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“The leadership is nervous”

by Wolfgang Meyer
The People’s Republic of China is accustomed to decades of strong growth, driven for the most part by exports. Due to the global financial and economic crisis, exports are now falling. In our interview, Wolfgang Meyer of the Beijing office of the Konrad Adenauer Foundation discussed the reactions of China’s political leaders. [ Interview with Wolfgang Meyer ]

The Chinese government has announced a huge economic stimulus package. To what extent does it involve additional spending that was not planned anyway?
Some of the expenditure would have been made in any case, including some spen­ding on reconstruction in Sichuan’s earthquake zone or traffic infrastructure, for example. However, the stimulus package is worth around € 460 billion. The sheer size does indicate that government expenditure will increase significantly. The volume is equivalent to six percent of the gross domestic product. The central government has only an indirect influence on precisely how the money will be used, however. Three quarters of these funds are to be raised, according to central guidelines, by local governments and other authorities, and those bodies will be in charge of the allocation en detail.

Has any additional spending already occurred?
Due to the reasons mentioned above, it is difficult to trace how much money has been spent and what for. Only recently, however, the State Council pledged funds would flow rapidly. It wants one quarter of the total volume to be disbursed to specific projects by mid-March.

It is well known that the ruling party is afraid of unrest. Are socio-political measures being taken to make sure society stays quiet in spite of the economic crisis?
The leadership declared the goal of a “harmonious society” in 2003, and this policy is about increased social equality. Social-security nets are being established, farmers were given tax breaks, and employees’ rights have been strengthened, at least in part. Now, in the crisis, the top priority is to fight unemployment. This means creating and protecting tens of millions of jobs. However, it remains to be seen exactly how the government can master this task without allowing the social standards it has just established to slip again. The Chinese want to do away with the minimal wages that migrant workers earn. Those very low wages, of course, have been – and still are – among the driving forces that are making China “the world’s workshop”. These low wages, however, do not result in the high purchasing power and domestic demand needed to overcome the current crisis.

Which strata of society does the government worry about most? Shortly before Christmas, Prime Minister Wen Jiabao pledged to make jobs for university graduates a top priority.
Historically, revolutionary movements have always started with farmers’ revolts. However, this risk has probably decreased because of rapid urbanisation. On the other hand, the sheer mass of unemployed migrant workers holds serious potential for conflict. Migrants are sent back to their villages, where they are not needed. In the mean time, however, the urban middle class has also grown to several hundred million people. Until now, the young generation of university graduates has only known strong economic growth. Despite their education, they are now exposed to unemployment. These people are far more likely to vent their frustration politically than the deprived strata of society. Therefore, the ruling party has to pay attention to both, the migrant workers and the university graduates.

Is the government resorting to repressive instruments to stop unrest from the outset?
First of all, the government is likely to enforce the country’s local registration rules more strictly than before. Chinese law ties citizens to their places of birth or employment. The Chinese are not allowed to choose freely where to live. So far, these regulations have been implemented in a rather relaxed manner, particularly so in the industrial areas of the Pearl River Delta. After all, the low wages of migrant workers helped to bring about the economic boom. Once migrants lose their jobs, however, they will probably be kept away from the big cities – if necessary, by force.

Is there reason to fear that the gradual and intermittent liberalisation of recent years will be undone?
Sebastian Heilmann, a sinologist from Trier, once differentiated between the “normal mode” and “crisis mode” of politics in China. In the normal mode, political decisions are reached in lengthy processes of compromise, allowing leeway for gradual reforms or experiments. By contrast, in crisis mode, the party leadership once again seizes all power, severely constricting others’ room to manoeuvre. At the moment, the leaders of the party and the state are striving for centralisation, but they are not yet in crisis mode – as they were, for instance, during the crackdown on pro-democracy protests in 1989 or even during the Olympic Games. Right now, the situation in China is relatively calm, so consultation on how to deal with the financial crisis domestically and internationally is feasible. Liberalisation, up to now, has always been closely linked to economic reforms, with the state slowly retreating from society in general. That had an impact on people’s everyday lives, and the reforms towards a market-led economy will continue, no doubt.

Civil-society activism – concerning environmental protection issues, for example – has been tolerated in recent years, particularly in the urban centres. Is that still so?
So far, we have not heard anything from our partners in civil society about any new restrictions. But that may change in future, especially for socially engaged initiatives, for instance those speaking up for migrant workers. Internet censorship has definitely been tightened. A large number of blogs, an important information medium for China’s urban people, and other independent web sites have been shut down since December. This shows that the leadership is nervous.

In North America and Europe, governments are assuming a far more active role in the economy since the crisis began than they preached in past decades. How does the Chinese government feel about this trend?
The state still plays a much more active role in business here than in most OECD countries. There is widespread consensus that the economic reforms should and must go on – even in the banking sector, as was recently reaffirmed by the government. No malice towards western economies is to be felt. China’s leaders are too busy with problems of their own to seriously want to present their country as a systematic alternative.

US authorities argue that the exchange rate of the Chinese currency has contributed to global imbalances. Do China’s leaders accept any such responsibility?
Not in public. Instead, they point out that the global crisis started in the West. Nonetheless, I think many relevant people understand that global imbalances cannot go on forever.

China considers itself a developing country. At the same time, it is an important “new donor” in Africa. How will the current economic crisis affect relations with Africa?
In 2008, Chinese-African trade rose to its greatest volume ever. Relations with Africa have clearly become more important. The commodities trade matters very much to China, but it is far from the only issue the authorities care about. Securing supportive votes at the United Nations is also a consideration, and so are exports of manufactured goods. Commodity prices have dropped dramatically in recent months. Yet even though the global competition over such resources has somewhat relaxed, the Chinese government has announced it will further consolidate the relationship with Africa.

Can you predict what line China will take in the G20, the group of major economies that will discuss the global economic situation in London in April?
Not at the moment. It would actually be desirable to know more about China’s ideas concerning international regulations, in particular in respect to reforming the Bretton-Woods institutions. Beyond general declarations of intent, the government has not made any specific announcements regarding this issue. In general, China is quite strongly focused on domestic affairs. Matters concerning the global order are discussed far less here than they are in Germany, for instance. The top priority here is always China’s own development. For that reason, our office plans to engage in dialogue on issues of global governance in Beijing this year.

Do you reckon that China will coordinate policy on global economic affairs with Russia, India and Brazil?
We are not aware of any multilateral initiatives of this kind in Beijing. The government has, of course, political consultation mechanisms in Asia, just consider the ASEAN+3 process or the Shanghai Cooperation Organisation (SCO). But very little has happened at intercontinental level. Bilaterally, there is certainly close communication with the other BRIC countries, above all with Russia. How­ever, I cannot see any formal multilateral consultation between the BRIC countries at present.

Interview by Hans Dembowski.