Is China Unstable

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Is China Unstable

Is China Unstable?
Foreign Policy Research Institute Wire, July 1999
By Minxin Pei
Western attitudes toward China tend to oscillate between two extremes, often with confusing
rapidity. Not too long ago China was widely portrayed as an emerging military and economic
threat to the West. Its total economic output was projected to surpass that of the United States in
two decades. Its military modernization was expected to provide China the capability to project
its power far beyond its borders (and the recent Cox report on nuclear espionage has revived
those concerns). And its authoritarian regime was supposed to be able to retain its grip on power
for a long time.
Nowadays, however, the speculation about China's future has generally inclined toward
pessimism. The influential British magazine The Economist openly speculated about the break-up
of China in its last issue of 1998. Not long before that, the same publication ran a cover editorial
opining about the imminent collapse of the Chinese economy. And in a speech delivered in April
of this year, President Bill Clinton warned of the dangers of an unstable China which failed to
reform.
Even within China, signs of danger and nervousness abound. Arguably, the Chinese government
now faces the most severe challenge since the Tiananmen Square demonstrations a decade ago.
Unemployment is rising at a frightening rate. Several key anniversary dates fraught with symbolic
and real political dangers (such as the 50th anniversary of the People's Republic, the 10th
anniversary of the Tiananmen Square crackdown, and the 40th anniversary of the uprising in
Tibet) have prompted the government to maintain a tight watch over the country's tiny dissident
community lest something akin to the 1989 movement break out again.
In my judgment, the current pessimism about China's short- term prospects is as exaggerated as
the previous optimism about its long-term economic outlook. In fact, China is likely to retain its
short-term political stability despite many signs of potential turmoil, but will face rising instability if
the regime fails to undertake significant political reform in the next decade.
CHINA'S CURRENT DIFFICULTIES
While parallels between the problems China faces today and those it confronted during the
Tiananmen crisis a decade ago may be alluring, they are misleading. In 1989, the Chinese
Communist Party (CCP) faced a genuine crisis of political legitimacy, which had its origins in
1978-79, when the leaders promised, but repeatedly failed to deliver, political reform. By
contrast, the challenges confronting the Chinese government today are primarily economic,
although weaknesses in the political system make potential solutions more elusive.
Specifically, China's economic difficulties today originate, externally, from the aftermath of the
East Asian financial crisis (falling exports and foreign direct investment) and, internally, from weak
consumer demand and severe structural problems. The internal problems are far more daunting
than the external.
It is well known that China's two most perilous economic challenges are an insolvent banking
system (which has total bad loans of between 25 and 30 percent of gross domestic product) and
rising unemployment due to the restructuring and privatization of the loss-making state-owned
enterprises (SOEs). Many analysts believe that the latter poses the clearest threat to the Chinese
government, because any unrest by the unemployed, who are concentrated in urban areas, would
lead to a political crisis akin to the Solidarity movement in Poland in 1981-82. Given the sheer
numbers of unemployed and underemployed people in China, this analysis is not without merit.
The official China Daily reports that, among urban dwellers, unemployment is about 11 percent
(or 16 million people). In addition, as many as 120 million rural laborers are considered
underemployed.
However, unemployment alone is unlikely to generate a high level of political instability and is
even less likely to bring down the regime. (Can you recall the last time a regime was toppled by
unemployment?) In analyzing the political consequences and implications of economic crises, we
must understand that not all economic crises are created equal. Although all of them are nasty and
harmful to the societies they hit, they produce different political outcomes because their effects
are filtered through the political system differently.
In the case of high unemployment, its impact on political instability tends to be limited for two
reasons. First, unemployment principally affects only one segment of society, namely,
manufacturing workers. It would be difficult for these workers to find political allies in other
sectors. In China, workers being laid off from SOEs are viewed as industrial aristocrats who
have had it pretty good for the last fifty years at the expense of the other

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