Strategies of Regime Legitimacy in China

How unequal application of Confucianism and Capitalism support one-party rule

A thesis submitted in partial fulfillment of the requirements of the degree of Master of Science in International Relations New York Universitys Center for Global Affairs Dr. Jens Rudbeck, Advisor By Rorry Daniels December 2011

Chinas Communist Party maintains one-party rule through economic, political and moral strategies designed to position the party-state as the sole guarantor of sustained economic growth and the authority defining proper morals. These policies have been unequally applied across the Chinese social strata to control state-society interactions and prevent alternative political centers from developing. However, these overlapping strategies of control are now at odds as China moves from a manufacturing economy to an entrepreneurial economy. This paper will explore how legitimacy strategies have been employed since the beginning of the reform and opening period, discuss tensions between the strategies and point out incompatible aspects of legitimating narratives that will affect China's economic development.

TABLE OF CONTENTS
INTRODUCTION......1 Chapter 1 Political Ideology and Pro-Growth Reforms ......................................................................... 8 Section 1.1Confucianismin CCP hegemony ............................................................................................... 8 Section 1.2 Structure of the party-state......................................................................................................19 Section 1.3 Decentralization and dual economies .....................................................................................26 Section 1.4 Corporatism in housing acquisition andthe hukou system ......................................................37 Chapter 2 - Correct Behavior in State-Society Interaction ....................................................................52 Section 2.1Peasant Protests and Incorrect Behavior ..................................................................................53 Section 2.2Middle class Attitudes Toward the CCP .................................................................................59 Section 2.3 Framing Incorrect Behavior for the Middle class ...................................................................66 Chapter 3 The Future of Economic Rebalancing .....................................................................................71 Section 3.1Confucianism and Work ..........................................................................................................71 Section 3.2 Confucianism and Consumption .............................................................................................74 Section 3.3 Confucianism and Innovation .................................................................................................77

CONCLUSION.......81

LIST OF ABBREVIATIONS

AMC.. Asset Management Company CCOM.. Central Committee of the Party CCP.Chinese Communist Party CPS..Central Party School EBRC..Employment and Business Residence Card IPO..Initial Public Offering IPR.. Intellectual Property Rights MOFMinistry of Finance NPL.Non-Performing Loan PBOC. Peoples Bank of China PSC. Politburo Standing Committee SEZ..Special Economic Zone SOE.State Owned Enterprise TRC.Talents Residence Card USCBC..U.S.-China Business Council VAT.Value Added Tax WTO..World Trade Organization

Introduction In the first decade of the twenty-first century, China has emerged as a major winner of globalization processes. Not only is the economy now the second largest in the world, and on track to become the largest within a decade or two, but is also the envy of elites around the world for its ability to push preferential policies on a vast scale without requiring consensus building among its citizenry. To outsiders, regime legitimacy in China is practically a non-issue: the assumption that Chinas rise is inevitable is predicated on the Chinese Communist Partys (CCP) unchallenged dominance of political power. However, a closer analysis of China's political economy reveals tension between the political, economic, and moral strategies employed by the CCP to maintain the status quo. The interaction of these strategies defines the strength China's regime legitimacy and identifies problems that must be resolved to smooth China's transition from a developing country to a developed global player. There are two primary legitimating narratives used by the CCP to hold and grow political power in China: first, the party-state is dependent on improvement of the peoples' living conditions, quantified through high GDP growth rates; second, the party-state uses Confucian philosophy to control social discourse. Politically, Confucianism justifies authoritarian control of the state by controlling interactions between state and society. Economically, high growth rates through capitalist practices are viewed as a symbol of the regime's success in modernizing China. Morally, Confucianism prescribes a set of 'correct' behaviors that prioritize harmony over unrest to mitigate societal imbalances caused by the

2 political and economic strategies. When combined, Confucianism and Capitalism have created a distinct ideology that allowed the CCP to maintain control over China after Communism was abandoned. Tension between China's political, economic and moral strategies of legitimacy arise both from inherent contradictions between Confucianism and capitalism, and from the CCP's unequal application of these strategies across different societal groups. Since the reform and opening period, the CCP has economically co-opted, or even engineered, the urban middle class. In this analysis, the middle class are generally urban residents with access to urban social services, economically supported by the government in state-owned enterprises or by policies that allow private firms to flourish, and generally 'winners' of China's economic reforms because higher growth rates translate into improved standards of living. By contrast, the lower class has been excluded from economic strategies of legitimation. Members of the lower class, in this analysis, are peasants, migrants to urban areas that cannot access urban social services, and the rural poor. These lower class citizens are 'losers' of economic legitimating strategies because they are currently excluded from realizing the benefits of high GDP growth. Confucianism is designed to minimize tension between the government and the two distinct working classes. By defining a set of correct behaviors to address tension between officials and citizens, Confucianism empowers officials to police their own behavior and discourages citizen complaints about the overall system of governance. Thus, requests from citizens for greater political participation can be dismissed by authorities as harmful to society (a moral judgment), while leaders themselves can be exempted from the values

3 system to which citizens are expected to adhere. Government and party officials, both elites and cadres, instead justify any moral transgression as necessary to support the economic strategy of high growth rates. Therefore, the moral strategy is applied stringently to citizens, and only loosely to those in positions of power. Both the mystification of capitalism (in the sense that wealth is divorced from labor), and the structure of Confucian hierarchy support an uneven application of moral standards by assigning the dual responsibilities of wealth creation and dispute resolution to the highest authorities. The combination of legitimating strategies affects the political status quo. The CCP's overwhelming political legitimating strategy is to position itself as the sole herald of both morals and economic growth. In other words, the CCP uses unequally applied economic and moral strategies to perpetuate its rule by discouraging or preventing alternatives to develop. However, China is currently at a crossroads, facing the law of diminishing returns--not only will economic strategies need to change to continue improving the peoples' overall standard of living, but moral legitimacy is beginning to crack under societal pressure to address systemic imbalances between classes of citizens and between state and society. Furthermore, moral strategies may prevent China from moving up the economic value chain from a dependence on FDI to a dependence on domestic consumption and innovation. To maintain the political status quo, the CCP will need to modify both the economic and the moral strategies that will support continued one-party rule. Doing so will confront both inherent and created tensions between Confucianism and capitalism that, if resolved, will support sustained CCP domination. Inherently, Confucianism is incompatible with an

4 entrepreneurial economy for three primary reasons: Confucianism disdains material possessions; Confucian learning emphasizes memorization over creativity; and Confucian business ethics support a range of non-merit based employment (such as nepotism) that can stymie long-term efficiency. If these inherent and created tensions cannot be resolved, China is likely to experience political change, though it is unclear what kind of form this change may take. Figure 1. Conceptualizing China's Legitimizing Strategies

Political
Authoritarianism

Lower Class

Officials

Moral
Confucianism Middle Class

Economic
Capitalism

5 Figure 1 lays out a visual representation of how and where legitimating strategies overlap. Each societal sub-groupofficials, middle class and lower classare positioned to reflect the strategies that have the greatest influence over their behavior in state-society interactions. Officials operate under an authoritarian/capitalist structure to promote economic advancement. The middle class participates in the CCP's capitalist gains but is constrained from further political action by Confucianism. The lower class tends to challenge authoritarianism due to the regime's heavy influence in their daily lives, is expected to behave in a Confucian manner, and is excluded from the gains of capitalism. When a Chinese person challenges the legitimacy of the state, they are generally not challenging the strategy itself, but their position within the strategy game: the lower class protests against authoritarian officials because they are excluded from gains of capitalism; the middle class choose to protest only when authoritarianism infringes on their health or safety; and officials reap the political and economic benefits of exemption from the moral underpinnings of Confucianism. True societal harmony can occur only when all three groups are in the middle section of the diagram, equally subject to and benefiting from political, moral and economic strategies. However, true harmony has never been achieved in society and there is no expectation that China will be the first to find this precarious balance. More likely, China will keep this basic structure but change the nature of the strategies. In other words, economic growth is likely to remain a legitimating narrative for the CCP, but the path to growth will encompass economic reforms that support consumption and innovation. Confucianism is equally likely to remain a legitimating narrative for the CCP, but must be adapted to modern

6 times in order to overcome the inherent tensions between Confucianism and capitalism. Authoritarianism depends on the successful adaption of these two strategies, defined by changes in China's economic policies and changes in China's public rhetoric. This paper will explore how this system came to be, as well as expose the tensions, created and inherent, in China's tripartite legitimation process. First, I will analyze major CCP theories and proclamations through the reform and opening period, showing how Confucianism is embedded in party-state rhetoric. Second, I will examine the authoritarian structure of the regime and hierarchy of decision-making. Third, I will outline economic policies of decentralization that contribute to dividing China's economies into a developed section and a still developing section. Next, I will examine policies of cooptation and exclusion that created distinctions between the lower and the middle class. After laying out the current system, I will examine the differences in protest movements and government responses between the lower and the middle classes. Finally, I will provide some evidence that Confucianism is likely incompatible with moving China to the next phase of capitalism, necessitating a change in either the economic or moral narrative. By consolidating a variety of information on Chinese governance, including political economy policies and responses, I hope to provide readers with a better understanding of how deeply Confucian culture is embedded in China's actions and reactions to events, internal and external. Additionally, I hope to outline some indicators of political change in China, and explore China's likely incentives and obstacles to reform. Placing China's political economy in a cultural context should open new areas of research and scholarly debate over

7 China's future, and by extension, the future of China's opposition with or appeal to the international community.

8 Chapter 1 Political Ideology and Pro-Growth Reforms 1.1 Confucian Ideology in Communist Party Proclamations Confucianism is a set of beliefs that lay out an ideal type of social interaction. This values system not only structures relations among members of society but also structures how the state and society should interact to produce an ideal form of governance. The core tenants of Confucianism include filial piety and elite benevolence, concepts that translate in practice to a hierarchical structure of governance and a set of correct behaviors for communicating and addressing citizen complaints. This system is designed to achieve social harmony, and has been used throughout Chinese history to legitimate dynastic control of society. Today, Confucianism is employed within the CCP to provide the government with a hierarchical structure that emphasizes political obedience and social harmony during a period of rapid economic changes that have provided more benefits to some citizens than others. Confucianism stresses harmony in social relationships through values assigned to the individual and through a set hierarchy of social interaction. Individual values are centered on ren, or a capacity of compassion or benevolence for fellow humans; yi, or a sense of moral rightness in the capacity to determine right behavior in social interactions; and li, the manifestation of ren and yi that represents the many etiquettes, norms and protocols in both personal and institutional lives.1 These values govern the moral person, or Junzi, who Confucius describes in Analects as possessing the following attributes (in addition to others): diligence in actions and duties, loves learning, loves others, broadminded and nonpartisan, observes rules of propriety, dignified but not proud, courageous, steadfast, self-

Ip 464

9 reflective, self-motivated, fair-minded, tolerant, compassionate, frugal, hardworking and tenacious.2 The ideal way to express and to judge ones moral attributes is to examine his or her social relationships, which comprise social bonds that are the sources of indebtedness and obligations that he or she should fulfill. Thus, Confucianism is a philosophy of moral duty to others; to live a Confucian life is to improve yourself and others through moral cultivation. In doing so, the society can achieve harmony, or the basic and overlapping goal of familial, organizational, communal, and political lives.3 Confucianism is guided by a positive view of human nature that stresses benevolence in elites and filial piety, or absolute respect for authority that structures the hierarchy of social relationships. Confucianism has five cardinal relationships, emperor-official, father-son, older brother-younger brother, husband-wife, and between friends.4 Notably, four of these relationships are asymmetrical, or involve power differentials that give one person authority over the other.5 The exception is between friends, and refers to the Chinese concept of guanxi or investment in social relationships, which is essentially a system of preferential treatment based on friendship rather than other qualities. In an ideal Confucian hierarchy, one must initiate and receive favors between friends in order to cement the social relationship that allows for harmony. In sum, Confucianism is a moral code that aspires to improve governance through strict conceptions of responsibility and duty that are underpinned by positive individual attributes.

2 3

For a full list, see Ip 465 Ip 466 4 Ibid. 5 Ibid.

10 The Tiananmen Square uprising marked a transition to Confucian values as a legitimating strategy for the state. The 1989 student-led demonstrations revealed the large scope of the states legitimacy crisis. Not only were citizens openly challenging the CCPs control of the state, factions within the party-state disagreed on what course of action to take in response to the protests. General Xu Qinxian, who is said to have refused to order his troops to fire on protestors, was fired and imprisoned for grave insubordination,6 while a compliant General was promoted and succeeded in using state violence to disrupt the protest organization. Following this seriously damaging legitimacy crisis, Deng Xiaoping restructured the CCP to consolidate power at the top of the system in a fused troika7 of leadership that requires one leader to simultaneously hold the positions of General Secretary of the Communist Party, President of China, and head of the Central Military Commission. Deng Xiaoping made this significant change with the expressed intention of warding off inner-CCP strife, eliminating constraints on executive decision making, and moving away from the worst aspects of the Mao era.8 The consolidation of state power under a single leader was a first step toward defining a new ideology for the CCPone that uses a revised form of Confucianism to legitimate the party-state, with the CCP leader taking the role of uncontested emperor. This type of opaque system is acceptable to the Chinese people because it follows a history of implied legitimacy given by the masses to benevolent elites. Just as it would be a mistake to assume that the official atheism of China produces a non-religious society, so would it be a mistake to assume that Chinas official one-party system produces a government entirely

6 7

Schell 123 Abrami et al. 8 Ibid.

11 unaccountable to its people. Both assumptions suffer from an ignorance of Chinas unique history. If religion is an organized philosophy of morality, then Chinas commitment to Confucianism, Buddhism and Daoism proves it a highly religious society; indeed, a visitor to China will see temples and rituals in every city or town that date back hundreds to thousands of years. The philosophy of governance evolved alongside the big three cultural philosophies mentioned above, starting in ancient China with the Mandate of Heaven theory. The Mandate of Heaven summarizes into an early form of social contract between the Emperor (the Son of Heaven) and his subjects, and states that the Emperor derives his power, or mandate, from heaven, but will lose that mandate should he fall out of Heavens favor. Losing Heavens favor was marked by a loss of legitimacy from the peasants, who failed to defend the emperor against rivals who sought to overthrow his dynasty. This constant threat of assessment by Heaven, as monitored by the peasantry, introduced morality into Chinese theories of governance. When the Zhou dynasty overthrew the Shang dynasty, the new rulers explained the regime change to the people by stating, Heaven does not favor anybody; only morality makes Heaven trust you. 9 From that point on, morality has been linked to regime legitimacy in Chinese culture. The Mandate of Heaven established an expectation that rule is to be held through the consent of the people, and the people give their consent based on the morality of the rulers. This expectation was given further credence by the teachings of Confucius, who laid out an ideal-type of ruler: the ruler was to be a role model for moral behavior, displaying benevolence, filial piety, faithfulness,

Tong 145

12 courtesy, integrity, and frugality.10 Over time, Chinese citizens further developed a moralistic evaluation of political leadership in which, people do not care where their rulers come from and how they came to power. Legitimacy does not come from the way a leader obtains power, but lies instead in the way he exercises it. 11 China has a long history of judging leaders by their actions in a Confucian context, against the ideal-type ruler values laid out above. Chinas leaders often communicate their legitimating strategies through the release of state doctrines that lay out each leaders vision for adapting Confucian ideal types into the context of the modern political economy. By laying out a moral framework for how the party adapts to social and political changes, Chinas leaders take ownership of the system of beliefs and values that govern social interaction. Political doctrines such as the Three Represents, the Harmonious Society, and the Eight Honors and Disgraces, should be interpreted as declarations of the states moral hegemony. Borrowing from Gramsci, hegemony ensures the legitimacy of elite rule by integrating the states political ideology with societys moral principles.12 In other words, Chinas political doctrines frame elite goals in terms of general moral expectations of the public, confirming the righteousness of the state in periods of transitionwhether transition from one leader to another or transition between goals of the state. The Mandate of Heaven social contract was formally modernized and reintroduced in 2002 by then-President Jiang Zemin in his Three Represents dictum. The Three Represents relay Jiangs vision for the direction of the CCP, stating that the Party must represent the

10 11

Tong 146 Tong 147 12 Ling 396

13 requirement to develop advanced production forces, the direction of advanced culture, and the fundamental interests of the overwhelming majority of the Chinese people.13 This dictum opened political space to co-opt capitalists into the governing elite, per their knowledge of advanced production forces, and thus delinks CCP rule from Mao-era communism that painted capitalists as the enemy of the people.14 Even more significantly, the Three Represents returns Confucian values to the regime by linking elite benevolence, or the right to represent the interests of the majority of the people, to the development of advanced production forces. The advanced culture to which Jiang refers can also be interpreted as a break from Communist ideology toward a blend of Confucianism and capitalism. In this way, Jiang is framing the CCPs co-optation of capitalists as a necessity to achieve the goal of high growth, a goal that is itself essential to the CCPs moral obligation to represent the interests of the majority of the people by raising the overall standard of living in China. At the same time, Jiang retains and justifies the CCPs coercion of the state-led sector to support high-growth policies instead of granting strategic industries the autonomy to pursue corporate interests over state interests. The co-optation of capitalists into the party has strategic value for high growth policies, because the private sector enterprises in China follow a Western model which has been profitable but eschews direct orders from the government. To facilitate higher growth, the CCP has significantly reduced the presence of the state-owned corporations in China from 68 percent of assets in 1999 to 44 percent of assets in 2010, most of which are concentrated in heavy industry.15Although the private sector is independent from the State, many

13 14

Three Represents CPCs New Thinking. McGregor 208 15 Xu, G.

14 entrepreneurs see value in establishing party cells within their companies. Off-the-record, party cells in private enterprises have been called perfunctory, or a show; on the record, however, entrepreneurs see party cells as a spiritual core, suggesting a public commitment to state hegemony in the form of a Confucian legitimating narrative.16 The CCP has adapted, as laid out by the Three Represents doctrine, to a strategy of coercion in order to incorporate hegemonic rule into the newly created private sector. The success of the strategy linking economic success to party membership or party connections is reflected in the 2011 Forbes study of Chinas richest 1000 people, of which 90 percent were CCP members.17 Additionally, among students joining the CCP, many are split between civil service and private sector interests, simply believing that inclusion in this exclusive group improves their employment opportunities.18By incorporating private sector success into the CCPs system of meritocratic selection, the party-state has strengthened their memberships appeal to the public and thus, strengthened their legitimating narrative. In sum, the CCP recognized that high growth rates would garner political legitimacy and that the cooptation of capitalists into the party would support high growth rates, so Jiang introduced a change in CCP policy through a framing that linked the policy change to the CCPs moral obligation to the people. However, the CCP has retained tight control of the remaining state-owned sector, which includes most of Chinas essential and most profitable industries, including the state banking sector which finances the other industries in the state-owned sector. The CCP hires and fires

16 17

McGregor 215-216 Lee 18 Branigan

15 the directors of state-owned enterprises (SOEs), and continues to direct their activities and investments toward Chinas overall state interests, rather than a capitalist model that emphasizes the companys best interests.19 This coercion of the SOEs is meant to continue a high-growth rate model that is dependent on heavy investment in dubiously productive activities. Chinas banking sector has been bailed out at least once by the wholesale transfer of non-performing loans to asset-management companies (AMCs) that absorbed the losses through a bond transfer from the government.20 Meanwhile, the newly solvent banks recapitalized through IPOs but have continued the same strategies of over investment in inefficient activities and sectors.21 This cooptation of the private sector and coercion of the state sector work together to advance the partys primary goalto keep the middle class just affluent enough to unconditionally support the CCPs rule. President Hu Jintao introduced the Scientific Concept of Development and Harmonious Society proclamation in 2006.22 The Scientific Concept of Development reiterates the importance of high growth rates in improving the lives of Chinas citizens. This connection between high growth rates and improved living standards has been a constant in CCP directives over the decades since reform and opening. Though different tactics have been advanced to achieve this goal, the concurrently released Harmonious Society doctrine posits social stability as a determining factor in maintaining high growth rates. In other words, it proscribes an obligation onto the Chinese masses to act correctly or risk jeopardizing national goals.

19 20

McGregor 69 Walter & Howie 21 Ibid. 22 Scientific Concept of Development and Harmonious Society

16 A surface analysis of the Harmonious Society doctrine might lead one to conclude that China is ready to acknowledge all players rights to participate in the political process. Building a harmonious society entails the recognition that many goals and interests are competing within society, and should be brought into the best balance possible.23 Balancing these goals whether they are the pursuit of profit by businesses, the pursuit of power by officials or the pursuit of happiness by citizensis the achievement of a harmonized society. Thus, the Harmonious Society doctrine recognizes that cooperation among actors implies conflicts, compromises and mutual benefits.24It seems Hu is acknowledging participation of all social groups in a political process that allows dissent based on competing goals and interests. Although the Harmonious Society doctrine explicitly calls for prioritizing social development over economic growth, and strengthening democracy, justice and harmony between man and nature, or environmental awareness,25 it should not be interpreted as a move toward more political openness but as another declaration of the states moral hegemony through Confucian concepts. In other words, the responsibility for balancing is vested solely in the elites of the authoritarian political system, and subject to their interpretation of correct balance. Democracy, in this context, is not institutionalized direct representation but the Confucian obligation of benevolent elites to an implicit practice of listening to divergent opinions, while making no guarantees to agree or compromise. By capturing control of these concepts in social discourse, moral hegemony allows the government to distinguish between good and bad elements of societyor between those who conform

23 24

Han 148 Ibid. 25 Scientific Concept of Development and Harmonious Society

17 to Party policy and those who do not. Some analysts have posited that the Harmonious Society doctrine has been used as the basis for an enormous crackdown on media outlets, human rights activists and political activists. Even activists themselves have taken to using the rhetoric of being harmonized as a tongue-in-cheek reaction to censorship of their work or seemingly unprovoked detainments.26 The Confucian principle of filial piety applies to state morality by justifying the official use of force against the masses. Lings analysis of Chinas rationalization of state violence posits, Parental governance entails two related pillars of Confucian thought; filial piety for childrensubjects and firm benevolence for parent-officials.27 Ling believes these pillars permit elites to justify the use of state violence as a moral imperative to quiet unruly children-subjects. Correct Confucian behavior asks children-subjects to treat abusive (or malevolent) parent-officials with more kindness: only through such virtuous resilience can children shame their wayward parents back to the rightful duties of parenthood.28 Thus, when citizens communicate their troubles to the state in a chaotic manner, through protests or public demonstrations, the appropriate state action is to restore order by any means necessaryand the quickest way to do so is to physically dominate and disperse the demonstrators. The recent rise of protests in China have coincided disturbingly with the rise of resources budgeted toward internal security forces, which now accounts for more expenditure than the military budget.29 Beyond the morality of state violence as a means to quell protests, this figure suggests that China is far more concerned with internal unrest than with international armed conflict.
26 27

Kuhn Ling 396 28 Ling 397 29 Fallows

18 Perhaps in response to the rise of mass incidents of social unrest, Hu has also laid out a moral roadmap for Chinese citizens through the Eight Honors and Disgraces, a list of encouraged and discouraged behaviors. The Eight Honors and Disgraces are worth reviewing in full, not only because they closely follow a commandment like structure akin to religious doctrines but also because they outline a set of expectations relating to Chinese citizenship that are often skipped over in favor of analysis of the Harmonious Society doctrine. From the Xinhua translation, the Eight Honors and Disgraces are: Love the country; do it no harm Serve the people; never betray them Follow science; discard superstition Be diligent; not indolent Be united, help each other; make no gains at other's expense Be honest and trustworthy; do not sacrifice ethics for profit Be disciplined and law-abiding; not chaotic and lawless Live plainly, work hard; do not wallow in luxuries and pleasures.30

Like commandments, they are presented in no particular order and with no direction on prioritizing one over another. Although moral tenants are rarely observed without friction caused by economic and political realities, the lowest expectation of the Chinese people would be that the people in power, elites and cadres, make their best effort to live within the constraints of this socialist core value system, just as they are expected to do the same. However, as will be discussed in the following section, the mix of decentralization policies

30

CPC promotes "core value system" to lay moral foundation for social harmony.

19 necessary to achieve high growth with the Confucian filial piety that discourages complaints has created an environment for rampant corruption. The corrupt practices of party-state officials are the cause of the social instability that the Harmonious Society doctrine seeks to diffuse. Thus, the CCP has relied a variety of state policies to compartmentalize dissent so that their base of legitimacy, the urban middle class, continues to see improvements in living standards without linking problems of fellow citizens to their economic gains.

1.2 Structure of the Party-State The CCPs unrestricted dominance of Chinese policy is built into the structure of state administration. For every administrative bureau, there is an equivalent Party department from the lowest level village committee to the National Congressone that often has seniority over the state branch. The structure of party-state interaction provides a strict hierarchy to government interactions. Immediately underneath the President is the Politburo, a highly opaque decision-making committee of twenty-five members that self-selects its successors and contains the Politburo Standing Committee (PSC), a group of nine individuals who decide the priorities of the Chinese government and issue directives.31 These directives are then implemented by the Secretariat and attributed to the Chinese Communist Party Center, by decree of Article 23 of the Chinese Party Constitution, shielding the Politburo from any true inner party accountability.32 The opaqueness of decision-making, coupled with the top-down process of leadership selection, provides a structure that discourages dissent by controlling opportunities for advancement and superimposing political harmony on all decisions.
31 32

Abrami et al. Ibid.

20 The Central Committee of the Party (CCOM), underneath the Politburo, is responsible for selecting the Party leaders, but relies on the Party leaders for their own selection to institutions above the Central Committee, creating an irresolvable conflict of interest. The function of CCOM (371 members) is therefore not to shape the direction of the Party through leadership selection but to support the positions of those that offer them the best chance of advancement. Therefore, CCOM is most important as a bargaining arena between various blocs of factions33 when the winning coalition is not united on a policy path or during contentious leadership succession struggles. In sum, the role of top-down leadership selection at secretive Party conclaves makes the process of advancement in the Party skewed toward the interests and beliefs of the highest-ranking members, even as this narrow group of elites use Congressional and CCOM members to amplify support during conflicts of direction at the highest levels. Thus, policy decisions are subject to the ebb and flow of individual centers of power within the Party, on a non-democratic basis. Members of the Party are generally not subject to the same standards of law and order as average Chinese citizens. Richard McGregor, in his book The Party: the Secret World of Chinas Communist Rulers, compares senior party members to members of the U.S. military: They cannot be arrested by civilian law enforcement bodies or outside agencies for criminal offenses until the allegations have been investigated by the Party first.34 The Partys corruption investigations are handled by the Central Commission for Discipline Inspection, who embeds Confucian hierarchy into the structure of punishment: to investigate corruption, the Commission for Discipline inspection must get permission from the party body one rank higher
33 34

Ibid. McGregor 137

21 than the official being investigated.35 Consequently, the Politburo is immune from investigation, and the process of investigation is intrinsically tied to political relationships. The low accountability for elite officials is reflected in their standard of living. Chinas elites work (and sometimes live) in the Beijing area known as Zhongnanhai, an exclusive compound that houses CCOM, the State Council of China, offices of the President and, as of this year, boasts artificially purified air to protect leaders from the pollution that hangs heavily over the rest of Beijing.36 Elites, both those based in Beijing and those headquartered in other large and important cities, are recognizable through their preference for sleek black vehiclesthe Audi A6 is apparently such a favorite of elites that one businessman told a reporter the importance of government meetings can sometimes be gauged by how many A6s are outside the building.37 The opaqueness of the Chinese elite class of politicians has lead some Chinese to dub them as the black class because their cars are black, and their income and work are hidden from public scrutiny.38 These symbols of political status directly contradict Hus eighth honor and disgraceto live plainly and refrain from luxuriesand thus serve as a public proof that elites are not following the moral guidelines for benevolence. However, this separate standard of living sends a mixed message to an upwardly mobile middle class; the status symbols act as an inspirational example of the gains possible by following the guidelines of the Party and thus may support or legitimate the consumerism of the middle class. Vehicles, compounds and state-sponsored construction projects, such as the Olympic Village or the Expo

35

Abrami et al. Andrew. The Privileges of Chinas Elite Include Purified Air. 37 In China, Success is a Black Audi A-6. 38 McGregor 141
36Jacobs,

22 Park, also prove to the public that the CCP is interested in modernizing China to the standards of a superpower. Party schools provide an opportunity to investigate the accountability issues emblematic of the CCPs hierarchy. All cadres are required to attend party schools regularly and many forms of specialized training are available at party schools to assist officials when they transition to new positions. The schools are designed to communicate elite expectations and policies, as well as for elites to aggregate feedback on ground-level problems faced by cadres. Because policy expectations and the problems with implementation are vastly different by rank and region, any particular school only caters for cadres of a particular rank and from a particular area.39 At present, there are over 2000 Party schools throughout the country at the provincial, city and county levels, as well as the prestigious and exclusive Central Party School (CPS) in Beijing, where elite leaders gather for training.40 The President of the CPS is a concurrent appointment given to a member of the PSC; Hu Jintao held the position when he was being groomed to take over from Jiang Zemin, and the heir apparent to Hu Jintao, Xi Jinping, was appointed to the position when he ascended to the PSC in 2007.41 The CPS is a place to forge personal networks, consolidate political support, attend lectures given by officials and technical experts, and debate the best course of policy in a protected environment.42 By confining intra-party debate to exchanges by the highest authorities within a compound that near guarantees confidentiality, the elite factions can obscure differences and give the impression that policies are supported unanimously.
39 40

Pieke p65 Zheng 162 41 Zheng 165 42 Zheng 162-163

23 The courses are divided into two groupsone set of courses emphasizes theory, including major Presidential proclamations such as the Three Represents or the Harmonious Society; the other set deals with practice or how to implement pro-growth policies in different regional environments.43 The professors are considered the CCPs organic intellectuals, and must research and publish studies related to strengthening the CCPs ruling capacity.44 As the students are the cadre practitioners of the policies, Students have direct experience with the problems confronting administrators in China: teaching them therefore helps staff identify those issues that are most urgently in need of research. 45 Once important issues have been identified for further study, the professors can reach out to their former students for additional information or updates. The connection between cadres and academics may provide the party with a mechanism to improve policies, but the bias toward cadres opinions and experiences may cloud the direction of study toward the cadres goals of retaining and expanding power, rather than the goals of the rural poor to match their standard of living to their urban counterparts. The party schools are designed to foster a free exchange of ideas, but the hierarchical structure of the party itself may serve to curtail criticism of the state. Often the professors are subordinate to the officials they are teaching, and cannot always control the direction of discussion: classes can devolve into factional positioning that hampers the ability of the professor to guide a productive discussion.46 This dilemma is another example of how the hierarchical structure of party organization works against elite goals. Professors ought to be the
43 44

Pieke 73-74 Zheng 151 45 Pieke 96 46 Pieke 113

24 mouthpiece of the elites with the power to discipline their cadre-students, but in actuality cadres hold more power in the classroom than professors. Therefore, professors must defer to students on academic matters that may well impede the professors ability to properly communicate the elites policy direction. Furthermore, cadres are often frustrated by the professors parroting of official narratives and directives, in lieu of autonomy vested by the state that would permit professors to adapt lessons to specific student concerns.47 Like the status items associated with the black class of elite officials, the party schools setting is more reflective of a luxury resort than of an imperative to live plainly and work hard. Cadres play leisure sports, indulge in sumptuous meals, and have ample time for recreation activities. Though there may well be a value in socializing with other cadres to forge connections that can advance mutual interests, the lavish facilities are a constant physical reminder that cadres do not have to adhere to the Eight Honors and Disgraces. Frank Pieke, who spent years interviewing cadres and administrators at a provincial party school, equates luxury items with the desired image of the party: The cloak of Maoist arduous struggle and plain living (jianku pusu) no longer befits the partys self-image: the measure of luxury serves as an index of the partys leading role in the modern world.48 The resort-style facilities are meant to reassure cadres and Chinas middle class that the Party is succeeding in its quest to lead China into a position of power on the global stage, but may also reinforce a sense of superiority among cadres that can manifest in condescending behavior toward the poor within their jurisdiction or a feeling of shared experience with the wealthy members of their district.

47 48

Pieke 110-111 Pieke 84

25 Credentials for promotion include quantitative and qualitative assessments, though at present, quantitative indicators are prioritized. This bias may be data-related, in that GDP growth and construction projects are easy to define and measure while satisfaction of the regions population is not as easily quantifiable. Benard Yeung of the National University of Singapore has run a statistical analysis on cadre promotion, focusing on the following key performance indicators: GDP growth, investment (fixed investment by public and private enterprises as well as FDI), employment, and welfare/intangible (government spending in education and health, growth rate in per capital hospital bed and growth rate in per capita green space).49 After analyzing the turnover of 104 party secretaries and 103 mayors of 36 cities between 1994 and 2008, Yeung found that promotion is most strongly related to tangible performance and that intangible performance such as education and health spending or green space expansion does not help a cadre get promoted. This data supports Lais assertion that Social spending out of the government budget is viewed as economic wasteful and unhelpful for generating high-income growth, and that many official view high growth as the ultimate barometer of governance of their localities.50 If promotion is intimately linked to high-growth rates, then cadres predisposition to prioritizing investments over social spending is logical. The Chinese system of fiscal and administrative decentralization gives power to the cadres to determine rates of spending on both tangible and intangible investments.

49 50

Yeung Lai 828

26 1.3 Decentralization and Dual Economies Fiscal and administrative decentralization in China has been a key feature of the reform and opening period. The goal of decentralization was to foster rapid economic growth by providing autonomy for local governments to respond to market pressures. At first, the local governments were made de facto owners of the state-owned enterprises under their political district, and given fiscal incentives to turn unproductive SOEs into productive ones, or to share in the gains from selling them to private owners. Locally collected revenues (taxes, levies and fees) were primarily collected and held by the local governments. However, with the decentralization of economic decision-making came the decentralization of government administration. Consequently, although local governments were empowered to create a favorable environment for investment, the emphasis on local tax collection for local spending also meant they were responsible for providing the social services that citizens had come to expect from the central governmentespecially in the sectors of public health, public education and pension or social security. Over the 1980s and into the 1990s, this system divested significant political power to the provincial and sub-provincial level. However, the mass demonstrations sparked by students in Tiananmen Square in 1989 were seen by elites as a consequence of decentralization, so the CCP began to reconsider the power differential between the local and central governments. In 1994, the party-state passed a tax reform law that allocated a greater share of revenues to the central and shared categoriesmost significantly today, the Value-Added Tax (VAT) became classified as shared revenue, remitting 75 percent to the central government and returning 25

27 percent to the local government.51 Whiting states, the reallocation of revenue drove the centers share of the budgetary funds from 22 percent in 1993 to more than 50 percent in 1994 and thereafter.52 This tax reform caused a shift in political and economic power back to the center after a long period of power consolidation at the provincial or sub-provincial level. To appease angry cadres who viewed the 1994 tax reform as an unfair loss of new power, the party-state promised to compensate well-performing provinces (or areas with more VAT revenue) with intergovernmental transfers. Chinas revenue and expenditures today reflect the sum total of reform and opening policies. The central government collects the majority of the revenue, but the local
Table 1: 2010 Government Revenue (China Statistical Yearbook; authors percentage calculations)
National Central Local Government Governmen Government Revenue t Revenue Revenue % of total - central govt % of total local govt 68518.3 35915.71 32602.59 52.42% 47.58% 59521.59 33364.15 26157.44 56.05% 43.95% 18481.22 13915.96 4565.26 75.30% 24.70% 4761.22 4761.22 100.00% 0.00% 7729.79 7729.79 100.00% 0.00% -6486.61 -6486.61 100.00% 0.00% 9013.98 167.1 8846.88 1.85% 98.15% 11536.84 7619.09 3917.75 66.04% 33.96% 3949.35 2366.81 1582.54 59.93% 40.07% 338.24 338.24 0.00% 100.00% 1544.11 124.19 1419.92 8.04% 91.96% 803.66 803.66 0.00% 100.00% 897.49 495.04 402.45 55.16% 44.84% 510.38 495.04 15.34 96.99% 3.01% 920.98 920.98 0.00% 100.00% 719.56 719.56 0.00% 100.00% 186.51 186.51 0.00% 100.00% 23.79 23.79 100.00% 0.00% 1163.92 1163.92 100.00% 0.00% 1483.81 1483.81 100.00% 0.00% 633.07 633.07 0.00% 100.00% 1735.05 1735.05 0.00% 100.00% 80.81 80.81 0.00% 100.00% 4.8 0.04 4.76 0.83% 99.17% 8996.71 2551.56 6445.15 28.36% 71.64% 1636.99 223.71 1413.28 13.67% 86.33% 2317.04 359.54 1957.5 15.52% 84.48% 973.86 35.25 938.61 3.62% 96.38% 4068.82 1933.06 2135.76 47.51% 52.49%

Item National Government Revenue Total Tax Revenue Domestic Value Added Tax Domestic Consumption Tax VAT and Consumption Tax from Imports VAT and Consumption Tax Rebate for Exports Business Tax Corporate Income Tax Individual Income Tax Resource Tax City Maintenance and Construction Tax House Property Tax Stamp Tax Stamp Tax on Security Exchange Urban Land Use Tax Land Appreciation Tax Tax on Vehicles and Boat Operation Tax on Ship Tonnage Vehicle Purchase Tax Tariffs Farm Land Occupation Tax Deed Tax Tobacco Leaf Tax Other Tax Revenue Total Non-tax Revenue Special Program Receipts Charge of Administrative and Institutional Units Penalty Receipts Other Non-tax Receipts

51 52

Whiting Ibid.

28 governments are responsible for the majority of social service programs. Table 1 outlines Chinas revenue collection in 2010. The central government retains 75 percent of the domestic VAT, as well as 100 percent of the consumption tax, the remainder of the VAT from imports after assessing rebate for exports, as well as the majority of the shared category corporate and individual income tax. The local governments retain the majority of shared taxes on local enterprises (the business tax) as well as any taxes that are related to local resources (the property tax, city maintenance and construction tax, resource tax, urban land use tax, etc.). In comparison, the breakdown of expenditure is highly biased to the local governments: the central government tends to be the majority spender on international issues (external assistance, national defense, etc) but the local government covers the areas that affect the private lives and economic opportunities for citizens (education, health, media, employment and social safety schemes, transportation, public security, environmental protection, etc.).
Table 2:2010 Government Revenue (China Statistical Yearbook; authors percentage calculations)
National % of total Government Central Government Local Government % of total Expenditure Expenditure Expenditure central govt local govt 76299.93 15255.79 61044.14 19.99% 80.01% 9164.21 1084.21 8080 11.83% 88.17% 250.94 249.71 1.23 99.51% 0.49% 132.96 132.96 100.00% 0.00% 4951.1 4825.01 126.09 97.45% 2.55% 4744.09 845.79 3898.3 17.83% 82.17% 866.29 679.11 187.18 78.39% 21.61% 10437.54 567.62 9869.92 5.44% 94.56% 2744.52 1433.82 1310.7 52.24% 47.76% 1393.07 154.75 1238.32 11.11% 88.89% 7606.68 454.37 7152.31 5.97% 94.03% 725.97 26.43 699.54 3.64% 96.36% 3994.19 63.5 3930.69 1.59% 98.41% 1934.04 37.91 1896.13 1.96% 98.04% 5107.66 3.91 5103.75 0.08% 99.92% 6720.41 318.7 6401.71 4.74% 95.26% 4647.59 1069.22 3578.37 23.01% 76.99% 1085.08 648.81 436.27 59.79% 40.21% 2879.12 508.23 2370.89 17.65% 82.35% 2218.63 911.19 1174.45 1491.28 3203.25 781.44 778.04 130.6 1320.7 601.83 1437.19 133.15 1043.85 170.58 2601.42 35.22% 85.39% 11.12% 88.56% 18.79% 64.78% 14.61% 88.88% 11.44% 81.21%

Expense Item National Government Expenditure Expenditure for General Public Services Expenditure for Foreign Affairs Expenditure for External Assistance Expenditure for National Defense Expenditure for Public Security Expenditure for Armed Police Expenditure for Education Expenditure for Science and Technology Expenditure for Culture, Sport and Media Expenditure for Social Safety Net and Employment Effort Expenditure for Affordable Houses Expenditure for Medical and Health Care Expenditure for Environment Protection Expenditure for Urban and Rural Community Affairs Expenditure for Agriculture, Forestry and Water Conservancy Expenditure for Transportation Expenditure for Purchasing Vehicles Expenditure for Mining and Quarrying, Electricity and Information Technology Expenditure for Reserve for Cereals and Oils Expenditure for Financial Affairs Expenditure for Post-earthquake Recovery and Reconstruction Interest Payments on Government Bonds Other Expenditure

29 Overall, the central government takes in approximately 50 percent of revenues but pays out 20 percent of expenditures, a system highlighted by experts as among the most decentralized countries in the world; nearly three-quarters of all government expenditure takes place at the sub-national levels.53 The gap between revenue and expenditure is meant to be mitigated by intergovernmental transfers; however, transfers tend to privilege the provinces and urban areas with the largest tax base and highest revenue collection. The bias toward economic performance over economic need in the intergovernmental transfer system contributed to unequal regional growth in China and still affects development today, preventing a strong middle class from emerging in rural areas. The Eastern and Southeastern seaboard were the first opened to foreign investment through the establishment of Special Economic Zones (SEZs), and are predominately urban. This area includes Shanghai and environs, Beijing and environs, and Guangdong province including Shenzhenessentially areas with access to global transportation and the closest areas to contentious affluent Chinese neighbors, including Hong Kong (then a British protectorate) and Taiwan (a nation over which the Chinese still assert sovereign claim).54 While there are both political and economic incentives to opening this area to investment before opening the interior, the decision to implement this gradualist opening still deeply affects regional development because FDI is reluctant to move away from the now traditional manufacturing zones. Luo et al. found that 90 percent of initial FDI occurred in the South and Eastern provinces, and that subsequent FDI tends to be higher in regions that were developed earlier.55 In

53 54

Whiting Luo et al. 110 55 Luo et al. 114

30 competition between provinces, Chinas inland areas cannot aspire to catch up with the market incentives to invest in Chinas seaboard. Furthermore, Luos study also notes that the areas opened early for investment also have greater autonomy and authority in conducting their economic affairsThe inland provinces, by contrast, are considered to be more hostile, unstable, and risky investment locations.56 The degree of official autonomy in economic affairs can be linked back to intergovernmental transfersdesigned to reward high growth areas, the transfers are also superfluous to high-growth goals: the more developed regions can retain more revenues from the value-added tax, the business tax, the urban maintenance tax and construction tax, and the personal income tax which usually accrue to the secondary and tertiary sectors.57 Because high growth areas can lower industrial tax rates without concern over meeting their expenditure needs, the rich region can attract more investments and migrants, which certainly boosts the value of land.58 Thus, high levels of investment become self-perpetuating: the availability of incentives to attract labor and capital boost the value of land, lower the tax rates and thus create further incentives to keep investments in these areas. By contrast, inland regions have no history of incentivizing investments and must cover the gap between revenue and expenditure by three primary methods: through intergovernmental transfers, collection of off-budget revenue, and illicit borrowing. First, intergovernmental transfers. There are four types of intergovernmental transfers in China:

56 57

Luo et al. 110 Zhang 715 58 Zhang 717

31 revenue sharing, tax rebates, equalization grants and earmarked or ad-hoc transfers.59 The majority of transfers are in the revenue sharing and tax rebates categories, both of which realize greater gains for areas with a larger tax base and thus disadvantage both rural and lowgrowth communities. The equalization grants or special transfer funds include wage increase subsidies for civil servants, subsidies for social security, subsidies for minority areas, and are generally aimed at bailing out local governments: meeting payroll and keeping social security and unemployment schemes from defaulting.60 These transfers are often based on the number of public sector personnel in the area, providing incentives to hire more staff over incentives to streamline services and prevent inefficiency. Zhang found that the number of people on public payroll per unit of local revenue in the inland region is significantly higher than that in the coastal region. As a result, the inland region spent a larger share on the administrative expenses and a smaller amount on productive public investment.61The final category, earmarked transfers, is a less desirable option for rural and underdeveloped regions because these transfers require matching funds from the local governments.62 In sum, transfers favor the areas that are the traditional engine of export-driven manufacturing growth, and the need-based nature of transfers to inland areas may stunt foreign investment due to their generally larger size of bureaucracy. Illicit borrowing can distort the balance sheets of local governments, generating unsanctioned debt that must be covered by future local leaders through off-budget revenue, again creating a long-term spiral of low growth. Local governments can use their autonomy
59 60

Abrami et al. Whiting 61 Zhang 717 62 Whiting.

32 from the central government to strong-arm banks for finance.63 Whiting found that one such mechanism entails using local enterprises as windows to the banking system, providing loan guarantees so that enterprises can get bank loans, the funds from which are then transferred to the local government.64 Such excessive demands not only have the possibility of allocating bank capital from productive to unproductive endeavors, but may also contribute to the foreign business mindset noted above that sees rural or inland areas as hostile and unstable investment environments. The collection of illicit or off-book local debt may be a short-term method to promotion in the CCP (and thus, transfer away from the indebted region), but the debt must be repaid through matching off-budget revenue, providing yet more opportunities for corruption and state predation. Off-budget revenue collection also lends advantages to wealthier provinces, but is frequently employed by poorer provinces to extract extra revenues from already disadvantaged residents. Off-budget funds are classified as levies and fees, collected and spent by local governments.65These funds are not subject to government oversight, and are thus distributed by local officials with near total discretion.66 Pei notes that a portion of the off-budget funds has been found stashed away in secret slush funds controlled by government officials,67 suggesting that some of these funds are diverted for personal gain and never reach the residents they are intended to help. Therefore, the collection of off-budget revenues are often hurtful to local residents on a number of levels: first, they often involve corrupt practices that

63 64

Whiting Ibid. 65 Pei 143, Whiting 66 Pei 178 67Ibid.

33 divest some of the earnings to local officials pockets; second, the proceeds retained by the state are often spent not on social services (still the initial motivation of their collection) but on infrastructure projects; and third, a primary source of off-budget revenues is land transfer fees, which uproot peasants and can take away an additional source of individual income. On a larger scale, excessive fees and levies can also stymie business investment in rural areas, leading to a lack of opportunities for residents to become productive contributors to the local economy. Land transfers are the primary method to collect off-budget revenue. Local officials seize land from peasants, compensating them for the agricultural value of the land, and then lease or sell that land to businesses at the commercial (or higher) value.68The gap between the agricultural value of the land and the commercial value of the land makes these transfers a particularly lucrative means of generating off-budget income, while peasants are generally worse off after the transfer, because the compensation is inadequate to extensively cover the cost of relocation.69 However, the central government has done little to date to modify the rules regarding land transfersindeed, these transfers seem to support high-growth policies by raising, in theory, the productive value of the land. Furthermore, because a portion of these offbudget revenues are used for legitimate expenses,70it is difficult to parse the level of corruption in each transaction. The land transfer system thus supports the central governments directives to grow GDP, at the cost of disenfranchising peasants who might be able to use the value of the land to generate additional income.

68 69

Dollar Ibid. 70 Whiting

34 McGregor notes that local party officials take competition between regions very seriously when he states that extraordinary level of control enjoyed by local party officials, as discussed above, makes the local party secretary a lethal competitor for any rival business centre in the world, especially the one right next door.71 McGregor thus implies that local party officials are willing to use coercive, authoritarian methods to draw factors of production toward their area of control, because economic performance in their area is the most important factor influencing promotion within the Party and thus expanding their base of power. On the other hand, officials who sense they have no political capital to move up within the system may concentrate on rent-seeking activities as a means to shore up their financial future outside the CCP.72 Cadres also protect their future and enhance their personal wealth by using their government positions to secure lucrative private sector positions. This process, called double-dipping, occurs when officials holding administrative government positions would simultaneously acquire executive appointments in commercial firms with close ties to the government.73In sum, the decentralization of fiscal and administrative control means that local officials personal welfare, from salary and bonuses, housing and sedans, banquets, cellular phone bills, and overseas trips, also depend on the local fiscal coffer, which is increasingly intimately linked to the local economy.74 In promoting local industry, cadres promote their own interests to either advance in the CCP, gain personal wealth for a future outside the CCP or a combination of both.

71 72

McGregor Lai 827 73 Pei 154 74 Wang & Wang p9

35 In his book, Chinas Trapped Transition, scholar Minxin Pei advances a compelling argument to classify Chinas CCP-led regime as a decentralized predatory state.75 He argues that an incomplete transition to a market economy without democratic controls has allowed a hollowing of the states capacity to deliver public goods, and thus contributes to a crisis of legitimacy. On center-local relations, Pei asserts that joint fiscal and administrative decentralization creates incentives for local authorities to adopt predatory policies and practices.76 Administratively, locally supervised recruitment practices have created patronage networks and opportunities for corruption, such as the selling of positions and promotions. As Pei outlines, local strongmen become independent monopolists who can subcontract the monopoly to those who are willing to pay for a share of the spoils.77 Supporting these monopolies are the courts, stacked with party officials and often under the control of these independent monopolists, and the internal investigation system that requires motivation from within the party to investigate and refer abuses of power to criminal courts. The corrupt practice of selling political positions also intensifies state predation by treating the power gained through paid appointments as an investment that must generate a return78. In some cases, local mafias were able to exert control over local governments by supplying the investment funds to secure these positions.79 Whether officials are motivated by personal or professional gain, the sum total of decentralization without the accountability and transparency necessary to fairly implement

75 76

Pei Pei 141 77 Ibid. 78 Pei 163 79 Ibid.

36 such a system aggregates into a huge discrepancy in social spending between wealthy and poor provinces. In 2002, primary level education spending varied from RMB 5,500 per student in Shanghai to only RMB 600 per student in the poverty-stricken region of Guizhou.80In 2004, primary and middle school fees were so high in rural areas (due to lack of adequate funding from the local governments) that a family living at one dollar per day would have to spend half of their total yearly income to send one child to middle schoolan expense that underscores low enrollment rates in impoverished areas.81 Health care is another major expenditure for Chinese residents: the average hospital visit in China is paid 60 percent out-of-pocket by the patient, compared to 25 percent in Mexico, 10 percent in Turkey and lower amounts in most developed countries.82Pei finds that on per capita basis, rural residents receive only a third of the health care enjoyed by their urban counterparts.83 High health care costs are a major reason for the high level of savings rates among the Chinese. This trend is exacerbated by demographic distortions caused by the onechild policy, and the Confucian concept of filial piety. Not only is each Chinese couple of working age expected to support each persons parents and grandparents, the bias toward males as wage-earners means that for every 100 female babies, 103-107 male babies are born in China.84Thus, by 2020, it is predicted that over 10 million Chinese males will not be able to

Whiting p8 Dollar 12 82 Ibid. 83 Pei 173 84 Millions of Chinese men without brides by 2020 due to gender imbalance: experts warn. These statistics are from Chinas state media. Actual numbers likely to be higher in the range of 115 to 117.
81

80

37 find brides,85 and will be solely responsible for providing health care and welfare to their elderly parents and grandparents. In conclusion, the reform policies that support high growth through competition among provinces and promotion strategies have created a two-tier economy that appears pathdependent: provinces that are predominately coastal and urban are rewarded for their growth, while provinces that are predominately inland and rural face severe pressure to meet the unfunded mandate of providing social services. This pressure manifests in corruption and perpetuates low investment rates, so that inland provinces can only grow through unsustainable infrastructure investmentsones that are funded through corrupt practices. The residents of coastal, wealthy provinces win in Chinas reform process because they are allowed and encouraged to share economic gains along with the party-state while the residents of the rural, poor provinces are economic losers, facing predatory local officials and a lack of opportunities to share economic gains. This divide is further exacerbated by the CCPs policies of corporatist exclusion, which manifest in the persistence of the hukou system of household registration that ties social benefits to a citizens natural residence and the preferential policies granting urban residents real estate at the beginning of the reform and opening period.

1.4 Corporatism in housing acquisition and the Hukou system Inequality in China is often classified by large income gaps between the developed, urban, coastal regions and the less developed, rural inland regions. This classification is due to at least two policies that stem from Chinas gradualist approach to reform and opening: first,

85

Ibid.

38 the coastal areas were the first to be classified as Special Economic Zones (SEZs) and were thus subject to economic incentives that developed industrial capacity and, therefore, employment opportunities; second, the persistence of the hukou system of household registration that defines permanent gaps in access to services between urban and rural residents. Due to these policies, Chinas employment opportunities are concentrated in areas that superficially exclude a significant number of available laborers tied to a rural hukou. However, as hukou cards are required for access to social services such as public education and healthcare but not required to technically live and work in an urban area, the hukou system is not aimed at denying all labor opportunities but rather protecting the middle class from job encroachment by peasants, and protecting cities from extensive spending on social services. These two protections prevent migrants from sharing the social cushion that allows middle class residents to benefit in Chinas wealth accumulation. Groots research on the hegemonic integration of minority parties during the Mao era introduces Gramscis concept of corporatism to the CCPs legitimacy strategies. He states, Corporatism is essentially a method of interest intermediation in which a state accords some groups privileged status and access to itself in return for compliance and some influence over them.86 In modern China, corporatism is exclusionary. In other words, while the CCP has expressed interest in representing the majority of the people, in reality, the economic gains realized by reform and opening strategies have been shared unequally across the social strata. The CCP has chosen to privilege urban residents over rural residents, and eastern residents over western residents, because the privileged areas are the engine of growth for the Chinese

86

Groot

39 economy. Due to the geographical nature of exclusion, the residents of rural and western areas see a physical move, or migration, as a strategy to greater economic gains. As Groot notes, to utilize any benefits, one has to join the only group available.87 However, migrants are often disappointed to find that the rigid system of household registration prevents them from realizing the benefits accrued to eastern and/or urban residents. Research on social mobility and employment opportunities shows the hukou system has created a floating population of migrants that face severe boundaries to permanent migration, and have little to no access to the higher quality of living available to urban hukou residents. In effect, the hukou system is a deliberate form of market distortion perpetuated by the Chinese government to prioritize growth rates over equality. Relaxation of the hukou rules in recent years has been seen as a sign that the CCP is ready is shift directions toward greater inclusion, but research has shown that without fixing underlying structural problemsthe emphasis placed on growth rates as a key to advancement within the Party, and the low amount of public spending on social servicescities adapt to rule changes by creating greater layers of bureaucracy to continue restriction of migrants from social services. Through the hukou system, the government can not only control the rise of the urban middle class, but also protect this important engine of growth from the dissatisfaction that might be caused by permanent urban migration. In other words, the government can control the opportunities of the middle class to drive economic wealth, and to protect the middle class share of the resulting gains. The hukou system of household registration is administered on the local level, by cities, prefectures or counties. It originated in 1958 to prevent movement from rural to urban areas

87

Groot

40 and to discourage employment outside of the agricultural sector and is thus divided into two categories: agricultural (rural) and non-agricultural (urban), and is also tied to a specific area of residence where the hukou owner can access services.88 Although the economy has produced labor shortages in the highly developed coastal areas that provide opportunities for migrant laborers, the migrants are still bound to their hukou of residence, and do not have the right to use urban social services. Specifically, residents without a hukou card cannot access health services, compulsory schooling for their children, unemployment insurance and a plethora of other administrative services, including marriage registration or city bus pass programs. The National Population and Family Planning Bureau announced that as of this year, there are 221 million Chinese living outside their hukou of residence.89 This puts the percentage of Chinese without access to social services in their location of employment at over 15 percent.90 Migrants are typically young, single, and holders of a rural hukou. In a survey conducted in 2001, 57.4 percent of migrants were under the age of 31 years old and 88.2 percent held a rural hukou.91 However, migrants as a group appear to have a different socio-economic stratification compared to non-migrants. Specifically, the study found that female migrants earn higher wages than male migrants (while the reverse is true for non-migrants), and that family origin, education, and type of business ownership (state or non-state) have little effect on the attainment of migrants as compared to their effect on non-migrants.92 The studys author speculates that non-institutional factors such as endeavor, chance, adventure or social Cai, F. 38 Chinas Floating Population Exceeds 221 mln. 90 Based on 2009 World Bank Development Indicators calculating Chinas population at 1,331,460,000. 91 Chunling 92 Ibid.
89 88

41 network are consequential in the status attainment of migrants.93 These factors underscore the migrants economic and social experience as one outside the typical system and therefore subject to different pressures and opportunities. The hukou system creates tension between migrants, urban residents, and city authorities that can manifest in discrimination. The city needs migrant labor to alleviate labor shortages, promote growth and thus, please central party officials. On the other hand, city officials have incentives under the hukou system to give preferential treatment to unskilled urban residents because the city holds the fiscal burden of paying for urban residents social services. In other words, every job held by a migrant at the expense of an unskilled urban resident increases the social service expenditure of the city while decreasing the contribution made by urban residents. Therefore, employment discrimination prioritizes jobs for urban residents, while migrants take on the jobs that are routinely less monitored, less safe and less desirable.94 So, migrants are a tool of municipalities to promote industry development through a pool of available unskilled labor, while the registration system shields municipalities from paying for these migrants social service programsor from securing the jobs that allow them to reach the income and service levels available to middle class residents. To keep migrant laborers available as labor, many cities have implemented programs that require employers to provide the social services that are normally the responsibility of the state95the degree of employer compliance to these programs has not been empirically studied.

93 94

Ibid. He 81 95 Li et al.

42 Furthermore, migrants are often subjected to rent-seeking at the hands of authorities. Migrants typically must apply for temporary resident permits (as many as five per city) that carry un-standardized application fees and are used as a basis to tax migrants, without permitting access to the social services these taxes provide.96 A 2004 study found that only 40 percent of migrants were in compliance with the temporary permit system, stemming from the migrants perception that the permit system calls unwanted attention from local authorities that can result in further harassment.97 Meanwhile, organized raids by authorities to levy fines for permit non-compliance often result in bribe payments, because bribes are typically less costly than fines of anywhere between 10 and 999RMB.98 Outside of official predation, migrants are less likely than non-migrants to ask for terms of employment contracts or complain when wages are paid late or not at all, due to the illegality of their official status.99 This system has been called a form of apartheid that permanently separates citizens by all important measures of class and mobility.100 Rather than return to limited employment options offered by their place of their hukou residence, migrants live in a constant state of uncertainty over their employment, pension, health and education for their children. For children, illegal schools are organized by each migrant community but are subject to raids by municipal authoritiesin 2011, authorities in Beijing bulldozed 30 of the 160 such illegal schools, presumably to regain the value of the land on which the schools were constructed,

96

He 132

97Ibid. 98 99

He 119 He 122-123 100 Chan & Buckingham 583

43 though officially due to unsanitary and unsafe conditions.101 Should the children of migrants obtain their education through illegal schools or by paying high fees for registered schools, they are not eligible to take the university entrance examination in a locale other than their hukou of residence. These limits to education are particularly significant for children of migrants because education itself is the primary tool citizens can use to convert their hukou from rural to urban. Junior high graduates can either test into a specialized high school with immediate urban hukou conversion, or try to excel through high school into a tertiary institution that can help convert the hukou either through enrollment or obtainment of an advanced degree. However, it is important to note that each city or area has different criteria for using educational attainment to convert the students hukou to permanent residencein Shanghai, the most populous and arguably most desirable hukou, a human resources manager told researchers A PhD might do, a master is worth trying, but it is out of the question for a bachelor.102 As more Chinese matriculate through higher education, each city is likely to raise the bar for hukou conversion degree requirements. So, hukou conversion is one asset that cities can leverage to compete for skilled workersbut successful conversion will depend on the level of competition and the citys need for skilled workers. By setting high standards for corporatist inclusion, the CCP can shape the middle class to its own benefit. Each city has different systems of temporary registration that can, but do not always, correspond with regimented access to services or can help a migrant build points toward hukou conversion. In Guangdong, points can be accumulated through taxes paid, educational
101 102

Jacobs, Andrew. China Takes Aim at Rural Influx. Li et al. 151

44 attainment, volunteering, blood donation, and working skills to obtain urban hukou status essentially by following correct behavior that stresses compliance with authorities and compassion for fellow citizens.103 In Chongqing, a less developed Western municipality, urban hukous can be obtained by giving up rights to agricultural land that is no longer utilized by the worker seeking migrant opportunitiesor thus by providing the state with a greater opportunity to grow wealth.104 Unfortunately, these particular pilot programs are only available to agricultural hukou holders from the areas of each program; migrants from other provinces or cities are not eligible to participate, deepening exclusionary policies that control the rise of the middle class.105 Shanghai has a considerably more complicated program of two designations that has been introduced in ten other cities and is said to be the model for national adoption at some point. In the Shanghai system, migrants with a bachelors degree or specialized working skills can apply for a Talents Residence Card (TRC) that confers partial citizenship.106 The TRC is valid for 3 5 years, renewable and entitles holders to social security, education, family planning services and medical care.107 Another designation is the Employment and Business Residence Card (EBRC) available to migrants with a stable job and residence. The EBRC is valid for one year periods, renewable, and assigns responsibility for social security to migrants and their

103 104

Cai, F. 45 Cai, F. 44 105 Cai, F. 46 106 Li et al. 147 107 Ibid.

45 employers.108 Both migrants and employers contribute to a fund that provides limited coverage for injury accident insurance, hospitalization and aging allowance. However, it is unlikely that all but a fraction of the TRC holders will be able to use these programs to convert to a Shanghai hukou. The conversion requires seven continuous years of the following criteria: holding of a residence card, participation in the social security program, payment of local taxes; the applicant must as well hold at least a middle-level professional title or technical certificate issued by the state, which must be commensurate with his/her position, and be free of any police record or violation of the one-child policy.109 In 2009, only 4 percent of migrants had the TRC, much less the ability to convert, leading analysts to conclude that the new policy further raises the entry threshold of hukou attainment.110 And although the TRC program requires holders to pay into the social security system in Shanghai, without conversion to a full hukou, they will not be able to access any employer contributions matched on their behalf.111 In all instances of conversion programs, the removal of the Central governments quota system has increased the levels of bureaucracy that migrants face, and therefore raised their barriers to entry in the social service systemand more broadly, in entering the urban middle class. When analyzing promises from the CCP to strengthen the social safety net in order to reduce savings and spur consumption, it is important to bear in mind the selective population to which these programs actually apply. Thus, consumption is a task that will be assigned to the urban middle class, perpetuating the corporatist exclusion that denies the benefits of reform to
108 109

Ibid. Ibid. 110 Ibid. 111 Li et al. 148

46 the lower class of peasants, who are predominately rural residents. Creating policies of corporatist inclusion for underdeveloped western cities and rural areas can only be achieved through greater overall growth that allows more Chinese citizens to move up the economic value chain from manufacturing to skilled labor to innovators that develop products to market at home and overseas. By contrast, inclusionary corporatism originally allowed a property-owning middle class to flourish by allowing employees of SOEs preferential entry to the housing market. During the Mao era, all property belonged to the people, but after reform and opening, the state seized control of land appropriation. The land was developed by the state and the resulting apartments were sold off to employees of SOEs at low prices. However, the party-state structured the purchases to ensure loyalty: property purchase contracts often included clauses that link the property rights to a long-term working relationship with the employer.112 Therefore, employees of SOEs had more than a job at stake in challenging the authority of the regime-employerthey could lose their livelihood and their dwelling in one fell swoop of disobedience. Although public sector employees are not likely to risk their jobs and homes by speaking out against the regime, the inclusionary corporatism used to buy loyalty does not extend to predatory real estate developers. Property purchasers have developed somewhat aggressive home-owners associations that are openly contentious to real estate developers that try to profit off of unfinished promises such as garden areas or misleading calculations of floor area

112

Tomba 16

47 (used to determine the value of the unit).113 Because the property owners see the role of the state as protecting their equity investment, they consider protests against the house-project developer as being rightfully within the framework of the reform policy.114In other words, the privileged status conferred on property owners by the state has modified the correct role of this class to allow for contentious claims against any who seek to tarnish their investment. Property ownership became a right to be vigorously defended. This tendency toward massive property investment is reinforced by an inefficient state banking system. In China, the banking system is dominated by the government, and by extension, the CCP. The four major state-owned banks own 43 percent of Chinas total financial assets and 70 percent of loans taken by Chinas SOEs.115 The top positions of these banks are staffed by the CCPs organization department and the process of application and employment for top positions are classified as state secrets. Although foreign-owned entities have been allowed through initial public offerings, or IPOs, to become minority stakeholders in these enterprises, the Chinese government holds at least 51 percent of the shares. These banks were characterized at the beginning of the century by exceedingly high rates of non-performing loans (NPLs), with some estimates as high as 40 percent.116 However, liability for these loans has been shielded by the government, which routinely devises elaborate systems to move NPLs off of bank balance sheets or push payments back by a decade or more. The size of NPLs was such a threat following the Asian financial crisis of 1997 that the government proactively began measures to mitigate their potential damage to the financial
113 114

Tomba 24 Ibid. 115 Walter & Howie 27 116Chancellor

48 system and recapitalize the banks through IPOs. First, the government reduced the depositreserve ratio from 13 percent to 8 percent, freeing deposit reserves of RMB 270 billion.117 This RMB 270 billion was used to buy bonds from the Ministry of Finance (MOF), which took the bond proceeds and re-loaned them back to the big four banks.118 In effect, this made the banks depositors shareholders of the bank itself, because the funds used to wash this money through the MOF came from nationalized bank deposits and must eventually be repaid to the MOF.119 Then four AMCs were created as shadows to the big four banks to buy all the NPLs using foreign exchange reserves from the government. This wiped the NPLs off banks balance sheet so that they were financially sound enough to attract interest from foreign investors on their IPOs. The banks were recapitalized through IPO share purchases and continued rampant lending that is politically, not economically, motivated. As Walter and Howie conclude in their book, Red Capitalism: The Fragile Foundation of Chinas Extraordinary Rise, these companies are not autonomous corporations; they can hardly be said to be corporations at all. Their senior management and, indeed, the fate of the corporation itself, are completely dependent on their political patrons.120 These patrons have chosen a growth model that demands lending to inefficient SOEs to finance capital-intensive growth-oriented investments in infrastructure projects. The model would work, but only if the loans to SOEs were repaid at the loans interest rate. Instead, The Party tells the banks to loan to the SOEs, but it seems unable to tell the SOEs to repay the loans. If the SOEs fail to repay, the Party wont blame bank management for

117 118

Ibid. Ibid. 119 Ibid. 120 Walter & Howie 23

49 losing money; it will only blame bankers for not doing what they are told.121 Without fixing underlying structural problems that create a high occurrence of NPLs, this growth model will require frequent recapitalization and greater amounts of loans pushed off to the AMCs, where the estimated rate of recovery is 20 percent, or hardly enough to pay interest back on the various bonds and loans.122 China has used low interest rates to clean portfolios of NPLs, but this method has amounted to a tax on depositors that negatively affects efforts to rebalance the economy toward consumption and more equitable distribution of wealth. Chinas interest rates are thought to be 4 to 6 percentage points too low, amounting to a tax on depositors and debt forgiveness for those taking out loans.123 Walter and Howie note, Todays financial system is almost wholly reliant on the heroic savings rates of the Chinese people as they are the only source of non-state money in the game. The AMC/PBOC arrangement works for now because everyone saves and liquidity is rampant.124 In effect, the middle class cannot grow their wealth through extensive savingsa more efficient way to build a nest-egg is to invest heavily in property, especially homes. This structural banking problem has coupled with the Confucian principle of guanxi, or social connections, to privilege those employees of SOEs who first gained property as a result of CCP inclusionary corporatism. Although housing plans have been developed by the party-state to exchange subsidies with developers for selling a portion of the units to lower income renters (and thus expanding the middle class), evidence surfaced that the income limits are loosely
121 122

Walter & Howie 43 Walter & Howie 65 123 Pettis 124 Walter & Howie 80; PBOC stands for Peoples Bank of China

50 enforced and are easily circumvented by high-income families or by families with per-existing properties, a situation that has led to widespread criticism of the system by lower-income families. Guanxi, or the existence of a favor-intensive system of circumventing laws or bureaucracy through bribes or other promises of preferential treatment, creates a barrier to entry for lower class families that want to own property. As Luigi Tomba notes in his extensive article covering the evolution of Beijing real estate policy since reform and opening, residents are quite aware of guanxi and tend to disdain its practice: residents of a complex named Hopetown are overwhelmingly salary men, and are vociferous about the difference between those who have earned a deserved high salary thanks to their skills and loyalty to an employer and those who earned early riches through means that in their view were often corrupt. Hopetown residents value hard work and loyalty over social climbing through corruption and favors, a view that signals significant tension between the capitalist concept of getting ahead through ones own effort and the Confucian concept of guanxi. Another indicator of inclusionary corporatism for employees of SOEs is the proliferation of public holidays since the beginning of economic reforms. Starting in 1995, the state mandated a 5 day work week, then extended existing national holidays to full weeks, bringing the total number of non-working days in a year to 115.125 This change, coupled with raising the minimum wage and selling property to public sector employees, allowed the new Chinese middle class to take vacations for the first time. Increasingly, the salaried private sector has followed suit, catching up the public sector in the quest for property and the accumulation of leisure time. Given the improvements in standard of living, the middle class is now reluctant to

125

Tomba 10

51 criticize the regime that brought them such comfort. Instead, they are generally supportive of the present national leadership and feel their social status today is largely dependent on the reform policies and the present program to manage the economy.126 This approval manifests in Hopetown residents as gratitude for their rapid and unexpected upward social mobility.127 The CCP seems to recognize that this gratitude is conditional on maintaining or improving the living standards of the middle class, and thus tightly controls entry into this group through the hukou system. Thus, corporatism is an essential strategy to managing legitimacy for the CCP, highly analogous to the Confucian concept of obligations in that the middle class gives loyalty to the government in exchange for economic opportunities and protections.

126 127

Tomba 24 Ibid.

52 Chapter 2 - Imposing Correct Behavior through Protest Actions and Reactions Much of the literature on protest causes and tactics in China outlines the citizens increasing awareness of their legal rights.128 From contentious claims against property developers to claims against local officials for predatory practices, the overwhelming majority of Chinese citizens expect the party-state to at least allow, if not respond to, protests centered on rights violations. However, the action of protesting is not in line with the correct behavior of Confucianism, which asks children-subjects to respond to injustice with greater piety, in order to shame parent-officials into correct behavior rather than loudly and disharmoniously pointing out corrupt practices. Breaking societal norms carries security risks for protesters, who may or may not find solidarity among their fellow citizens. This risk is far greater for those who have gained at the hand of the state, the urban middle class, than it is for those who have not, the working class of peasants and migrants. For this reason, protests movements develop differently among the two groups. The middle class is reluctant to be singled out within a protest movement, but often sees their wealth not as a barrier to protest, but as an exit option from the corruption inherent in the Chinese system. The lower class first attempts to live within the social boundaries by appealing to the benevolent elite through the petition system, but finding no redress, will try other methods to expose the incorrect behavior of officials using their own ability to behave incorrectly as a final resort.

128

Hess; Cai; Lai;Lum; Li & OBrien

53 2.1 Peasant Protests and Incorrect Behavior The decentralization and CCP promotion strategies outlined above have led to a proliferation of corruption in underdeveloped provinces. Manifestations of corruption are evident in the land seizure practices and tax extraction practices of cadres, hoping to either shore the gap between revenue and expenditures or impress higher-level authorities to gain promotions. China has a well-known system of petitions, modeled on the Confucian hierarchical system that allows citizens to respectfully request redress of grievances through appealing to the parties responsible for monitoring cadre behavior. The petition system was created during dynastic rule to reinforce the Mandate of Heaven social contract. Citizens were encouraged to bring letters describing their problems with authorities to those authorities above the ones with which they had the grievance. In this way, the benevolent and wise emperor and his upright, powerful officials would correct the wrongdoings of abusive, lower-ranking officials and return justice to the people once they learned about their suffering.129This system assumes that the benevolent elites were a) unaware of the injustices perpetrated by lower-ranking officials, and b) responsive to the complaints out of a moral obligation to the peasantry. In modern China, this system often falls down because both assumptions are untrue--if the higher authorities are ignorant of the injustices perpetrated by lower authorities, then they are likely willfully ignorant, since there is a large and obvious gap between policies and implementation. In other words, there is no rational way to ask cadres to promote growth and spend on social services in an economy where revenues are centralized and expenditures are not. As shown above, these policies, along with perverse incentives created by the

129

Shao

54 intergovernmental transfer system, tend to keep provinces grouped along distinct economic paths wherein residents of underdeveloped provinces are more likely to be negatively affected by state predation. On the second assumption, the central government is routinely unresponsive to petitioner complaints, displaying the exemption of officials from the Confucian narrative of moral legitimacy that would assign the responsibility of benevolence to elites. The number of petitioners has expanded over the last decade, indicative of both the widespread nature of injustices committed at the local level of government and the noted growing awareness of citizen rights. Official statistics only report the number of petition cases accepted by the government for reviewin 2009, these totaled slightly fewer than 350,000.130 Unofficial statistics put the number much higher, citing about 12.7 million appeals in 2003. Of these cases the Human Rights Watch estimated that in 2005, 3 in 2000 are resolved.131 Correlating this estimate to the official statistics, this would result in a total number of 23.2 million petitions filed in 2009. These figures are meant as estimates only, given the lack of official data available. Regardless of pinpoint accuracy, the trends are apparent: petitioners are filing at the central government level at record rates, without much hope of resolution. The growing number of petitioners shows the strain that economic and political legitimating strategies have put on citizens who are bound to a Confucian dispute resolution mechanism. Common complaints involve inadequate compensation for land seizures or layoffs from SOEs as well as allegations of excessive abuse by local authorities in local jails.

China Statistical Yearbook 2010 Resolving the cases is judgment neutral; it may or may not be resolved in the petitioners favor.
131

130

55 A survey of petitioners demonstrated that most were aware their situation would not be resolved through the petition system, but had hopes that going through the motions might persuade local authorities to reconsider their positions: 90.5 percent of them wanted the Central Government to know their situations; 88.5 percent made the visits in order to give the relevant local governments pressure while 81.2 percent knew that the Central Government cannot solve the problems directly, but they were hoping to obtain an official directive.132 The goal of knowing their situations is uniquely Confucian and appeals to the central governments moral obligations to change the system when injustices are exposed. Another survey conducted by the Chinese Academy of Social Sciences in 2004 found that 94.6 percent of first-time petitioners believed on their initial day in Beijing that the central government truly welcomed petitions by day seven this fell to 39.3 percent. Therefore, the act of petitioning exposed the central governments willful ignorance to those bringing grievances. These survey results indicate that the lower class is highly aware of the power vested in local authorities by the central government but also believes that central government pressure or directives can be an effective tool to dispute resolution, likely due to the central governments power to promote and demote officials based on local compliance with social harmony. The estimates indicating low levels of resolution are also supported by qualitative evidence on petitioners in Beijing, many of whom have been pushing through the petition system at each level of governance for years without favorable resolution. Beijing petitioners are not supported in their efforts by the state, and are often homeless, living off of low-wage

132

Zou

56 and undesirable jobs such as trash collection.133 Petitioners are often subject to statesanctioned abuses: in two independent studies, over half of respondents reported being beaten by state authorities, often to prevent their cases from reaching the ears of higher ranking officials.134 Even though the Chinese may see a commitment to redress through the petition system as properly Confucian in nature, they may also implicitly or explicitly sanction the use of state violence as a Confucian method to contain unruly children-subjects. The line between properly conforming to the system and becoming a nuisance is unclear from outsider reports, and may be a subject for more detailed study and analysis. The central governments exemption from Confucian moral standards is also apparent in the black jails often associated with petitioners. Black jails refer to illegal detention centers used by local and central authorities to contain petitioners from expressing their grievances within the official petition system. In these holding areas, petitioners are subject to thought reeducation that can range from polite conversations to outright torture.135 The existence of black jails is flat-out denied by the government, but reports of thugs employed by local governments to round up petitioners are widespread.136 The Beijing police have been called complicit in raids of petitioner camps, though most of these round-ups occur while the petitioner is en route to Beijing. The local governments see preventing petitioners from reaching Beijing as imperative because Large numbers of petitions results in cadres receiving lower annual or quarterly bonuses, or no bonuses at all, giving these officials a direct financial

133 134

Xu, D. Anderlini; We can disappear at any time. 135 Anderlini 136 Saving Face in Beijing

57 incentive to keep petitioners away from Beijing.137Therefore, local officials use methods of authoritarian control, including unsanctioned police figures, to prevent citizens from exercising their Confucian rights to petition. So, if the petition system is at best inefficient to resolve a complaint and, at worse, physically detrimental to the petitioners themselves, the ability of the lower class to redress grievances through correct behavior is extremely curtailed. Instead, mass demonstrations have been effective in applying top-down pressure on local authorities to address citizen complaints; Cai states, A few factors often make the upper-level government regard intervention as necessary: (1) casualties from the resistance (e.g. deaths of participants), (2) media exposure, and (3) the number of participants in the resistance.138In some ways, these factors are interrelated though the CCP has an effective censorship regime to prevent print media from covering mass demonstrations, the privatization of the media since reform and opening has challenged blackouts of sensitive news. The more people in the resistance, the greater the risk of casualties; the more casualties, the likelier that news of resistance will spread through word of mouth or online forums, increasing pressure on the media to report on the resistance or face a loss of credibility from those within their circulation. In other words, forceful resistance prevents the government from pretending not to know about a problem because the resistance makes the problem common knowledge to both the government and the general public.139 By subverting the petition system, the party-state has actually increased social disharmony

137 138

We can 7 Cai, Y. 12 139 Cai, Y. 15

58 because the best way to get localized grievances resolved by the state is for large groups of people to use incorrect behavior. When mass demonstrations occur, the central government has an almost preplanned strategy to diffuse protest movements, often referred to as buying stability. Buying stability is characterized by three separate governmental responses to mass demonstrations: appeasing protestors, punishing organizers and doing little to resolve the underlying causes of protest.140Appeasing protesters can involve announcing punishment of party officials; however, in reality punishment is fleeting at best. First, party officials find that cadres are an investmenttraining and equipping cadres costs time, money and other resources such as party schools. Given that investment, punishment is often nothing more than a demotion or a lateral move to another region at the same administrative level. In a survey from December 2002 to November 2003: the CCPs own anti-corruption agencypunished 174,580 party officials and membersBut of more than 170,000 cadres punished by the CCP, only 8,691 (5 percent) were expelled from the party and transferred to judicial authorities for prosecution. Among those criminal prosecuted were 418 cadres with country-level or higher rankings6.4 percent of all the similarly ranked officials punished in the period.141

Meanwhile, buying off the protesters is often seen as a final resolution to their problem, regardless of whether compensation was adequate to achieve justice in the eyes of the citizens. The compensation given by the government is a sign of their benevolence and per the Confucian system of rights and obligations based on the hierarchy of authority, the money

140 141

Lum 10 Pei 152

59 bestowed is seen as an end to the dispute. Any further questioning of this resolution by the citizens is disharmonious to social relations and displays poor moral aptitude. Thus, despite an increase in mass protests in rural and undeveloped areas as a result of the corruption inherent in the CCPs decentralized system, the party-state finds that a mix of coercion and repression is working to contain protests to isolated events that can be dealt with on an ad-hoc basis, without the need for systemic reform. Confucian ideals play into this strategy by proscribing correct behavior and interactions between the governing and governed, but give the ultimate arbitration of justice to elites, based on hierarchical authority. If citizens cannot reach the higher authorities through correct means and behaviors, such as the petition system, they will still assert the righteousness of their claims through mass demonstrations. If the CCP continues a practice of buying stability, this reciprocity might encourage civil disobedience as the only effective means of winning redress.142 As a long-term strategy, then, the CCP understands that it needs to rebalance economic gains to develop rural areas and contain social disharmony; however, doing so involves political and economic trade-offs that will affect their new base of legitimacythe wealth-accumulating urban middle class.

2.2 Middle class attitudes toward the CCP The middle class possesses very different attitudes toward mass demonstrations due to their different stakes within the current system. As shown above, the middle class is more likely to have shared in the gains of the CCPs economic policies and is therefore more likely to support the regime. While news reports have shown that the middle class is generally aware

142

Lum 10

60 that corruption in the current system can produce health and safety hazards, they are more likely to see their wealth as a means to escape the negative effects of those problems. For example, Peter Ford of the Christian Science Monitor conducted an interview with one whitecollar couple in May 2011. In regard to the Sanlu scandal, in which baby formula was found to have been mixed with cancer-causing chemicals, husband Liu Likang said: Middle class people could afford to buy imported formula. Ordinary people had to use the poisoned stuff. If you have money, you can have a better life. We can only try to earn as much money as possible to reduce the governments influence over our lives to a minimum. All we can do is earn a lot of money to avoid harm.143

Similarly, since the SARS epidemic, cars have not only been seen as a status symbol, but also as a safety precaution to avoid close contact with potentially infected citizens on the trains and buses.144 The middle class are not likely to be directly bought off from expressing discontent, but are likely to see their monetary advantage over other classes as one exit option from the dangers of a corrupt system. The methods of mass demonstration for the middle class are different than those of the lower class. First, the middle class are much more likely to use the internet as a medium to explore relations between state and society. China currently has 384 million internet users, but only 106 million or approximately 27 percent are accessing the internet from rural areas.145 Despite the rigid and effective system designed to control information from penetrating the Great Firewall, the Chinese government has had more problems regulating information posted

143 144

Ford Tomba (2004) 145 The 25th Survey Report on the Internet Development in China.

61 and disseminated from inside the country. At present, the Chinese government uses the same controls on informal media, or online news content, as it has with the formal media: namely, uncertainty of punishment, blocking of specific sensitive content, and post-hoc punishment of those deemed the worst offenders. Tamara Shie in her article, The Tangled Web: does the Internet offer promise or peril for the Chinese Communist Party? states that self-censorship is the greatest tool the Party has to control internet content.146In other words, a citizens perception of his or her correct role is a psychological constraint to challenging regime legitimacy online. Shie goes on to outline that For users unwilling to censor themselves, there are Big Mamas, website employees who lead armies of volunteers who scan the Internet for any sensitive material, and erase it.146 Shie explains, Perception can be a very strong motivating factor. If one perceives that the threat of being monitored exists, an environment of selfcensorship is easily created.147 Akin to the CPD directives, Party members are also finding that creating false support online helps control framing of potential political hotspots. The New York Times reports that the government, not content merely to block dissident views, now employs agents to peddle its views online, in the guise of impartial bloggers and chat-room denizens.148 The article describes a situation in Jiaozuo where the government deployed 35 internet commentators and 120 police officers to defuse online attacks on the local police after a traffic dispute. By flooding chat rooms with pro-police comments, the team turned the tone of online comment from negative to positive in just 20 minutes.148 The Jiaozuo case shows that

146 147

Shie 536 Shie 539 148 Wines et al.

62 the strength of the internetanonymity for the public in reacting to eventsis also the exploitable weakness of the internet, where anonymity can easily equal fabricating impartiality. Chinese statistics estimate the current number of blog users at 221 million,149 but the Chinese government frequently shuts down blogs critical of the government. A recent report from the Associated Press details how dozens of popular but outspoken blogs were shut down abruptly in August 2010, while other websites hosting critical views appeared to visitors as though they were in beta or testing mode with no further explanation.150 Xiao Qiang, director of the China Internet Project at the University of California-Berkeley, is quoted by AP as saying, given the speed and volume of microblogging content produced in Chinese cyberspace, censors are still several steps behind at this stage.150 Although the idea of random enforcement is helpful to the Chinese government because it encourages self-censorship, it is possible that the random nature of internet censorship is sporadically targeted out of lack of capacity to effectively monitor and enforce online censorship. Blog closures are often temporary measuressavvy internet users can easily set up another blog as needed. As for popularity of the blogs, the China Internet Information Network Center lists communication by blog as the 7th most frequent reason Chinese citizens go online, above 8th ranked communication by e-mail.151 This number might be further confused by the 2nd ranked reason, searching for online news. In the subsequent explanation of statistics, microblogging is listed as a format of online news expression and

149

The 25th Survey Report on the Internet Development in China.41 150 Anna 151 The 25th Survey Report on the Internet Development in China. 37

63 information transmission.152 These statistics show that the Chinese have a thirst for news content outside the formal media. In other words, the statistics confirm that citizens perceive the quality of print and broadcast news to be inadequate and actively seek further news resources online, from formal and informal media. These numbers spike during periods of peak uncertainty over official government storylines: during catastrophes like the SARS outbreak, the number of mainlanders regularly relying on proxies to access websites normally not available in mainland China rise by at least 50 percent.153 Despite the fact that the predominately middle class web users acknowledge the value of the internet in covering gaps in the CCPs state narrative of events, most Chinese believe that the state should control internet use and content. In a study conducted by the Chinese Academy of Social Sciences, 80 percent of mainland respondents agreed that the Internet should be controlled or manage, and 85 percent of those respondents asserted that the Chinese government should be the entity in charge of controlling or managing it.154 This fits with the Confucian tendency to see the state as parent-officials who are responsible for guiding correct moral behavior. All Confucian practices prioritize order over chaos, and the free-for-all nature of the Internet may be too chaotic for the Chinese public to comfortably endure. As of today, the CCP provides limited guidelines to social behavior on the internet and recognizes the importance of the medium by seeking to contain Sina Weibo, the popular microblogging service commonly known as the Chinese Twitter. Furthermore, although the announcement drew sharp criticism from citizens, the CCP will now force cell phone companies to block user SMS

152

The 25th Survey Report on the Internet Development in China.39 153 Thorton 182 154 Ibid.

64 (text) messages that displayed subversive content. This announcement was presented as a tool to control pornography, a distinctly moralistic framing of a censorship campaign.155 Therefore, when people complain, the CCP can dismiss the furor as admissions of guilt from complainers if you werent using illegal or subversive language, then what do you have to hide? When the middle class succeeds in performing a mass demonstration, as was the case in Dalian in August 2011, the authorities are quick to grant their requests. Though rapid acquiescence does disperse the movement with a minimum of press attention (the official media did not report at all on the protests), it also carries the risk of teaching the public that mass demonstrations are a means to their goals. However, in the case of Dalian and a similar protest in Xiamen in 2007, the targets were chemical factories that carried dual concerns for those living near the plants: first, the chemical produced was toxic and there were risks of public safety hazards due to improper securing of the waste; second, the presence of the plant and the risks to public safety may have negatively affected property values in the area. Thus, the safety hazard could not be overcome through greater wealth in the same way risk could be minimized through buying imported formula in the case of Sanlu or by driving a car in the case of SARS-like epidemics. Additionally, Dalian itself is known is famed for its popular beaches and clean air, and is often called a playground for the rich,156 including cadres, and thus the protesters goals might have resonated more deeply with officials. Finally, Dalian had seen a waste spill in the summer of 2010 that threatened the area beaches, and was relatively close to the Fukushima site in Japan that saw a devastating accident permanently threaten the

155 156

LaFraniere Bodeen & Wivell.

65 surrounding areas after a massive tsunami hit the plant in February 2011. Both of these incidents likely heightened the publics perception of risk from the chemical plant. The protest in Dalian was described by Western media (again, the only reports officially available) as relatively calm, unthreatening and apolitical.157The Telegraph described the protesters as smartly-dressed and cell-phone savvy, texting pictures of their defiance all around the world. However, no protestors would give their names to the reporters and many declined to be interviewed for the story, as some were concerned about reprisals from schools and employers, others argued there was no mileage in crowing about the peoples victory in case the authorities changed their minds.158 These fears underscore Confucian ideas of right behaviornot only did protestors know that getting on record about their activities carried a risk of admonishment or worse from their parent-officials (employers and professors) but also that crowing or bragging about their success might adversely affect their desired outcome. The one protestor that did talk to the Telegraph also declined to give her name, but was described as relatively affluent through her possessions: she carries a Louis Vuitton bag (not fake), wears rose-tinted designer glasses and admits her father is sufficiently wealth that she doesnt need a job. This anonymous, young middle class heiress was careful to describe the protest activities in terms of a narrow target and correct behavior. She stated If there was someone shouting down with the Communist party! people were asking him to keep calm. The participants went there with a very clear aim, which was to save the city. There [sic] were very controlled and calm. They even picked up their litter.159In this way, the participants were

157 158

Ibid. Foster 159 Ibid.

66 not challenging the legitimacy of the state but were applying a rights discourse to voice concerns over one clear targeta chemical plantthat threatened not only their immediate safety should its protections be breached but also threatened their investments in area property. These protesters policed each others behavior and left the area looking as though they were never there. In accommodating their request, the CCP is demonstrating its benevolence to citizens who practice correct behavior. The Dalian incident suggests that both state and society have a stake in communicating through Confucian norms, though certainly more examples should be collected and analyzed to confirm this correlation.

2.3 Framing Incorrect Behavior for the Middle class Despite the successful accommodation of the Dalian protests, most CCP tactics and crackdowns reveal a deep sense of insecurity about the potential for a middle class uprising. This section will explore the CCPs swift and violent reactions to attempts from activists to engage the middle class: Ai Weiweis attempts to vent middle class frustrations through microblogs and art installations, and the Jasmine Revolution protests that fizzled before they could catch on. For both, I will lay out an argument for why the situation challenged CCP Confucian hegemony and discuss CCP reactions to these challenges in terms of framing correct and incorrect behavior. Ai Weiwei is an activist and artist who has been an outspoken critic of the party-state since the 2008 earthquake in Sichuan that killed thousands of children, presumably because of corruption between state officials and developers that allowed for shoddy construction of the areas schools. Since organizing an art project that used volunteers reading the name of the

67 victims to bring the gravity of the event to internet users, Ai Weiwei has also committed cardinal behavioral sins of criticizing the CCP to Western media and then refusing to apologize, especially in their handling of huge international events such as the 2008 Beijing Olympics. In one interview with The Observer, Ai Weiwei even pointed out the CCPs strategy of inclusionary corporatism in real estate acquisition: Since then the state has just sold it to people who can afford it. So property should be [according to the government] for the whole nation, yet the government takes the profit. No political, philosophical or moral aesthetic is involved. Its just: lets be rich first. Except that people are finally starting to question: who is getting rich?160 Ai Weiwei is not only influential because his microblog is read by over 10,000 people every day161 (including the Dalian protestor that spoke to the Telegraph), but more grandly because of the role that artists and scholars play in Confucian ideology. Calligraphy, poetry, drama and art were all highly prized during dynastic times, with scholars and artists as contemporaries of the emperors and the ruling elite. Becoming a scholar or artist was the easiest way to improve your social position in the dynastic era. As Groot notes while discussing the role of students in the Tiananmen Square uprising, the old Confucian values rating mental far above annual labor remain intact, even after 40 years of Communism.162 In todays China, however, art is a middle class luxury akin to internet access, vehicle purchases and the like. Only people with extra income can afford to invest in art as property. People in impoverished areas are unlikely to have heard of Ai Weiwei or at least to have access to his criticism of the state. Indeed, 10,000 citizens are but .001 percent of the total population. If Ai Weiwei is
160 161

Cooke Ibid. 162 Groot

68 measured only by his online followers, the swift authoritarian crackdown that followed his mocking of the government is extremely disproportionate to his public appeal. Following calls for a Jasmine Revolution to mirror in China the challenges to authoritarian rule that have seen several Middle-Eastern and North African countries experience regime change at the beginning of 2011, Ai Weiwei was among the 250 or so bloggers, writers, human rights lawyers and activists that were arrested or detained by Chinese authorities on charges of subversion. Ais final transgression appeared to be tongue-in-cheek message on Sina Weibo noting that he never paid attention to jasmine until the authorities started mentioning it obsessively; this showed that jasmine was their ultimate fear so jasmine it up.163 Ai was held in prison for several months; his wife and employees of his architectural design studio were also questioned and released. After his arrest, the state-run Global Times released an editorial condemning Ais incorrect behavior. Ais vociferous complaints about the regime to Western media were framed as an unnecessary distraction: It disrupts the attention of Chinese society, with the goal of reforming the value system of the Chinese people.164The editorial went on to note, As China moves forward as a whole, no one person has the right to make our entire people accommodate their personal views of what is right and wrong. By framing Ais contention as so far outside the mainstream of what concerns the average Chinese citizen, the state media is hoping to convince the public that Ai Weiweis detention is meant to protect the rights of others to be free of his views, while Ais continued speech is an agenda advanced for his own personal gain. The CCP has also used the charges against Ai Weiwei to frame his struggle with
163 164

Authors translation and paraphrasing. Bandruski

69 the regime: first he was said to have been arrested on pornography charges, a highly taboo subject for the Chinese public. Then he was officially charged with tax evasion, a crime that frames Ai Weiwei as someone who does not fulfill his duties as a citizen of China. Ai has repeatedly denied these claims, but notes that paying the amount declared owed by the state is, in itself, an admission of guilt. This claim is still ongoing, with the Chinese censors recently shutting down Ais Sina Weibo account after he sent out a call to solicit donations for these fines. Ais latest run-in with the CCP is tied to the Jasmine Revolution, a planned series of public protests that never gained steam because authorities monitoring the internet organization succeeding in filling the protest areas with an overwhelming police presence. Whether their concern was justified or not (many Western reporters showed up to the sites only to find no person willing to admit they had come to protest), the reaction to the event was likely precipitated by the choice of location: In Beijing, the protest location was in front of a McDonalds in the citys most busy shopping district, a stronghold of middle class affluence. In Shanghai, the location was a Starbucks. Though the protests may have seen similar crackdowns no matter where they were held, the choice of location shows that protest organizers were specifically targeting the middle class. The protests themselves were practically organized as coordinated shopping tripsthe act of showing up at all would signal the protesters defiance of the regime. A development that enraged the Chinese authorities was the perhaps accidental appearance made at the Beijing location by the then-American Ambassador to China, Jon Huntsman (who has denied doing anything more than being in the wrong place at the wrong

70 time).165 Due to the overseas nature of the online organizers and the appearance of a powerful American authority, the CCP condemned the protests as interference from outside powers, playing on a powerful cultural narrative rooted in colonialism that accuses Western nations of perpetrating a deliberate strategy to keep China from prospering. Regardless of the outcome, the heavy police presence and forceful condemnation from authorities signaled to the Chinese middle class that these types of protests are prohibited in todays China.

165

Mong

71 Chapter 3 The Future of Economic Rebalancing Maintaining growth while rebalancing the Chinese economy entails several major and interrelated shifts. First, China needs to maintain the wealth it has by retaining and growing the employment sectors that pay high wages, while continuing to drive strong exports. Because the CCP narrative promises a better for life for all (eventually), employment must continue to grow, and to grow in new sectors that involve more labor specialization and higher salaries. This will allow those at the bottom of the system to begin to move up the economic value chain, and absorb some of the blow that is looming as manufacturers move from China to more impoverished countries in their race to the bottom on wages. Second, Chinese companies need to become more globally competitive in high-value goods. This means that they must be able to create products that have uniquely embedded competitive advantageor to put it simply, they must develop indigenous innovation. In doing so, they can attract FDI that is not export dependent and they can also negotiate a larger share in the profits of these products. A concurrent benefit to indigenous innovation is encouraging the emergence of more Chinese entrepreneurs to develop products specifically for the Chinese market. Finally, Chinese citizens need to spend more discretionary income to boost imports and support a domestic service industryand not, as is currently the case, on fixed investments like real estate.

3.1 Confucianism and Work Confucian ideology that is grafted onto a capitalism system produces a series of social tensions. First, capitalism is based the rational actor model, which governs investments and allocation of employment. In other words, investments should be made because they have

72 potential to grow more money, and employees should be chosen because they display the skills necessary to help the company further its profit-oriented goals. A 2004 survey of Chinese citizens from rural and urban areas found that, across the board, people perceived that the most important factors distinguishing the rich from the poor in China today are talent, training, and hard work, rather than dishonesty, unfairness in the distribution of opportunities, or other non-merit factors.166 Therefore, the Chinese in general believe in the capitalist means of hard work and talent as a means to improving their standard of living. However, this data contrasts with other qualitative data from China, which as outlined above, suggests that the Chinese are quick to distinguish themselves from salarymen who obtained their wealth through illegal or unethical means. At the same time, the Chinese seem to have a very clear idea that associating with those higher up in the authority chain can advance economic and personal interests. This explains the propensity for black cars in China, which are associated by the public with the wealth and power of CCP elites. Furthermore, news articles are rife with anecdotes about Chinas propensity to value fake status symbols: one article describes how young Chinese males are having fake nametags from Western companies made in order to score more dates from women who think they have money;167 another article notes the propensity for Chinese businesses to hire English speakers with absolutely no experience to represent the company at trade shows and other functions, because associating with Westerners is a symbol of the companys profit-making abilities. In both cases, the appearance of wealth is more important

166 167

Whyte 182 Challick

73 than the actual accumulation of wealth (though one may lead to the other), because wealth is associated with high moral virtue. This practice of judging the correct path to wealth is also made fuzzy in China because guanxi is essential to business relations. In other words, what Westerns may perceive as promotion based on non-merit factors, such as nepotism in economic affairs, may be viewed by the Chinese as correct behaviorafter all, Confucianism dictates a high level of responsibility to your immediate family, and carries that responsibility through to your friends and by extension, business associates. By giving and receiving favors, both parties are enhancing mianzi, or face, by showing their benevolence and right actions toward each other. This system is not kind to outsiders, particularly foreigners who seem impatient to develop these social relationships because they believe that business deals can be judged on the numbers alone. In other words, the idea of merit is situated in two very different locales for Western and Chinese businessmen: Western businessmen judge each other on proposals, on the potential for wealth generation on the basis of wealth accumulation alone; Chinese businessmen judge each other on character and on the potential of wealth generation to prove themselves yet more morally sound by sharing the wealth opportunities with their friends and associates. Western businessmen prize contracts as legal frameworks in which expectations are firmly laid out; Chinese businessmen place strong value on oral contracts based on reputation. This essay makes no judgments as to which way is better on a societal level. Rather, the question is, can Confucian ethics work in a global system that is distinctly capitalist? If China wants to rebalance their economy through moving up the value chain, they will need to prize all workers that can advance that goal, regardless of their social connections. If giving positions of

74 power away to friends and relatives either creates new public perceptions of equality; or if large numbers begin to feel that the rules of the inequality game are stacked against them, with benefits mostly monopolized by the rich and powerful, popular outrage and resentment will likely break to the surface.168 Ai Weiwei is one voice amassing followers behind this view, but the real danger is a slow burn of urban professionals who find their advancement stunted by a lack of social connections. Should that anger find a common voice, either online or through in-person social networks, the CCP will face a large-scale legitimacy crisis. Current trends already show that though manufacturing wages are higher than officebased wages, more people would prefer working in an office to working in manufacturing. As greater numbers of Chinese citizens graduate from universities and enter the work force, the CCP will need to provide a moral grounding for limiting mobility. In other words, to have a balanced economy, China will need a strong manufacturing base on which to build a global services industry or to develop new manufactured products to compete in a global market. In America, that middle class was built and sustained on Protestant values of hard work and company loyalty. The CCP will need to find a comparable set of attributes that give moral standing not just to the most wealthy, as has been the legitimating narrative since the early 1990s, but also to those who support the larger economy by taking undesirable jobs.

3.2 Confucianism and Consumption Raising consumption is an oft-stated goal for the CCP, and gains in this area will likely come from middle class residents in search of goods that confer a better a social status.

168

Whyte 183

75 However, the CCP still has work to do to convince the public that more consumption can be framed as a virtue and not a vice. On consumption in particular, the CCP needs to walk a fine line between a rampant consumerism that denotes an ideology of money worship and traditional frugality that disdains spending on material goods. The data on attitudes toward consumption in China reveals the tension between traditional values and the new realities of wealth and status attainment for the middle class. A survey of schoolchildren asked to describe personal qualities of pictured children with many toys and with few toys found that both types of children were perceived as both happy, smart, and has a lot of friends.169 These descriptors signify that Chinese children see little difference in social relations between children who can consume more than others. Instead, the differences were found in the childrens perception of personal characteristics: a child who had many toys was seen as someone who spends money irresponsibly, while a child with few toys was more likely to do well in academics.170 The studys authors note the link between possessions and wastefulness may stem from the strong emphasis on thrift and frugality taught at schools.171 This educational moray may go a long way in explaining the general sense of emptiness that pervades Chinas middle class. Therefore, the CCP may want to change educational lessons and values in urban schools to reframe consumption as a positive moral value. As with children, excessive consumption in adults is associated with negative personal traits. An article in the Weekend Australian notes that a backlash against European brands has

169 170

Chan & Hu 50 Ibid. 171 Chan & Hu 57

76 begun, because theyre sold to people who arent perceived as wealthy and may even be dismissed as tou baozi, potato dumplings bogans.172 This derogatory labeling fits the Confucian perception that one should be in harmony with their social status. Perhaps due to this additional barrier to consumptionnot only do you need to have spare money but you also need to have the social status befitting your purchased goodsluxury shopping malls are the purview of mistresses of wealthy Chinese, while grandparents sit at home and save.173 Consumption among families is oriented toward idyllic escapes such as Ikea, where citizens of China can pretend to be in Sweden for the day.174 This fascination with the outside world is driving vacations overseas, further diminishing the share of GDP that is spent on consumption at home. One logical reframing of consumption is already taking place, as noted above by the modeling behavior of the CCPs elite consumption habits, though it is likely that middle class citizens attempting to copy officials in dress or goods will be labeled tou baozi. A more effective framing may be to merge consumption with social benevolence, a strategy that has been successful in Western markets with products such as the RED campaign targeting AIDS awareness. However, this strategy will be determined by the companies themselves who see a competitive edge in satisfying the Chinese need for moral spending on consumer goods. Instead, the CCP could try to link the duty of filial piety to comfort-related products for the elderly, though again, a heavy government hand in such an industry could discourage consumer spending due to the low level of trust in the safety of government-sponsored facilities or goods.

172 173

Callick Ibid. 174 Ibid.

77 In actuality, the CCP needs to increase social spending to spur a rise in consumption, but due to the decentralized and often predatory nature of the social service system, these changes are unlikely to be swift or substantial in the short-term.

3.3 Confucianism and Innovation One of the largest barriers to true economic rebalancing is the incompatibility of the Confucian system with innovation. Confucian learning is a hallmark of the Chinese education system, emphasizing rote memorization and standardized testing. Students in China are taught from an early age to copy characters with precisionand for good reason, as characters are closer to pictures than to Latin letters, so that minor imperfections can cause massive confusion. In memorizing poetry, articles and even English phrases, students can imitate the writing style, the sentence structure and the vocabulary used.175Other Chinese traditions, such as calligraphy, taiqiquan (or shadow boxing), and opera also emphasize strict memorization of an instructor style before a student can properly modify the teachings. China has a saying, All great works are copied from other works, stressing the belief in continuity of content between masters and pupils. A professor at Wenzao Ursuline College of Languages in Taiwan argues that Chinese students are given so many models for memorization that the students often forget the source of their statements, and are thus penalized for their skill at memorization.176 This cavalier attitude toward plagiarism is pervasive at Chinas universities, causing one U.S. funded program to shut down this year,177and has been cited as a problem for American

175 176

Chou 37 Chou 39 177 Redden

78 universities who find Chinese applicants are submitting suspiciously similar application essays.178 China has sprung a cottage industry of ghost-writers and websites catering to students who need quick content for a school-related essay.179 I sat in on a graduate level journalism class at Tsinghua University in June 2010, watching Beaches (1988) with students who were assigned a film review column. I asked the professor why she chose such an outdated film and she replied that she wanted a movie which would be unlikely to have online reviews, so more students would write their own work. If one of the top schools in China picks classroom material based on the difficulty of plagiarizing assignments, then plagiarism is likely pervasive at Chinas institutes of higher education. These cultural attitudes bleed into the area of intellectual property rights, creating a rising tension between Western companies with notions of owning ideas, and Chinese companies that engage in reverse engineering. The U.S.-China Business Council (USCBC) cites intellectual property rights (IPR) enforcement consistently ranking as one of the biggest problems our members face in China per the results of their annual surveys.180 The U.S. Trade Representatives 2008 report to Congress estimates that levels of piracy across most lines of copyright products ranged between 90 percent and 95 percent, while business software piracy was around 80 percent.181 The USCBC notes that fines and punishments are far too low to discourage piracy and says that the value and volume thresholds for bringing criminal cases are too high to be effective in most cases.182 While some knowledge spillover is an acceptable side

178 179

Bartlett & Fischer Rampant Academic Cheating Hurts Chinas Ambition. 180 Frisbie 2 181 USTR 2008 Report to Congress 8 182 Frisbie 3

79 effect of globalization, the statistics on Chinese piracy denote a willful ignorance of IPR violations. A 95 percent level of software piracy is not caused by American trained Chinese nationals breaking off to form their own companies, but by outright theft of intellectual property. In the area of IPR, developed countries want China to take piracy seriously and crackdown on the informal market that allows theft of intellectual property. Without modifying the Confucian narrative that prioritizes community over individual and memorization over originality, China will face increasing amounts of Western lawsuits over IPR violations, as well as a lack of creative engineers that can help China move up the economic value chain. Making the changes necessary to rebalance the economy will entail serious reconsideration of the correct role for middle class citizens because all of these shifts involve reframing Confucian ideals. To keep people moving up the economic value chain, promotions must be based on merit and not the social connections, or guanxi, that govern Confucian work relationships. To develop indigenous innovation, China must rethink its education system that emphasizes learning by rote and idealizes plagiarism over creative insight. Raising consumption entails not only a dismissal of the frugality that constitutes an ideal Confucian being, but also involves a real strengthening of the social safety system to replace filial piety as a strategy to manage an aging population. All of these conversions are already underway in China, but are butting up against centuries of traditional thinking that is embedded in language and custom. The resulting confusion is clear in the middle class analysis abovethe upwardly mobile Chinese seem to want all of these changes to come to complete fruition, but also struggle with trusting the state to guide society through these transitions. In some ways, the party-state will need to become more Confucian, not less, to dictate a new mindset for the middle class that

80 addresses the imbalance between the ideal-type person and the fact that certain non-ideal aspects of a middle class lifestyle support more growth for the entire society.

81 Conclusion In conclusion, the party-state uses unequal application of moral, economic and political legitimating strategies to maintain power and promote the interests of the elite. Confucian ideology in CCP proclamations establishes moral hegemony by setting down guidelines for correct behavior, stressing social harmony over freedom of individual expression. This philosophy, rooted in ancient Chinese culture, provides an expectation that benevolent elites will respond to citizen complaints, but also allows the party-state to discredit protest leaders and activists as dangerous for society. Organizationally, the CCP adopts a Confucian reporting and discipline system, in which each level of official is responsible for lower-ranking officials. However, political advancement often hinges on mutual support between officials of different ranks. In this system, problems that have political implications are often ignored and the threshold of tolerance for corruption is high. Economic policies heavily weighted toward rapid GDP growth goals compelled the government to co-opt capitalists while excluding the traditional vanguard of the CCP, the working class and peasantry. Furthermore, GDP growth is unequal due to policies that favor provinces and cities with larger economies. In less-developed provinces, GDP growth is often achieved through illicit but tolerated practices that lend themselves to corruption and state predation. Corporatist strategies allowed some Chinese, especially workers at urban SOEs, preferential access to real estate and thus boosted their potential to share in the gains of Chinas wealth-generating policies. However, the middle classs acquisition of wealth is linked to both to their general support for the party-state as well as their propensity to see wealth as

82 an escape from unsafe conditions, perpetuated by the general system of political authoritarianism and economic policies. The lower class, upset at predatory practices and relative deprivation compared to their urban counterparts, has become increasingly vocal about the unequal application of legitimating strategies across Chinas social strata. Faced with an authoritarian suppression of petitioners, justified by the states use of Confucian principles, the lower class is slowly learning that greater disruptions draw greater attention to their causes. Still, Chinese authorities have been successful to date in quelling protest movements through buying stability by selective punishments, transferring officials, and paying off the masses. The middle class tends to conform to Confucian conflict resolution to a greater extent than the lower class, but the regime may find the Confucian legitimating narrative to impede further economic development. In this thesis, I have attempted to tell a story about how culture figures into Chinas post-communist development. This story is ongoing and rapidly changing, but the core features outlined above look to remain fixed in the short to medium term. The hegemony practiced by the CCP has used Confucian narratives to proscribe correct roles to Chinese citizens in an attempt to perpetuate the status-quo power structure during rapid economic and social changes. As the Chinese government prepares for the 2012 turnover of major appointments, including the PBSC and the Presidency, we are likely to see another set of proclamations distinguishing the new leaders from the old but also binding the new leadership to Chinese culture and tradition through a modern interpretation of Confucian values. This new leadership inherits the middle class as a bastion of their legitimacy, but also inherits all of the problems caused by decentralization and strict hierarchy.

83 It may choose to co-opt new groups into the middle class to grow its economic power base. It may choose to enact serious reform to the hukou system of household registration that excludes a significant portion of the working class from social service protection, in the hopes of either raising consumption or quelling domestic unrest. It may choose to enact banking reforms that take Chinese assets into the private sector in the hopes of spurring efficiency, controlling inflation and moving off a reliance on heavy fixed investment in infrastructure projects. It may choose to hold cadres to account on ethical breeches, curb rampant corruption and reform land rights legislation to empower peasants to make individual economic choices based on their land possession. It may choose to implement local elections, make the Peoples Congresses more transparent and strengthen the rule of law. It may choose to seriously enforce health and safety regulations that will end paranoia over the quality of Chinese products or the quality of the Chinese environment. Indeed, the CCP has professed an interest in completing all of these reforms in its 12th Five-Year Plan. And yet, to tackle all or part of these, the Chinese government needs to remain in firm control of the discourse on morality in China. It is perhaps ironic that the more the CCP strays from its moral underpinnings, the greater it needs to flex moral muscle to enact reforms. Matching deeds with words will go a long way toward increasing Chinas soft power at home and abroad; if the CCP can restore public faith in their righteousness among all classes, simply by living up to the standards they have set for themselves, then Chinas rise will indeed be unstoppable. However, the struggle with moral behavior has been core feature of the human experience since the beginning of history. Instead of expecting China to fulfill a top-down moral cleansing virtually unseen in the course of human history, this thesis and its arguments are

84 better used to interpret the state of stability between society and the CCP in the coming transition period. By introducing Confucianism as the key mechanism that governs social interactions in China, I seek to provide Western policy-makers with a better perspective of Chinas cultural nuances, in the hope of engendering the type of understanding that allows for creative compromises as our economies continue to develop together.

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