Economic Foundations for Political Crisis in China: 1989 and Today

On April 16, 1989, the day after the former Chinese Communist Party General Secretary Hu Yaobang died, a friend took me to the centre of Peking University, just beside the old bookstore, to read the big character posters, or dazibao. One particularly poignant posting mourned the death of ‘the last honest man’. As we walked among the somber groups of students and teachers, my friend mused – ‘there’s a political storm coming, and it will end in blood.’ This was months before the military assault on Tiananmen Square and numerous other locations in Beijing. I was taken aback by my friend’s forecast, but such prescience is not uncommon among China’s intellectual and political elites whose sense for the changing currents of politics and power far outstrips the pale efforts of foreign academic scholars.

A key element in my friend’s analysis was the depth of political and policy division around the economic crisis that had begun the previous year. In July-August 1988 China had experienced dramatic inflation not seen since before the Communist revolution (when hyper-inflation had contributed to the paralysis of the then-Kuomintang government). A run on the banks ensued and in September the Third Plenum of the 13th Central Committee of the Communist Party acted on a series of Politburo directives on wage and price stabilization and decreed dramatic cuts to state capital construction expenditures. This in turn caused the cancellation of state-funded construction projects that employed an increasing number of migrant laborers from the countryside, leading to sudden unemployment on a mass scale. Unable to return to their homes, these largely disenfranchised and now suddenly unemployed workers roamed the streets of Beijing and other cities, and contributed significantly to the sense of disorder that fueled government apprehension about the student movement that began following Hu Yaobang’s death. The government’s worst fears seemed to be confirmed when some one million demonstrators, including thousands of workers from Capital Iron and Co. converged on Tiananmen Square on May 17, raising the prospect of worker resistance to the “workers’ state.” Violent suppression then seemed a foregone conclusion.

I suspect that friends and colleagues in China today might well be revisiting their experiences during 1989 as they consider the current challenges that confront the Chinese regime. Similar to conditions during that tumultuous Spring 20 years ago, popular dissatisfaction with the government revolves around familiar problems of corruption, official abuse of power and lack of accountability of governance institutions. But perhaps the most chilling parallel (for the government, at least) is the impact of the current global economic crisis and attendant policy debates and discord that are coming to characterize China’s response. The large-scale private sector lay-offs resulting from the current crisis bear remarkable similarity to the 1988 economic crisis in China that saw massive lay-offs of migrant workers from the public sector that then dominated the economy. With as many as 23 million migrant workers currently unemployed, the government is hard-pressed to provide relief. Beneath the apparent façade of political unity, policy debates over China’s current political and economic challenges continue to generate uncertainties about political leadership of the sort that emboldened the 1989 student movement and hampered the regime’s response. Critical writings by intellectuals such as Sun Liping, Qin Hui and Yu Jianrong and essays in publications such as Caijing reveal the extent of policy disagreement, while the belated release of state plans on issues of human rights, health care and the environment reflect just how limited is the Party/state’s capacity to respond effectively to problems in these areas. The question of economic recovery remains the most difficult challenge. Accompanying policy divisions reflect not only the depth of the crisis but also the diversity of opinion on how China should respond. If the economic situation continues to erode, such divisions may well give rise to more fundamental divisions around political leadership and legitimacy.

The Chinese government’s US$586 billion economic stimulus package offers compelling evidence of the extent of government fears that economic dislocation will generate social unrest and potentially lead to political crisis. The stimulus plan places heavy reliance on creating employment through investment in basic construction and infrastructure projects. Commitments to reconstruction of the Sichuan earthquake devastation and to other infrastructure comprise more than half of the stimulus package, targeting funds for buildings, transportation (railways, road and airport construction), and environmental/ecological projects (mainly irrigation). The program is aimed primarily to soak up excess employment in rural areas caused by the downsizing and closure of largely privately owned export-oriented factories in southern and coastal China. The National Development and Reform Commission’s recent re-targeting of stimulus funds toward rural public works and social welfare projects reflects a consensus around the priority of maintaining social order.

As unemployed workers are encouraged to return to their homes, the stimulus package has come to be focused increasingly on inland provinces and rural areas. This is a major difference between the current situation and the crisis of 20 years ago, when newly unemployed migrants remained in the cities and challenged government and popular conceptions about stability and prosperity. Today, many if not most of the recently unemployed migrant workers have been encouraged to return home, taking their resentments with them. As a step toward mediating the effects of the economic crisis for the rural poor and for migrant labourers, the current stimulus package seems a laudable effort that may well succeed. Yet the plan faces considerable challenges – particularly in the areas of funding and potential impacts on society.

Much of the funding for the stimulus package is expected to come from local government sources -- a formula that bears marked similarity to the recently announced health care reform package. Increased reliance on taxes and fees by local governments increases their vulnerability to declining revenues during the recession, and also heightens the potential for corruption in tax assessments and enforcement. As well, budgets funded by national taxes and central government resources involving the reallocation and distribution of transfers by provincial governments and their subdivisions have faced endemic corruption problems (for example, the Western Development Strategy and periodic flood and drought relief programs). If these problems are repeated with stimulus package funds, resulting delays and disruptions in the delivery of relief for unemployed rural and migrant labourers may well undermine the maintenance of social and political stability that is the underlying goal.

Moreover, the stimulus package shows little prospect of easing the pain for urban professionals, college graduates and business managers who are largely concentrated along the coast and in the large cities. It was the forerunners of these groups who formed the core of popular resistance during the 1989 crisis. With the unemployment rate among recent university graduates hovering near 50%, the potential is high for disillusionment with the promises of prosperity that have been the inducement for political passivity. In the professional service sector, law and accounting firms have been hit hard as have been the professional departments of export-oriented foreign invested companies. To their credit, many firms are treating the economic crisis as an opportunity to broaden the skill sets of their staff, investing in training programs that will strengthen competitiveness once the economic crisis has passed. Yet it remains unclear for how long the professional employment market will remain stable – a sustained contraction may well overwhelm the resources of even the largest and most forward-looking firms. Despite the rhetoric of attention to rural development, the importance of social and political stability in China’s cities remains paramount. While rural workers and communities may be the focus of economic stimulus today, re- targeting may become necessary to provide relief for urban professionals.

At the end of the day, economic conditions will continue to dominate the concerns of most in society – worthy of note is the fact that the vast majority of the some 80,000 outbreaks of unrest admitted by the authorities each year (until recently, at least) concern economic issues such as unpaid wages and confiscation of homes and land. The government’s capacity to respond effectively to the current economic crisis will determine much about its capacity to ensure that political challenges are confined to the writings of dissident intellectuals and do not swell to include the ranks of the political establishment, urban professionals, and ultimately society at large. The Marxist regime in Beijing is more than well aware that economic conditions form the foundation from which spring the cultural and political pressures that change history. The economic stimulus package reveals that while the political tragedy of 1989 might be publicly ignored by the regime, the lessons of Tiananmen have not been forgotten. The critical question remains, however, whether the government’s efforts will succeed and if, in the face on ongoing challenges, the political leadership will retain sufficient cohesion to stave off further social unrest and political crisis.

Pitman Potter is a Senior Fellow with the Asia Pacific Foundation of Canada and Professor of Law at the University of British Columbia.

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