THE BLOG

China's Co-Dependent Middle Class and Communist Party

The motivations of China's emerging middle class are streaked with contradictions and, as a result, so are its attitudes towards, and expectations of, the Communist Party. Despite its ambivalence to China's central government, burgeoning incomes will not trigger abrupt changes between citizens and state due to a co-dependent relationship between rulers and ruled. The former craves control; the latter craves stability. The result is ultra-slow mo political evolution.

Middle Class Insecurity. China's consumers, while boldly ambitious, Confucian to the core and desperate to climb the hierarchy of success, are insecure. Their wealth is new and incomes are still limited. (At JWT, we start selling diamonds when households earn more than $10,000 per year.) Nothing comes easily, given skyrocketing real estate prices and hefty tariffs on hallmarks of middle class consumption such as cars and luxury items. Oftentimes, economic interests are not protected by institutionalized enforceable law and, to date, property rights are still an abstraction. Furthermore, high-income individuals are dependent on the Party's continuation of a pro-growth agenda , one over which they exert little direct control. Corruption is rampant and the system is biased in favor of state-owned enterprises. Work-a-day entrepreneurs have limited access to investment capital. More broadly, they exist in a competitive dog-eat-dog arena in which universities pump out more than six million fresh graduates every year and the iron rice bowl -- i.e., guarantees of cradle to grave subsistence -- has been smashed to smithereens. The middle class is forced to conform to narrowly defined standards of success, all mandated by the power structure.

Most Westerners, nurtured with an unshakable faith in representative democracy as a bulwark against fraud and excesses of the State, expect economically-empowered Chinese to push the government towards significant political reform. Most of us, standing in Han shoes, would be "angry" newly-granted economic interests remain precariously undefended by impartial civic institutions.

Sublime Order. However, the Chinese are, first and foremost, reliant on the Communist Party to maintain order. It must "stabilize" the platform on which continued economic progress rests. The middle class recognizes rulers' imperfections but would never trade away strong central control for the slightest risk of "chaos." China, a Confucian society that defines government's primary role as advancement of national interests rather than protection of individual rights, applauds the skill of technocratic cadres. In Chinese eyes , they are Mandarins who have managed the Herculean tasks of mobilizing resources to urbanize the countryside, connecting the Middle Kingdom to the outside world, promulgating the country's long-term development strategy and building national infrastructure from scratch. Shanghai 's subway seems to have metastasized overnight into one of the world's most extensive systems. Capital has, by fiat, been funneled into industries such as telecommunications and autos, ones that provide well-paying white-collar jobs. China's economic miracle, "mandated" by Deng Xiaoping in 1978 and again in 1992 post Tiananmen, is appreciated by its beneficiaries as a top-down phenomenon.

This "belief" in the prowess of the Party as unifying force is why quintessentially Chinese imperial displays - e.g., the massive reconstruction surrounding the Beijing Olympics; an operatic, testosterone-fueled 60th National Day parade; even a Shanghai World Expo for which tens of thousands of residents were displaced from their homes - are met with little resistance, despite staggering cost, wide-spread eminent domain abuse and questionable quantifiable return. It also explains why very few educated Chinese protest indiscriminate use of the death penalty, except in the most egregious cases, even though due process is an alien concept. (The Chinese expression, "In order to scare the monkeys, you need to kill a chicken, explains much.)

A Growing Ambivalence. Yes, the Middle Class accepts the autocratic inclinations of the government. However, there is growing ambivalence. While there is no push for representative democracy - i.e., Democracy with a capital "D" - individuals look toward the central government to protect hard-earned (and easily lost) economic gains. They expect the Party to become more responsive to the people as they pursue traditional hallmarks of middle income identity. By most measures, this is not happening. Property rights are still an abstraction; residential real estate purchases are effectively 70-year land leases. China's health care insurance is, by any standards, Byzantine, with doctors generating most of their income from "red packets" (i.e., tips from patients) or commissions earned pushing expensive, often unnecessary, drugs. Investment vehicles are far and few between. Stock markets are riskier than Macanese casinos and shareholder rights are non-existent.

The government, increasingly attuned to escalating middle class demands, knows it must evolve from its current Leninist model to something more responsive and flexible. (Back in 2000, Jiang Zemin introduced his "Three Represents," proclaiming an imperative for the Party to progress "the developmental needs of China's advanced production capacity.") It knows it must "listen more," hence the Party's schizophrenic attitude toward the internet, gauging public opinion with one hand and gagging digital dissent with the other. But a dynastic impulse to frame the debate, reinforced by a cultural aversion to turmoil or rebellion, ensures that structural reform will be slow, ruthlessly incremental, and imperceptible to foreign eyes.

The Service Sector: Stagnation, not Reform. Given growing incomes, the gap between the needs of sophisticated middle class consumers and the government's inability to provide for them will first become apparent in service industries. Despite nominal adherence to WTO timetables, even this sector -- most conspicuously, health care and financial services - will remain highly regulated for many years to come. Well-off individuals will not be free to invest or care for family members as they wish. Quality standards within state-owned providers will remain, to put it charitably, mediocre; bureaucratic in-fighting will trump consumer choice. Surgeons will still be bribed by patients' relatives to ensure adequate care. Medical equipment, occasionally state of the art, will be manned by inadequately trained and poorly compensated staff. Local banks, while ubiquitous and dependable for low-end transactions, will offer no investment alternatives beyond basic savings and high-risk, opaque mutual funds. The needs of young urban professionals planning for retirement or their child's education remain unmet.

Why will the service sector failed to liberalize con brio, despite the avowed imperative of stimulating consumer spending and minimizing export reliance? Why will foreign banks be unable to conduct RMB transactions for customers with less than $120,000 in deposits? Why will the state fail to promote the economic and medical needs of a cash-flush middle class? Yet again, in a bid to retain control of what the party labels "strategic interests," social and political stability outweighs the development of institutions -- in this case, a transparently regulated private sector -- that protect individuals.

To the Barricades? Is rebellion brewing? No. Middle class citizens crave institutional reform, but no one wants revolt; they want a continuation of the status quo and still regard the State as the lynchpin that holds society together. Despite Party failings, they also see the enormous progress that has - inch by inch, step by step -- been made over the past decades. They are confident that things are getting better, enabled by a "modernization framework" designed by CCP autocrats who, when push comes to shove, still rule with an iron fist. Personal freedoms have expanded exponentially. Lifestyle options have multiplied stunningly. Career options have blossomed. The Chinese people have only just begun their journey towards a middle class higher ground. Given still-low per capita income urbanization rates, the government has time - decades, not years -- to morph into something it currently is not: a modern, non-corrupt, self-correcting entity. The question, however, is does it have the confidence in itself, and the wisdom of its subjects, to begin its own gradual metamorphosis.

The bet is still far from a sure thing.