China Facing Economic, Social Unrest

April 10, 2006 — -- When a group of senior Chinese economists, officials and scholars gathered in early March to discuss the current situation in China, they exchanged frank views behind closed doors.

The high-level forum, which was organized by a think tank linked to the government's Cabinet, was intended to provide policy advice to the Chinese leadership.

But when the full transcript of the deliberations was leaked to the Internet in late March, it sparked a strong reaction among the intelligentsia and gave rare insight into the policy debate on the country's economic direction.

What emerged was a growing divergence in the supposed consensus behind the model that has propelled China's economic boom since the 1990s. Identified with the late Chinese leader Deng Xiaoping, this model combined market economics and authoritarian politics, while abandoning central planning and embracing market forces. It boosted exports and opened the country to foreign investment, but it also maintained tight political controls to ensure social stability.

While this strategy has succeeded in transforming China into a major economic power, it has also brought about major problems that now challenge the leadership. It has widened the gulf between rich and poor, spread rural unrest, weakened the social security network and produced rampant corruption.

Gao Shangquan, a top policy adviser and a former official who organized the forum, argued for more capitalist-style reforms to sustain economic growth and redistribute the benefits. But he also expressed worry about what he viewed as "unprecedented controversy and dissent" among Chinese intellectuals and recognized the growing public frustration at the side effects of these reforms.

"Some people believe ... that the marketization of housing has hurt the interests of the weakest group, left ordinary people unable to afford housing, unable to see a doctor, unable to send their children to school," Gao said, according to the transcript.

What the transcript revealed was a sharp debate raging among reformers who want a stronger dose of market economics along with liberal political reforms, and Marxist conservatives who want a greater degree of state intervention and authoritarian politics. Most of those who attended the forum supported Deng Xiaoping's vision and the discussion took the tone of rebutting the arguments of these conservatives.

He Weifang, a professor and constitutional scholar at Peking University, gave the most controversial remarks when he argued for genuine rule of law and greater democracy as the solution to the country's ills. "I have explicitly said I hope the Communist Party will split into two factions ... because it is an organization without any legal basis and it infringes on freedom and violates the law."

Moreover, he told the forum, "We all have a goal which we can't express for now, but in the future we will certainly take that path: for example, a multiparty system, press freedom, true democracy, real individual freedom, just like the current model in Taiwan."

He also called for reforming the rural land ownership so that farmers, who have been left behind by the economic boom, will be able to own their own land and gain their share of the economic benefits.

But many participants expressed their alarm at the resurgence of Marxist intellectuals who criticize the widening income gap, the increasing presence of multinational companies and social ills that they attribute to the capitalist-style market reforms. These critics call for a slowdown or even a reversal in the privatization of the economy.

One such Marxist intellectual is Gong Xiantian, who was not at the forum but whose views cast a large shadow during the discussion. A law professor from Peking University, Gong put himself in the media spotlight when he wrote an open letter to the Chinese leadership last August criticizing the draft of a law to protect private property.

Such a law "would undermine the legal foundation of China's socialist economy," Gong wrote in his letter, and it "would pose a serious violation against China's constitution, which stipulates that socialist public property is deemed sacrosanct and shall be free from encroachment." He argued that the draft law "puts state-owned property and private property under indiscriminate protection," the equivalent of offering equal protection to "a rich man's car and a beggar's stick."

This deepening ideological rift over the future of China's transition to a market economy is already having an impact on the pace and scope of the changes planned by Chinese leaders. Last month the draft property law was withdrawn from discussion at the National People's Congress because of the controversy over its contents.

Some other measures to liberalize the economy -- such as policies allowing Chinese private companies to take over large state-run corporations, selling more shares of Chinese banks to foreign financial giants, allowing international companies to acquire Chinese companies -- have been scaled back, put on hold or are receiving greater scrutiny.

But the current debate is reminiscent of earlier challenges to Deng's vision of "socialism with Chinese characteristics." The pragmatic policies of Deng Xiaoping somehow managed to prevail since the 1980s by dint of their impressive economic growth and the resulting improvement in the people's living standards. The question now is whether the current leaders in China can build a new consensus that will yield comparable economic results for the Chinese people.

When Deng was once asked what his economic strategy was, he replied that he didn't have a ready-made one -- it was simply "to cross the river by feeling the stones in the water." The challenge for the Chinese leaders now is how to follow Deng's advice in the new situation they face.