22 March 2014
Fifth BRICS Summit, 26 Mar to 27 Mar 2013

Recalibrating China's social contract

The reform agenda of Chinese President Xi Jinping's new administration is an attempt to rebalance the nation's social contract -- to enable the Communist Party to survive!

At the heart of the reform agenda of Chinese President Xi Jinping's new administration is an attempt to rebalance the nation's social contract. The reason for this is to strengthen the shaky foundations of the Communist Party's grip on power.

Over the past few decades, China has been governed by a social contract between the government and its citizens. Here is the deal:

The Communist Party government has retained a monopoly on power. In return, it has delivered unprecedented economic growth and poverty reduction for its citizens. And Chinese people have been granted a vast array of new freedoms that they did not in the past despite continuing restrictions on freedom. The "red-line" is anything that the Party perceives as a threat to its survival.

The Chinese government has also enabled its people can now to feel proud again of their great country and civilization. China has regained its great power status, after a century of humiliation, and now insists on being treated on the basis of equality by leading Western countries.

The 2008 Beijing Olympics and the 2010 Shanghai World Exhibition were designed to warm the hearts of Chinese citizens, as well as impressing the world. And the government feeds its people with a rich diet of nationalism, especially in the form of anti-Japanese propaganda.

But China's social contract is now unbalanced, perhaps fracturing. And XI Jinping has seen quite clearly that it must be brought back to balance for the Party to survive. XI and the Party are very conscious, to the point of paranoia, of the Gorbachev syndrome. When XI hands over power to the next generation of Chinese leaders, the Communist Party will have ruled China for 74 years, exactly the same length as the rule of the former Communist Party of the Soviet Union

The signs of China's fracturing social contract. Yawning inequality between rich and poor. Immense corruption. Life-threatening environmental damage. Human rights abuses.

Thus, the key objective of President Xi Jinping's administration, through the strategy approved at the Party's third plenum is to rebalance this social contract.

Although this is a question of life and death for the Party, reform will be much more difficult than ever before. As everywhere, reform results in winners and losers.

And the very many interest groups have benefited from the current system will endeavour to block reform efforts. This includes state-owned enterprises, state-owned banks, local governments, Party officials and some ministries.

XI has done an excellent job in consolidating power, and is regarded as the most powerful Chinese leader since DENG. But the reform process will require a complex legislative and implementation process, which will threaten its viability.

Let's take a quick look at some of the most notable reforms.

The reform in the draconian one-child policy has received much attention and is certainly most welcome. This reform will allow couples, where one partner is an only child, to have two children.

In reality, this only applies to urban dwellers, since most rural families can already have two children. And urban dwellers where both partners are an only child, are also already able to have two children. The Family Planning Bureau expects an additional 1.5-2.0 million births a year, raising the current annual new birth rate to about 18 million.

In other words, the impact of the reform is peanuts. And it is not hard to see why. The one-child policy is backed by the powerful family-planning bureaucracy which employs 500,000 full-time and 6 million part-time workers, and collected $2.75 billion in fines last year.

This agency fears job losses if the one-child policy were abolished at should be. Most analysts agree that a total abolition of the one-child policy would have very little impact on the birth rate. Like their North East Asian neighbours, most Chinese no longer want large families because of the high costs of housing, education and so on.

It is also proposed to abolish the 351 labor camps which house more than 50,000 detainees without trial. But what will happen to these camps and their detainees? It is proposed to transform them into drug rehab centers, prisons and detention centers. How will their inmates be treated, and how much change will really occur?

The household registration ("hukou") system which denies internal migrants access to social services outside their home town will also be relaxed, but only for small and medium-sized cities. China's wealthy and middle class in the big coastal cities do not want their hospitals and schools clogged up with country bumpkins. The hukou system results in gross inequities, and great social problems as young children often have to be raised in their home country villages by their grand parents.

With growth now flagging, it is crucial to improve economic efficiency. Thus the decision that the market must play a "decisive" role in allocating resources is encouraging.

This will involve taking away many direct and indirect subsidies from the state-owned enterprises (including the requirement to pay higher dividends), and forcing state-owned banks to operate on a more commercial basis. Thus, there is great promise of the private sector playing a more important role in the economy.

But these hopes are tempered by the communique's statement that the state sector should also remain the "main body" of the economy. It should not be forgotten that the state sector enables the authoritarian government to maintain a strategic hold on many parts of the economy.

A new "leading small group", presumably led by Xi or Li, is being set up to drive reform. This should help tackle vested interests.

A new "state-security committee" is being established to help bring coordination to foreign and military policy. In theory this should minimize the risk of disputes with neighbours like Japan. But China's subsequent provocative decision on new air defence identification zone for the Senkaku Islands shows that policy intentions are ultimately the most important thing. And it seems clear that the committee will also be used to toughen internal security measures.

Ultimately, this project of recalibrating China's social contract involves some letting go on the economy and society, while exerting more political repression as recent arrests testify.

One factor playing into XI's hands has been developments over recent years in the US and other Western countries which have undermined the moral authority and attractiveness of these "advanced" democracies -- developments from the global financial crisis to the recent US government shutdown and spying revelations. This has indirectly strengthened the Chinese government's social contract with its people -- with the support of course of jaundiced reporting in the state-controlled Chinese media.


John West
Executive Director
Asian Century Institute
Tags: china, Communist Party's third plenum, Chinese reform, XI Jinping, China's social contract

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