Rorry Daniels Thesis - China Legitimacy Strategies_Confucianism & Capitalism

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 University’s Center for Global Affairs

Dr. Jens Rudbeck, Advisor

By Rorry Daniels

December 2011

China’s 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

MOF………………Ministry of Finance

NPL………………. Non-Performing Loan

PBOC……………. People’s 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

1

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 China’s rise is inevitable is predicated on the Chinese

Communist Party’s (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

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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

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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

Capitalism Confucianism Middle Class

Lower Class Officials

Economic Moral

5

Figure 1 lays out a visual representation of how and where legitimating strategies

overlap. Each societal sub-group—officials, middle class and lower class—are 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

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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

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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 non-

partisan,” “observes rules of propriety,” “dignified but not proud, courageous, steadfast, self-

1 Ip 464

9

reflective, self-motivated, fair-minded,” “tolerant, compassionate, frugal, hardworking and

tenacious.”2 The ideal way to express and to judge one’s 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 For a full list, see Ip 465 3 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 state’s legitimacy crisis. Not only were citizens openly challenging the CCP’s 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 troika’7 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 CCP—one 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 China’s official one-party system produces a government entirely

6 Schell 123 7 Abrami et al. 8 Ibid.

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unaccountable to its people. Both assumptions suffer from an ignorance of China’s unique

history. If religion is an organized philosophy of morality, then China’s 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 Heaven’s favor. Losing Heaven’s 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,

9 Tong 145

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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.

China’s leaders often communicate their legitimating strategies through the release of

state doctrines that lay out each leader’s 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, China’s 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 state’s moral hegemony. Borrowing from Gramsci, hegemony “ensures the

legitimacy of elite rule by integrating the state’s political ideology with society’s moral

principles.”12

In other words, China’s political doctrines frame elite goals in terms of general

moral expectations of the public, confirming the righteousness of the state in periods of

transition—whether 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 Jiang’s vision for the direction of the CCP, stating that the Party must represent “the

10 Tong 146 11 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 CCP’s

co-optation of capitalists as a necessity to achieve the goal of high growth, a goal that is itself

essential to the CCP’s 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

CCP’s 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.15

Although the private sector is independent from the State, many

13 “Three Represents – CPC’s New Thinking.” 14 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 China’s 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.18

By incorporating private sector

success into the CCP’s system of meritocratic selection, the party-state has strengthened their

membership’s 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 CCP’s moral

obligation to the people.

However, the CCP has retained tight control of the remaining state-owned sector, which

includes most of China’s 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 McGregor 215-216 17 Lee 18 Branigan

15

the directors of state-owned enterprises (SOEs), and continues to direct their activities and

investments toward China’s overall state interests, rather than a capitalist model that

emphasizes the company’s 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. China’s 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 party’s primary goal—to keep the middle class just

affluent enough to unconditionally support the CCP’s 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 China’s 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 McGregor 69 20 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 citizens—is the achievement of a ‘harmonized’ society. Thus, the

‘Harmonious Society’ doctrine recognizes that cooperation among actors “implies conflicts,

compromises and mutual benefits.”24

It 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 state’s 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 society—or between those who conform

23 Han 148 24 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. Ling’s analysis of China’s rationalization of state violence posits,

“Parental governance entails two related pillars of Confucian thought; filial piety for children-

subjects 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 necessary—and 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 Kuhn 27 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 CCP’s 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 Congress—one 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 Abrami et al. 32 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 factions”33

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

China’s 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 Party’s

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 Ibid. 34 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. China’s

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 vehicles—the

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 Hu’s eighth

honor and disgrace—to live plainly and refrain from luxuries—and 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. 36Jacobs, Andrew. “The Privileges of China’s Elite Include Purified Air.” 37 “In China, Success is a Black Audi A-6.” 38 McGregor 141

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 CCP’s 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 Pieke p65 40 Zheng 162 41 Zheng 165 42 Zheng 162-163

23

The courses are divided into two groups—one 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 CCP’s ‘organic intellectuals,’ and

must research and publish studies related to strengthening the CCP’s “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 Pieke 73-74 44 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 professor’s ability to properly

communicate the elite’s 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 party’s self-image: the measure of luxury serves

as an index of the party’s leading role in the modern world.”48

The resort-style facilities are

meant to reassure cadres and China’s 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 Pieke 110-111 48 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

region’s 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 Lai’s 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 Yeung 50 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 government—especially 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 categories—most 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

center’s 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.

China’s 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

51 Whiting 52 Ibid.

Item

National

Government

Revenue

Central

Governmen

t Revenue

Local

Government

Revenue % of total - central govt % of total local govt

National Government Revenue 68518.3 35915.71 32602.59 52.42% 47.58%

Total Tax Revenue 59521.59 33364.15 26157.44 56.05% 43.95%

Domestic Value Added Tax 18481.22 13915.96 4565.26 75.30% 24.70%

Domestic Consumption Tax 4761.22 4761.22 100.00% 0.00%

VAT and Consumption Tax from Imports 7729.79 7729.79 100.00% 0.00%

VAT and Consumption Tax Rebate for Exports -6486.61 -6486.61 100.00% 0.00%

Business Tax 9013.98 167.1 8846.88 1.85% 98.15%

Corporate Income Tax 11536.84 7619.09 3917.75 66.04% 33.96%

Individual Income Tax 3949.35 2366.81 1582.54 59.93% 40.07%

Resource Tax 338.24 338.24 0.00% 100.00%

City Maintenance and Construction Tax 1544.11 124.19 1419.92 8.04% 91.96%

House Property Tax 803.66 803.66 0.00% 100.00%

Stamp Tax 897.49 495.04 402.45 55.16% 44.84%

Stamp Tax on Security Exchange 510.38 495.04 15.34 96.99% 3.01%

Urban Land Use Tax 920.98 920.98 0.00% 100.00%

Land Appreciation Tax 719.56 719.56 0.00% 100.00%

Tax on Vehicles and Boat Operation 186.51 186.51 0.00% 100.00%

Tax on Ship Tonnage 23.79 23.79 100.00% 0.00%

Vehicle Purchase Tax 1163.92 1163.92 100.00% 0.00%

Tariffs 1483.81 1483.81 100.00% 0.00%

Farm Land Occupation Tax 633.07 633.07 0.00% 100.00%

Deed Tax 1735.05 1735.05 0.00% 100.00%

Tobacco Leaf Tax 80.81 80.81 0.00% 100.00%

Other Tax Revenue 4.8 0.04 4.76 0.83% 99.17%

Total Non-tax Revenue 8996.71 2551.56 6445.15 28.36% 71.64%

Special Program Receipts 1636.99 223.71 1413.28 13.67% 86.33%

Charge of Administrative and Institutional Units 2317.04 359.54 1957.5 15.52% 84.48%

Penalty Receipts 973.86 35.25 938.61 3.62% 96.38%

Other Non-tax Receipts 4068.82 1933.06 2135.76 47.51% 52.49%

Table 1: 2010 Government Revenue (China Statistical Yearbook; author’s percentage calculations)

28

governments are responsible for the majority of social service programs. Table 1 outlines

China’s 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; author’s percentage calculations)

Expense Item

National

Government

Expenditure

Central Government

Expenditure

Local Government

Expenditure

% of total -

central govt

% of total -

local govt

National Government Expenditure 76299.93 15255.79 61044.14 19.99% 80.01%

Expenditure for General Public Services 9164.21 1084.21 8080 11.83% 88.17%

Expenditure for Foreign Affairs 250.94 249.71 1.23 99.51% 0.49%

Expenditure for External Assistance 132.96 132.96 100.00% 0.00%

Expenditure for National Defense 4951.1 4825.01 126.09 97.45% 2.55%

Expenditure for Public Security 4744.09 845.79 3898.3 17.83% 82.17%

Expenditure for Armed Police 866.29 679.11 187.18 78.39% 21.61%

Expenditure for Education 10437.54 567.62 9869.92 5.44% 94.56%

Expenditure for Science and Technology 2744.52 1433.82 1310.7 52.24% 47.76%

Expenditure for Culture, Sport and Media 1393.07 154.75 1238.32 11.11% 88.89%

Expenditure for Social Safety Net and Employment Effort 7606.68 454.37 7152.31 5.97% 94.03%

Expenditure for Affordable Houses 725.97 26.43 699.54 3.64% 96.36%

Expenditure for Medical and Health Care 3994.19 63.5 3930.69 1.59% 98.41%

Expenditure for Environment Protection 1934.04 37.91 1896.13 1.96% 98.04%

Expenditure for Urban and Rural Community Affairs 5107.66 3.91 5103.75 0.08% 99.92%

Expenditure for Agriculture, Forestry and Water Conservancy 6720.41 318.7 6401.71 4.74% 95.26%

Expenditure for Transportation 4647.59 1069.22 3578.37 23.01% 76.99%

Expenditure for Purchasing Vehicles 1085.08 648.81 436.27 59.79% 40.21%

Expenditure for Mining and Quarrying, Electricity and 2879.12 508.23 2370.89 17.65% 82.35%

Information Technology

Expenditure for Reserve for Cereals and Oils 2218.63 781.44 1437.19 35.22% 64.78%

Expenditure for Financial Affairs 911.19 778.04 133.15 85.39% 14.61%

Expenditure for Post-earthquake Recovery and Reconstruction 1174.45 130.6 1043.85 11.12% 88.88%

Interest Payments on Government Bonds 1491.28 1320.7 170.58 88.56% 11.44%

Other Expenditure 3203.25 601.83 2601.42 18.79% 81.21%

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

Shenzhen—essentially 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 Whiting 54 Luo et al. 110 55 Luo et al. 114

30

competition between provinces, China’s inland areas cannot aspire to catch up with the market

incentives to invest in China’s seaboard.

Furthermore, Luo’s study also notes that “the areas opened early for investment also

have greater autonomy and authority in conducting their economic affairs…The 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 transfers—designed 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 Luo et al. 110 57 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 low-

growth 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.”61

The 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 Abrami et al. 60 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.65

These 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 Whiting 64 Ibid. 65 Pei 143, Whiting 66 Pei 178 67Ibid.

33

divest some of the earnings to local official’s 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.68

The 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 transfers—indeed, these transfers seem to support high-growth policies by

raising, in theory, the productive value of the land. Furthermore, because a portion of these off-

budget revenues are used for legitimate expenses,70

it is difficult to parse the level of corruption

in each transaction. The land transfer system thus supports the central government’s 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 Dollar 69 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.”73

In 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 McGregor 72 Lai 827 73 Pei 154 74 Wang & Wang p9

35

In his book, China’s Trapped Transition, scholar Minxin Pei advances a compelling

argument to classify China’s 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 state’s 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 Pei 76 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.80

In 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 school—an 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.”82

Pei 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 one-

child policy, and the Confucian concept of filial piety. Not only is each Chinese couple of

working age expected to support each person’s 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.84

Thus, by 2020, it is predicted that over 10 million Chinese males will not be able to

80 Whiting p8 81 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 China’s state media. Actual numbers likely

to be higher in the range of 115 to 117.

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 path-

dependent: 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 investments—ones that are funded through corrupt practices. The

residents of coastal, wealthy provinces ‘win’ in China’s 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 CCP’s policies

of corporatist exclusion, which manifest in the persistence of the hukou system of household

registration that ties social benefits to a citizen’s 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 China’s 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, China’s 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 China’s

wealth accumulation.

Groot’s research on the hegemonic integration of minority parties during the Mao era

introduces Gramsci’s concept of ‘corporatism’ to the CCP’s 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 problems—the emphasis

placed on growth rates as a key to advancement within the Party, and the low amount of public

spending on social services—cities 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 study’s author

speculates that non-institutional factors such as “endeavor, chance, adventure or social

88 Cai, F. 38 89 “China’s Floating Population Exceeds 221 mln.” 90 Based on 2009 World Bank Development Indicators calculating China’s

population at 1,331,460,000. 91 Chunling 92 Ibid.

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 programs—or 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 state95

—the degree of

employer compliance to these programs has not been empirically studied.

93 Ibid. 94 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 authorities—in 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 He 119 99 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 student’s hukou to permanent residence—in 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 workers—but successful conversion will depend on the level of competition and the

city’s 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 Jacobs, Andrew. “China Takes Aim at Rural Influx.” 102 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 opportunities—or 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 bachelor’s 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 Cai, F. 45 104 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 government’s quota

system has increased the levels of bureaucracy that migrants face, and therefore raised their

barriers to entry in the social service system—and 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 Ibid. 109 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-employer—they 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.”114

In 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 China’s total financial

assets and 70 percent of loans taken by China’s SOEs.115

The top positions of these banks are

staffed by the CCP’s 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 Tomba 24 114 Ibid. 115 Walter & Howie 27 116Chancellor

48

system and recapitalize the banks through IPOs. First, the government reduced the deposit-

reserve 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 bank’s

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 bank’s 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 China’s 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 loan’s 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 won’t blame bank management for

117 Ibid. 118 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. China’s 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, “Today’s 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 savings—a 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 Walter & Howie 43 122 Walter & Howie 65 123 Pettis 124 Walter & Howie 80; PBOC stands for People’s 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 one’s 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 Tomba 24 127 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 & O’Brien

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.”129

This 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 review—in 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.

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

petitioners favor.

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 government’s

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 government’s 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 government’s 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 state-

sanctioned 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 government’s 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 Xu, D. 134 Anderlini; “We can disappear at any time.” 135 Anderlini 136 “Saving Face in Beijing”

57

incentive to keep petitioners away from Beijing.”137

Therefore, 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.”138

In 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 “We can” 7 138 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.140

Appeasing protesters can involve announcing punishment of party officials; however,

in reality punishment is fleeting at best. First, party officials find that cadres are an

investment—training 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 CCP’s own anti-corruption agency…punished 174,580 party

officials and members…But 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 rankings—6.4 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 Lum 10 141 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 CCP’s 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 legitimacy—the 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 CCP’s 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 white-

collar 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 government’s 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 Ford 144 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.146

In 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 self-

censorship 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 Shie 536 147 Shie 539 148 Wines et al.

62

the strength of the internet—anonymity for the public in reacting to events—is 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 measures—savvy 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 CCP’s 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 weren’t 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 LaFraniere 156 Bodeen & Wivell.

65

surrounding areas after a massive tsunami hit the plant in February 2011. Both of these

incidents likely heightened the public’s 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.”157

The 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 people’s victory in

case the authorities changed their minds.”158

These fears underscore Confucian ideas of right

behavior—not 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

doesn’t 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.”159

In this way, the participants were

157 Ibid. 158 Foster 159 Ibid.

66

not challenging the legitimacy of the state but were applying a rights discourse to voice

concerns over one clear target—a chemical plant—that threatened not only their immediate

safety should its protections be breached but also threatened their investments in area

property. These protesters policed each other’s 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 CCP’s swift and violent reactions to attempts from activists to

engage the middle class: Ai Weiwei’s 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

area’s schools. Since organizing an art project that used volunteers reading the name of the

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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 CCP’s 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. It’s just: let’s 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 today’s 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 Cooke 161 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. Ai’s 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 Ai’s

incorrect behavior. Ai’s 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.”164

The 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 Ai’s 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 Weiwei’s detention is meant to protect the rights of

others to be free of his views, while Ai’s 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 Author’s translation and paraphrasing. 164 Bandruski

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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 Ai’s Sina Weibo account after he sent out a call to solicit donations for these

fines.

Ai’s 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

McDonald’s in the city’s 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 trips—the 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

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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 today’s China.

165 Mong

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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 advantage—or 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

industry—and 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 China’s

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

company’s profit-making abilities. In both cases, the appearance of wealth is more important

166 Whyte 182 167 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 behavior—after 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 office-

based 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 children’s 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 study’s 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 China’s 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 Chan & Hu 50 170 Ibid. 171 Chan & Hu 57

76

begun, “because they’re sold to people who aren’t 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 consumption—not only do you need to have spare money but you also

need to have the social status befitting your purchased goods—luxury 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 CCP’s 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 Callick 173 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 precision—and 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.”175

Other 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 China’s universities, causing one

U.S. funded program to shut down this year,177

and has been cited as a problem for American

175 Chou 37 176 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

China’s 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

Representative’s 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 Bartlett & Fischer 179 “Rampant Academic Cheating Hurts China’s Ambition.” 180 Frisbie 2 181 USTR 2008 Report to Congress 8 182 Frisbie 3

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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 above—the 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.

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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

China’s wealth-generating policies. However, the middle class’s acquisition of wealth is linked

to both to their general support for the party-state as well as their propensity to see wealth as

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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 China’s social strata. Faced with an authoritarian suppression of

petitioners, justified by the state’s 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 China’s

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 People’s 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 China’s 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 China’s 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

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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

China’s cultural nuances, in the hope of engendering the type of understanding that allows for

creative compromises as our economies continue to develop together.

85

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