The Telegraph
Friday , November 30 , 2012
Since 1st March, 1999
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- The new leadership in China faces new challenges

The road to China’s success lies through the tiny house of a man named Liao Dan. I met him in July this year, after he briefly became one of the most famous people in the country. Liao Dan is a poor labourer who lives on the outskirts of Beijing. In 2007, his wife developed a kidney disease and needed dialysis. Liao Dan’s meagre savings soon ran out, and as his wife did not have a Beijing residence permit, she was unable to access even the local basic health care scheme. So Liao Dan turned to more drastic measures, and forged receipts that made it look as if he had paid for his wife’s treatment. The scam worked for several years, until he was caught earlier this year. Now he’s awaiting sentencing for fraud. However, his case made national headlines, and people from all over China sent in donations to pay for his wife’s treatment. Liao Dan told me that he thought that the Chinese government would work to improve conditions for people like him. But is that a likely outcome of the recent leadership change in Beijing?

The shape of the Chinese government in whom Liao Dan’s hopes lie for the next decade was made clear on November 15, when seven men in black suits appeared onstage in the Great Hall of the People in Tiananmen Square. The leadership team headed by Xi Jinping and Li Keqiang will rule China for the next decade. The incoming Communist Party secretary-general’s speech addressed some of China’s most troubling issues, such as corruption, and gave a nod to internationalism (“China can learn from the world, and the world can learn from China”).

The mention of the wider world was unsurprising, for Xi will be the first Chinese leader of the post-Mao era who knows that his country will have to play a genuinely global economic and political role. But it is on domestic policy that Xi’s leadership will stand or fall. He also knows that management of the economy, and the creation of a stable middle class, are at the heart of the party’s claim to “performance legitimacy”. He also knows that social welfare policy was the Achilles heel of the Chinese dash for growth in the 1990s. China’s old “Iron Rice Bowl” was melted down in the fire of marketization. Mass layoffs led to hundreds of demonstrations in China’s cities. The healthcare, housing and pension arrangements that had been part of the “work unit” system under Mao were all gutted. During the leadership of Hu Jintao and Wen Jiabao, from 2002 to 2012, there was a concerted effort to reconstitute at least some of the system, with efforts such as a new rural pension scheme that began in 2009.

The boosting of social welfare is a central theme of the government’s plans to rebalance the economy. The days of double-digit growth, fuelled by exports, seem over for now: most economists predict 3 to 4 per cent rather than the 8 to 10 per cent annual growth of the 2000s. Instead of selling exports to a recession-hit West, the Chinese government wants to stimulate domestic growth, but to do this, they need to get the Chinese people spending rather than saving (China still has historically high rates of saving at around 50 per cent of the gross domestic product). Yet the uncertainties of life in China, including the costs of healthcare and providing for old age, are preventing people from spending and entering the new middle-class lifestyle. Efforts such as the establishment of shequ (neighbourhood associations) and new health and pension schemes have made a contribution to this economic model. But there are still many obstacles in the way. Liao Dan has been caught up in one of the grey zones of contemporary Chinese life: his wife was one of the 200 million or so rural migrants who do not have a residence permit (hukou) for the place that they live in and are consequently denied social benefits. If Liao Dan is to move into the new middle class, and China is to avoid social crisis, there will have to be real change, and soon.

It’s at the local level that many of these changes must occur. A superficial comparison of India and China often contrasts the federalism of the democracy to the top-down control of the authoritarian State. In fact, China’s top leadership often despairs of making its writ run in the provinces and at the lower levels of government beneath that. Government promises of integrated welfare policies often fall down when local governments protest that they have no money to pay for these mandates. In 2010, the premier, Wen Jiabao, was pictured in newspapers with the children of migrant labourers, arguing that they should be a top priority in China’s development policies. Meanwhile, small private schools for precisely these children continue to be demolished by local authorities in China’s cities, keen to make the migrants relocate home. The centre’s orders do not always lead to obedience. Of course, China is hardly the only large country with a growing economy but relatively low per capita income to face these problems; these are also highly relevant for India. But unlike in India, there is no safety valve by which the ruling party can be thrown out at election time. So the State has to find other ways to keep itself legitimate.

A fear in the region is that China may yet turn to nationalism to provide an alternative to economic legitimacy. Even a year ago, China seemed to have calmed its relationships with the neighbours. Eternal disputes with Japan appeared to have died down, and China was engaged in remarkably successful diplomacy with the Association of Southeast Asian Nations, the key organization in southeast Asia. But the last year has seen a ramping up of pressure. Japanese coastguard boats and Chinese naval vessels have come perilously close to one another in the seas off the islands midway between China and Japan, known as the Diaoyutai in Beijing and Senkaku in Tokyo. Although both sides maintain a claim to the islands that has some historical validity, there’s no doubt that it’s the strength of rising China, not a recession-bound and neutral Japan, that worries the wider world. The spectacle of nationalistic Chinese youths demonstrating against Japanese companies in summer 2012 in protest against the Japanese presence on the islands and the boycott of Japanese cars and electronic goods showed that nationalism, once stimulated, can rise out of control.

In southeast Asia, China has become much more assertive about its claim that almost all of the South China Sea is in fact China’s territorial waters. This week, new Chinese passports were designed that contain maps showing almost all of the waters as China’s. Chinese leaders are very aware that economic growth is dependent on good trading relations in the region as well as a stable domestic consumer market, neither of which would be enhanced by conflict. China has become bitterly resentful of the American role in the Pacific, and Barack Obama’s declared “pivot” toward Asia has emphasized that there is no immediate prospect of the United States of America leaving the region, nor of countries such as Japan, the Philippines, Taiwan or Vietnam (that most anomalous American ally) asking them to do so. But the new leadership will need to demonstrate that it understands one significant way that the US achieved some of its power in the Cold War era: knowing when the stronger power has to step back, and binding itself within multilateral organizations that can rise above nation-to-nation disputes.

Relations with India continue to loom much less seriously in Beijing’s consciousness. India worries about the intentions of the giant to the East, as shown by the wide public interest in the recent 50th anniversary of the Sino-Indian border war. In contrast, the anniversary of the war did not cause a huge stir in China. (The mid-1960s in China, after all, were notable for a massive famine and the complete overturning of society in the Cultural Revolution, and a small war on the borders was a relatively small event in comparison.) While improved relations with India are welcome in Beijing, they do not sit at the top of the list of priorities.

Geopolitics might seem a long way from the fate of a poor Chinese man who committed fraud to save his wife’s life. But if the Chinese leaders of the next generation are to cement their rule, they will need to be as attentive to the Liao Dans as they are to diplomacy in Tokyo or Washington DC.