lucky? The thinking Chinese person has to have doubts. Indeed, I think the top of the Party itself does not believe they can do it and so must somehow retain the inherent disruption that comes from ‘dynamic markets’ whilst being harmonious otherwise. They have not yet forgotten Deng Xiaoping’s lessons.

Why has the quest for perfect harmony always failed and what might hence be the problem now? The essential answer is that power corrupts, even in China. It is not any particular type of human that gets corrupted, but all of them, so there is no psychological selection possible against this. The elites in China, whether they are new or old, smart or dumb, selected or random, will thus start scheming, cajoling, making up data, pushing their favourites, grabbing resources, etc. Its what happened all the other times.

One may not hear of it at the moment, but rest assured that the top of the Chinese system right now will be a cesspool of intrigue, disinformation, abuse of power, etc. There will be plots and counterplots, mini-coups, sabotage, and probably a few assassinations too. This is simply how it goes in a system that concentrates so much of the power at the top: by concentrating the power, one also concentrates much of the hunger for power and its corrupting effects. So the top of China will be engaged in a kind of slow-burning civil war, for it has no natural separation of powers or elite-refreshing in its system to relieve the inherent tensions of the struggle for power in another way. That is why Mao had to destabilise his own country twice to stay in power (in the Cultural Revolution, but also 10 years earlier in the Great Leap Forward).

This is also what happened in the Imperial periods, time and time again in China: eunuchs, concubines, mandarins, emperors, etc., were forever falling apart in their schemes against each others, whilst invariably maintaining an impossibly pure façade towards the population. The results were very costly collapses, involving civil wars and the break-up of China (China has been non-unified much longer than it was unified. What killed unification every time IMO was the over-concentration of power).

So the big problem with the vision of harmony is that power corrupts and the only thing one can do about it is to set up the systems of power in perennial competition with each other, which is explicitly non-harmonious. The West hit upon that trick about 250 years ago, but China failed in the 20th century to copy that trick within its political institutions, in stead going once again into the collectivist social-harmony cul-de-sac.

Yet, I think the Chinese leaders know this and thus know they should not kill the main form of independent power-creation that China now has, which is private enterprise. They know they should find some kind of accommodation with the richest and most dynamic members of society, allowing them to get rich and powerful, but not too powerful. The tricky bit in that balancing act is the dynamics within the political system, which are towards total political control and thus against the existence of a vibrant powerful private enterprise community. I suspect the leadership is keenly aware of the issue and is trying to plot a way out of this central problem of Chinese history.

My answer to the question of where the Chinese reforms are going is thus ‘I don’t know’. All I am willing to say with confidence is that it is not going where the Chinese top openly says its going. They are promising a vision of perfect harmony that failed China many times before, meaning they don’t know the path they are truly on. Still, a new Cultural Revolution doesn’t look all that imminent either, so we’ll just have to see what else it is going to look like.

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12 Responses to Where are the Chinese reforms going?

  1. Nicholas Gruen says:

    Fantastic post Paul

    Though that may just reflect my capacious ignorance of the subject. I had no idea of the various ‘social democratic’ elements of China’s recent departures.

    I remember travelling to what was still called Canton (now Guǎngzhōu) well before the opening up — or at least well before it had had much impact. I stayed in a grey, concrete hotel with lousy service and the two things that seemed first on their ‘reform agenda’ were that Coca Cola was let into the country and the White Swan luxury hotel either had been built or was on the way.

    I remember thinking then that while I didn’t begrudge the Chinese a luxury hotel and Coke, what a sad reflection it was that these things were the first in line to come in at a time when there remained a lot of anxiety in China about what would be let in and what wouldn’t. No GE engineering or IBM equipment. Just a luxury hotel and Coke.

    Nice to see the idea of social democratic ideas making their appearance. Of course I agree with you that power corrupts and that the power the Chinese state is accruing to itself will be misused. But here’s hoping that these social democratic moves diffuse power and that that may have worthwhile politically balancing effects. But it’s just a hope.

    • paul frijters says:

      thanks Nick. Yes, the power of Western advertising is felt best in such encounters in other parts. The Soviets were queuing up for McDonald’s for hours when it opened.

      “I had no idea of the various ‘social democratic’ elements of China’s recent departures. ”

      Indeed, it is quite amazing what they are trying to do. If Australia, the EU or the US were doing 3-6 of the list above, I’d be dancing in the streets. Why don’t we copy those policies!?

      • Nicholas Gruen says:

        I’m good on 7 too — though of course it needs to be experimental and run through institutions that one can reasonably hope are seeking to improve collective wellbeing, rather than their own power or pet ideologies.

        • Nicholas Gruen says:

          I should have added that the governance of this at present in the West is simply whatever makes most money — not the best way to run cultural infrastructure, most particularly for kids.

      • ianl says:

        Why don’t we copy those policies!?

        Apart from this – pf answered his own rhetoric, it’s the corruption of powerlust of course (including his) – this is a reasonable and accurate essay. I spent over a decade consulting across the Chinese mining industry in both actual operations and provincial governments. The density of political infighting near and at the top was astonishing, yet the entepreneurial drive within that population just kept on resurfacing. Much to my (controlled) delight.

        In the end, I voluntarily finished these associations as Xi’s drive for power started to hamper my Chinese colleagues from being open about various critical technical aspects. They became fearful of spiteful accusations (a sort of wokeness, Chinese style), reducing the effectiveness of the various projects.

        Still, it was a fascinating decade. I learnt more than I could give, I think.

        • paul frijters says:

          thanks Ian. Its a pity we dont get more people with personal business experience in China to inform the rest of us about what kind of culture it is.

          And yes, I am not immune to the call of power. I am no saint.

  2. conrad says:

    Thanks Paul — that was a great post which I largely agree with. My guess is that a lot of the more positive reforms (including trying to get house prices down — which the current crises with Evergrande might well help) — is that they have worked out far too late that life is so brutally hard in China that people don’t have many children anymore (especially the middle class ones which they would like to) and, as you note, lots of people want to leave. There is also no real migration to China of skilled or younger people and it is hard to see this changing meaningfully in numbers large enough that it would make any difference. So they are going to be left with an aging and unhealthy population. Many of the reforms I suspect are done in part for this reason (less working hours, better conditions for poorer people etc.) and obviously taking a few high flying cases, including some that were minding their own business much more than Jack Ma was, probably seems like a good way to kill the chicken to scare the monkey. If I owned a tech company trying to get 70 hours a week work out of every employee, I’d be worried too.

  3. derrida derider says:

    While I agree this is a great post overall, I find it a bit hard to see how Xi’s neo-Cultural Revolution is underlain by Confucian values of harmony. Indeed, I’m old enough to recall the the original cultural revolution was very explicitly a struggle against Confucian tropes, to the point of denunciation of Kongzi by name. “Permanent revolution”, “struggle against reactionaries in the party” and all that. Of course if Xi is in fact aiming at the end of history then there goes the last remnant of any Marxism (of which there is a good deal in your post).

    Me, I think Xi is simply repeating Mao’s playbook – more carefully and methodically this time, as befits a more methodical personality. With some tactics borrowed from Putin (publicly punish a few random biznizmen to remind the rest who’s boss, so they stick to making money and stop flaunting it in front of the peasants).
    It’s already about personal power.

  4. Saupreiss says:

    Very interesting post.

    Agree in particular about the interesting signal of Chinese parents continuing to enroll their kids in the G8 institutions. It’s indeed not just about education but the prospect of escaping that increasingly repressive country eventually (and getting Aussie citizenship, a subtext that was never really that hidden).

    I think what it is missing in your analysis is the implosion of Evergrande — not so grande after all, and surely not forever — and related heavily leveraged property companies. Evergrande just missed an important payment deadline and Eerie silence’ as Evergrande misses payment deadline and now enters 30-day grace period.

    The importance of these events seem to have been widely missed. The disruption potential seem tremendous and might force Xi and his gang of senior citizens to reconsider some of what they set out to do. I found this a good piece, give it a read:
    https://www.smh.com.au/business/the-economy/evergrande-s-near-collapse-marks-the-end-of-china-s-economic-miracle-20210923-p58u05.html?ref=rss&utm_medium=rss&utm_source=rss_business

    The next couple of weeks will be a major challenge for officials …

    • paul frijters says:

      Hi Andreas,

      it was you who convinced me of the flood of Chinese students enrolling in GO8 universities, so let it not be said I do not listen to you!

      It is not yet clear to me that Evergrande is important. Leveraging in China is way less than in the West. The implicit economic potential is still way higher than what has been used yet, with investments from state and private still huge. And the notion of ageing is vastly exaggerated in the Western press (including the links you posted to). So the Evergrande story seems a bit of a beat up to me, but we’ll see.

      • Saupreiss says:

        Well, happy to hear that!

        As to the leveraging of Chinese property colossuses, the article I linked to suggest strongly otherwise. But, yes, time will tell.

        • conrad says:

          These are somewhat biased articles. Most of the big real-estate developers in China were already deleveraging after being told to about a year ago (e.g., https://www.scmp.com/business/article/3146791/chinese-developers-focus-debt-reduction-until-2023-meet-three-red-lines for some data) and have been reasonably at doing so.

          I doubt Evergrande falling over (which seems inevitable) is going to install confidence but it is also worthwhile noting that it is not necessarily in the too big to Fail category, let alone the too big to Save category (as a comparison, Australia, with about 1/50th the population, spent about $300 billion on covid). I suspect the main effect it will have is reducing GDP, but it’s hard to see how that wouldn’t happen anyway with Xi’s ambition of falling house prices. This of course is potentially worse news for countries like Australia that don’t have very diversified economies because it will deflate some resource prices as has already been happening for iron ore even before this.

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