China: The search for a new destiny by Tan Kong Yam

What’s behind Xi Jinping’s crackdown on Big Tech and rich celebrities, and other measures? To understand what’s driving the ‘common prosperity’ plan, it helps to look back at China’s tumultuous journey in balancing political control, market efficiency and social justice.

By Tan Kong Yam

China’s economic and political development in the past 40 years can best be understood as a relentless search to strike a balance between political control, market efficiency and social justice to sustain party legitimacy. These dynamics will continue to define its future directions.
To understand the complexity of this challenging task, it pays to look at the many turns on the road that led China to where it is today.
It was not that long ago that the country was dirt poor. In 1978, when China opened up, World Bank data showed that its gross domestic product (GDP) per capita was only US$156, less than a third of Sub-Saharan Africa’s US$490. The bottom 84 per cent of the Chinese population lived below the poverty line of US$1.25 per day.
In April 1974, when paramount leader Deng Xiaoping led the delegation to reclaim China’s seat at the United Nations, there was a desperate scramble for US dollars for the official delegation. At the time, the Chinese government managed to scrounge just US$38,000 of greenbacks after scouring all the banks in China. Deng’s delegation took all the available dollars but had only enough foreign exchange to pay for the expensive New York hotel and food. They were embarrassed to find that there were not enough US dollars to tip the porters. Deng had to dig into his personal allowance for the tips. At the end of the trip, Deng was saddened to discover that he only had enough US dollars left to purchase a bar of chocolate for his favourite granddaughter.
When I was an assistant to the late Dr Goh Keng Swee in his advisory work on China’s development strategy in 1985, Deng received us warmly at the Great Hall of the People and spoke passionately about his determination to open up China. According to him, China had paid a very heavy price for being closed to the outside world since the Ming Dynasty. He spoke at length on the shocks he experienced when he rode on the bullet train in October 1978 when he visited Japan. He was further shocked in 1978 when he discovered that the oil refining capacity of tiny Singapore was three times that of the whole of China. He was flabbergasted that the modest HDB flat was bigger than apartments for senior government officials in Beijing. The Middle Kingdom had become the Midget Kingdom.

Let some people get rich first

Deng did not have his way entirely at the start of China’s economic reforms. The internal dissension was often acrimonious. Conservatives like Chen Yun, Yao Yilin and Wang Zhen considered the opening of special economic zones and the promotion of direct foreign investments as contrary to Marxist doctrine and against all that the revolutionaries fought and died for. Internal party documents revealed that the old guard wept while visiting the new capitalist paradise of Shenzhen, seeing in it the wreckage of their life’s struggle.
But Deng’s revolutionary prestige and aura carried the day, keeping the ship of economic reform on an even keel and preventing it from capsizing.
The dead hand of central planning had very serious consequences. When our advisory team visited Shanghai in 1985, the Red Capitalist Rong Yiren, who was later to become vice-president, hosted a dinner for us. I was saddened to find the glorious Shanghai I had read so much about reduced to shabby poverty. The departmental store considered among the nation’s best was less well stocked than the small shops in neighbourhood shopping centres in Singapore. After dinner, dessert consisted of half-rotten bananas. Yet the old men around the table, who used to be the big tycoons in Shanghai when Li Ka Shing and Yue-Kong Pao were still nobodies, all scrambled for the decaying fruit. I was shocked.
Mao Zedong’s central planning system had eviscerated the spirit and dynamism of the people. Looking at the dinner guests, I wondered how many John D. Rockefellers, Cornelius Vanderbilts, Henry Fords and Andrew Carnegies were crushed in the Maoist turmoil of revolutionary class struggle.
However, I was not to be disappointed for long. Late that same night in Shanghai, I encountered a young boy studying under streetlights on a side road. His house was too cramped and lacked proper lighting. He was studying English. I helped him with several sentences and wished him well. On the way back to the hotel, I struck up conversations with several entrepreneurial hawkers selling cold and hard buns to migrant workers from Henan working at a nearby construction site late into the night. What I had seen was the emergence of the young shoots of a dynamic new China.
The economist in me told me that all the necessary ingredients for dynamic economic growth were there: the strong political will to rebuild the nation from the very top, the hunger for education that enriches human capital, the suppressed entrepreneurial spirit about to blossom, and the construction of new infrastructure to support growth. They just needed to get the institutions and incentive system right, and the energy would explode from the uncorked bottle.
That China is what it is now is testimony to both the will and skill of Deng and his comrades who managed to inspire sufficient confidence to get their reforms off the ground and then to take off. But they were also aided by a shared sentiment among the Chinese that the country would emerge from this particular low point to regain its past glory.
In my travels through China’s 31 provinces and municipalities as well as over hundreds of villages and towns, meeting peasants in Guizhou to intellectuals in Guangdong, retrenched workers in Jilin to tycoons in Zhejiang, from coal miners in Shanxi to cadres in Tibet, from construction workers in Ningxia to housewives in Yunnan, from steel workers in Inner Mongolia to retired teachers in Sichuan, I always sensed this deeply felt historical burden and the urge to strive to restore national pride.
This powerful invisible web of shared destiny and fervent nationalism has provided the gargantuan driving force to propel the nation forward, albeit sometimes too rapidly and recklessly.
A senior government official once told me that during a meeting in the 1970s, Deng remarked that one day China could have foreign reserves amounting to US$10 billion. The room went deadly silent. Nobody then believed it would ever happen, but none dared to contradict him openly. Today, China’s foreign reserves stand at US$3.2 trillion (S$4.3 trillion).
Over time, I observed a steady gradual progress of rising cultural self-confidence. In the 1980s, the four bushy-bearded foreigners – Karl Marx, Friedrich Engels, Vladimir Lenin and Joseph Stalin – dominated Tiananmen Square during national day celebrations. By the 1990s, they were gradually replaced by Chairman Mao and Dr Sun Yat Sen.
Labelled as superstitious and backward, traditional Chinese festivals were banished from the 1950s to the 1980s. By the 1990s and 2000s, the Mid-Autumn Festival, the Dragon Boat Festival and Qingming were proudly celebrated as public holidays once again.
Travelling through the countryside from 1985 to 2015, I witnessed this steady transformation. Marxist slogans on class struggle in villages were gradually replaced by market-oriented slogans on greater production, better harvests and birth control for prosperity. Temples for villagers to pray for fortune and good health again mushroomed. Peasant family homes reverted to displaying traditional couplets on good fortune, prosperity and wealth on their doors. Ancestral altars and kitchen god figurines made a comeback.
China had become confident to be Chinese again.

The backlash

With sustained high growth, China’s GDP as a share of US GDP rose from 6.7 per cent in 1980 to 40.6 per cent in 2010 (83 per cent if computed in purchasing power parity terms). Unfortunately, the burst of dynamic energy in the midst of weak regulations and the poor legal system resulted in an explosion of corruption.
As the Deng reforms gathered momentum, income inequality exploded. The official Gini coefficient rose from 0.30 in 1980 to 0.55 in 2012, one of the most unequal in the world. This is for a country where some research showed that the top 10 per cent under-reported their income by three times, while the lowest 30 per cent roughly reported their actual income.
Travelling around China around this period, I witnessed the boiling anger of peasants against the extortion and arbitrary imposition of fees by local officials.
The obsessive focus on market efficiency and ruthless competition in the midst of poor regulations was beginning to erode the party’s political legitimacy. Capital was taking a bigger and bigger share of the fruits of development while labour was squashed. Most critically, the capital was largely corrupt vested interest rather than genuinely productive, efficiency-enhancing capital.
The pendulum had swung too far towards market efficiency that social justice was undermined, along with party control.

Towards a harmonious society

When Hu Jintao and Wen Jiabao rose to the top leadership position in 2002, the pendulum started to swing back.
When I was at the World Bank office in Beijing from 2002 to 2005, I worked on the 11th five-year plan with the State Council. The goal was to attain a “harmonious society”. Effectively, it meant swinging the pendulum significantly towards better distribution and social justice.
Under the programme, the agriculture tax was abolished. Infrastructural spending in rural areas was greatly expanded. Subsidies were significantly increased for rural health and rural education. There was a minimum living standard programme, as well as greater transfers to poor inland provinces.
The Gini coefficient continued to rise but it peaked around 2008 and then gradually declined.
As the memory of Mao’s disastrous Great Leap Forward and Cultural Revolution faded, people began to look nostalgically to a simpler era of social justice, fairness and egalitarianism.
This shift is reflected in the number of visitors to Mao’s birthplace. When I first visited Mao’s birthplace Shaoshan, Hunan province, in the early 1990s, there were very few visitors. On my second trip around 2000, the line was visibly longer. On my latest trip in 2015, there was a very long line. People brought flowers and bowed at his statue. I saw some older men in tears. It was impossible to get a seat in the restaurant selling Mao’s favourite fatty pork dish. Last year, despite Covid-19, over 25 million visited the place.
The harmonious society programme reduced poverty but progress was slow. As late as 2012, according to one Chinese report, elementary school pupils in poorer parts of Hubei province had to bring their own desks to school because there were not enough to go around. Corruption remained rampant and billions of ill-gotten funds were siphoned out of the country.

Chairman Xi – taming wild horses

It is from this longer-term perspective that one should examine President Xi Jinping’s “common prosperity” programme.
In 1978, net public wealth was 250 per cent of GDP, while net private wealth stood at 110 per cent of GDP. By 2015, net public wealth had fallen to 200 per cent of GDP while net private wealth had skyrocketed to 500 per cent of GDP. Alibaba founder Jack Ma is now the dominant player against the shrivelling party.
The party must have felt threatened by the wealth and resources accumulated in the private sector. Complex factional politics further complicate the matter. The wealthy private sector could become uncontrollable wild horses toppling the economic carriage piloted by the party.
The private sector now accounts for 70 per cent of GDP, 80 per cent of employment and 95 per cent of new jobs created. The party needs the private sector to sustain economic growth that will in turn bolster its political legitimacy. But first the wild horses will need to be tamed.
Mr Ma no longer conducts his own foreign policy, and now focuses on reading Taoist texts and painting pictures of birds and flowers.
Through the common prosperity programme, the party is determined to reshape the pyramid-shaped wealth distribution to an olive-shaped one. Recent measures include stepped-up tax enforcement through targeting well-known personalities, a court ruling against labour abuses in the private sector, targeting the excessive “996” work culture, a not-so-subtle encouragement of private philanthropy, asserting greater control over data-rich tech companies and pushing the nation’s youth to fall in line through the Confucianist nanny state’s priorities. In short, the party is determined to reclaim the moral high ground.
The Communist Party of China believes, rightly or wrongly, that the US political system has been captured by private vested interests and turned into a plutocracy. It is determined to avoid that destiny. In addition, the party sees the rise of former US president Donald Trump and Brexit as the result of backlash against inequality and globalisation, leading to domestic polarisations and political dysfunction. Mr Xi wanted to nip this in the bud before it undermines China’s stability.
The party also considers its governance system having the advantage of avoiding the so-called Jean-Claude Juncker Dilemma faced by democracies: “We all know what to do, but we don’t know how to get re-elected once we have done it.”
From China’s perspective, the next 10 to 15 years could be decisive for US-China rivalry and the regime sees the key determining factors as domestic political unity, economic justice and national cohesiveness.
In 2019, Mr Xi noted that the only force that can defeat China is not the US but China itself.
With complex factional dynamics as well as intra-princeling disagreement, the present pendulum is likely to overshoot again towards tighter party control, distributive policies, and increasingly severe suppression of market forces.

Future trends: Towards Leninist Confucianism

Contrary to some Western analysts’ assessment, China’s communist party is highly adaptable and pragmatic. In 1921, it started out as a group of ultra-orthodox Marxists who looked to the industrial proletariat to lead the revolution. Yet during the Long March in 1935, it morphed into a Maoist rural-based party that focused on fomenting a peasant rebellion. After 1949, it then metamorphosed into a ruling party dominated by a personality cult built around Mao. With Deng in 1978, it repudiated the Maoist class struggle model to focus on economic development. Under Jiang Zemin in 2001, it redrafted the party Constitution to admit capitalists previously persecuted by Mao.
The US-based Edelman Trust surveys show that the Chinese government is highly trusted by the people with a 90 per cent rating, compared with 56 per cent for Germany, 53 per cent for the United States and 40 per cent for Japan. Similarly, detailed surveys by the Kennedy School at Harvard indicate rising citizen satisfaction with the government.
This is in line with my personal observations on my travels across China. Mr Xi’s anti-corruption, anti-poverty campaign has proved to be extremely popular among the lower- and middle-income groups, especially in the central and western regions.
The century of humiliation has inflicted a deep wound on the collective psyche of China. It resulted in a very strong sense of collective inferiority complex. The scars are still very raw. On the other hand, pride in the glory of 4,000 years of civilisation and recent spectacular economic achievements have also boosted a collective superiority complex. Hence the violent swings between aggressive “wolf-warrior diplomacy” and the “irrational worship of the West’. China has yet to achieve a collective psychological equilibrium.
It’s compounded by a streak of unforgiving vengefulness that lurks within a dark corner of the collective Chinese psyche. It has the potential to destabilise China’s relationship with the outside world if it is not restrained.
The recent increasingly strong emphasis on the 2035 development blueprint rather than the traditional 14th five-year plan (2021-25) indicates that Mr Xi could be preparing for a longer time horizon in power.
The rise of the nanny interventionist state under him could be interpreted as the steady Confucianisation of Marxism. Traditional Confucianism was an important factor in China’s reform success as it has no quarrel with the materialism of capitalism.
If the past swing is any guide, the post-Xi era could witness a swing back to greater emphasis on market efficiency, against tight party control and strong authoritarianism. Responding to domestic and international conditions, it could gradually evolve into a softer authoritarianism. One might even be able to get a seat eating at the restaurant serving Mao’s favourite fatty pork again.
Mao reminisced in one of his flowery poems that the yellow river embodied the soul of China. From the roaring turbulence of its beginnings in the Qinghai and Gansu mountains, it eventually settles into a steady flow in Shandong plain. China, like the yellow river, will continue to meander in its own pace and historical time.

• Tan Kong Yam is an economist at the Nanyang Technological University and China strategist at APS Asset Management.

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