The cloudy sky over the Celestial Empire

Destroy the seed of evil, or it will grow up to your ruin” reads an ancient Chinese proverb, meaning that if one does not take action in time, the evil opposed is likely to become too massive to be ever defeated.

Shanghaistockexchange
Shanghai Stock Exchange by Heurik [CC BY-SA 2.0]
The contorting question that many high-level officials of the Communist Party of China (CPC), uninterruptedly at the helm of the People’s Republic since its proclamation in 1949, are asking themselves with growing fear is: will the combination of inauspicious events including the country’s stock market bubble burst, the financial-economic runaway slowdown repeatedly shown by the indicators of the Chinese economy’s health status and the end of the inebriate disconnection from the real economy, cause an irremediably grave friction in the tacit covenant with the citizens, resulting in a huge risk to the very existence of the one-party system? If, on the one hand, it is highly advisable not to celebrate yet the funeral of the East Asian giant, the world’s largest exporting country, as long as it is not dead yet, it is also true that the direct consequences of the geopolitical perfect storm that has hit the government led by Secretary General Xi Jinping might prove the most destabilizing event the Politburo has ever experienced, something even more serious than the Tiananmen Square protests of 1989, potentially triggering a fateful legitimacy crisis.

Just like a roller coaster, the Chinese stock market had hit record highs in late June due to the collapse in property prices, Xi’s fight against corruption (with dirty money virtually forced to remain in China by preventing owners from cleaning it up abroad or in real estate) and the continuous calls on the part of the Communist Party towards the middle class to borrow money and invest in stock market shares, which were supposed to multiply like the biblical loaves and fishes thanks to the excellent performances of the virtual market.

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A butcher exposing her products in Beijing by Ronnie Macdonald from Chelmsford, United Kingdom [CC BY 2.0]
However, when the mechanism started to jam on itself and the dream of a perpetual El Dorado faded in early July, Beijing began implementing a number of measures in an attempt to stem the collapse, revealing the palpable anxiety of the leadership. The continuous lowering of interest rates, the promise of increased liquidity to banks for new loans and the diktat to state-run companies not to get involved in the selling panic, were the most important emergency initiatives. Although aimed at boosting growth and calming financial markets, they have had little but no effect at all on the economic bleeding so far.

The premise of this latest economic shock lies in what is known as the era of the “new normal”, characterized by a slower but supposedly better economic growth compared to the impressive pace of previous years (predictably unsustainable in the long-term). Here is a significant excerpt from President Xi’s speech at the Boao Forum for Asia annual conference, held on Bo’ao’s Dongyu Island:

Now, the Chinese economy has entered a state of new normal. It is shifting gear from high speed to medium-to-high speed growth, from an extensive model that emphasized scale and speed to a more intensive one emphasizing quality and efficiency, and from being driven by investment in production factors to being driven by innovation. […] When looking at China’s economy, one should not focus on growth rate only. As the economy continues to grow in size, around 7% growth would be quite impressive, and the momentum it generates would be larger than growth at double digits in previous years. It is fair to say that the Chinese economy is highly resilient and has much potential, which gives us enough room to leverage a host of policy tools.

Vladimir Putin and Xi Jinping, BRICS summit 2015 01
Vladimir Putin and Xi Jinping, BRICS summit 2015 by Kremlin.ru [CC BY 3.0]
The Hamlet-like dilemma which disturbs the sleep of party leaders concerns the possible implications of slow growth on popular consent. In fact, the Chinese leadership entered into an unwritten agreement with about 1.35 billion people (that make China the most populous country in the world), a quid pro quo that has sacrificed most of human rights, freedoms and the rest of fundamental rights on the altar of impetuous economic growth and widening wealth (such a social pact is comparable to those of many other countries around the world, such as Saudi Arabia, Kazakhstan, and relatively speaking the Russian Federation). As long as everything is fine, no problem. But what happens if the deal starts to creak?

It must be said that, at the time being, the government can still count on a very large consensus. What contributed most to cementing approval toward the one-party leadership in recent times was the greatly publicized anti-corruption campaign, Xi Jinping’s political trademark. The government clean-up exercise, given the green light at the end of the 18th CPC National Congress, was said to be intended to “go after the tigers as well as the flies”, namely targeting everyone from high-level officials to small corrupters. The results have been quite impressive: about one hundred high-ranking officials belonging to the military circles and the political-industrial sector as well as four national leaders, were arrested and put on trial (according to one’s definition of trial in an autocratic country, ça va sans dire).

The most emblematic case of all involved Bo Xilai, former mayor of Dalian and governor of Liaoning Province, a respected member of China’s princelings (namely the descendants of prominent senior communist officials). His egalitarian policies, which had picked up a slice of the population dissatisfied with the neoliberal policies advocated by the government, drew upon himself the concerns of the establishment. In addition to the opacity of his movements, presumably it is for this reason, too, that Bo was to be found guilty of corruption and sentenced to death (later commuted to life imprisonment) for the murder of British businessman Neil Heywood.

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Tiananmen Square by Ronnie Macdonald from Chelmsford, United Kingdom [CC BY 2.0]
By cutting out some in a game of political expediency, others in a significant eradication of corruption in the state bureaucracy, Xi has gained a wide popular support for the impression that his campaign didn’t go to any lengths, challenging the Politburo Standing Committee (PSC) criminal immunity taboo that had enveloped China since Mao Zedong’s Cultural Revolution.

However, in spite of the remarkable results achieved by the above-mentioned campaign, corruption remains widespread and seems still far from being defeated. According to the Corruption Perceptions Index published by Berlin-based Transparency International , China is ranked 100th out of 175 countries (the lower the perception, the higher the position), a performance on the same level of Algeria and Surinam and worse than Liberia and Panama. Combined with the economic slowdown, bribery could undermine the roots of consensus that the CPC has enjoyed over the years even in its most pressuring times (not coincidentally, among the major causes of the so-called June Fourth Incident were the political-bureaucratic corruption and nepotism).

Hardly great enigmas have easy solutions. Conscious of the immutably changing circumstances, the Chinese leadership is now at a crossroads. On the one hand, the beginning of a season of more incisive guided social reforms, including the guarantee of fundamental freedoms and a genuine Rule of Law, would increase its prestige before the international community and make the country a first-class economic hub. On the other, no one in Zhongnanhai is willing to be remembered by posterity as the Chinese equivalent of Mikhail Gorbachev. Just like Gorbachev’s policies of perestroika (‘restructuring’) and glasnost (‘openness’) ended up letting satellite states at full gallop, the formation of an informed and politically active society is perhaps too big a risk for such a government system.

Accordingly, it will be up to the wisdom and foresight that the Chinese leadership has shown throughout the years to destroy a seed of evil that has already got far too big to be underestimated.

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