House of Commons - Foreign Affairs

Select Committee on Foreign Affairs Written Evidence

Written evidence submitted by Elisabeth J Croll, Professor of Chinese Anthropology, School of Oriental and African Studies

CHINA'S SOCIAL STABILITY

1. INTRODUCTION

A question now often asked in the context of China's growing international and economic prominence is whether China has sufficient internal social stability to continue with economic reform, maintain economic growth, retain support for the Communist Party and ensure "a peaceful rise". This question is much debated both within and outside of China. There are those who argue that social fault-lines and tensions in China today are so significant that they have the potential to stall economic reform, undermine economic growth and threaten the political legitimacy of China's government. Others point to the government's commitment to maintaining social stability and its record in responding rapidly to any trends or problems which have the potential to generate widespread unrest. The following evidence which lends some credibility to both views briefly identifies the current threats to China's social stability, the response of China's government to these threats and an assessment of the government's risk management strategy and of popular support for China's government.

2. THREATS TO CHINA'S SOCIAL STABILITY

There are a number of social trends and problems which are documented widely in the literature on and in China and which are commonly acknowledged to constitute a potential and serious threat of China's social stability. These include growing inequality, widespread unemployment, lack of social security, the rising costs of public services and endemic corruption all of which have generated some disquiet or protest in city and countryside.

2.1 Social inequality

China's age-old pattern of uneven development has been exacerbated by the reform process which has benefited some physical locations and social categories more than others so that the resulting disparities have been the subject of increasing international, government, media and popular concern. James Wolfenson, when head of the World Bank, and the very recent China Human Development Report have both noted that China has become one of the most unequal societies in the world with a wealth gap that is potentially destabilising.[50] Within China too, surveys and reports also note that the Gini coefficient, the accepted international measure of income inequality, is rising incrementally to more than 0.48 or beyond the international warning limit of around 0.45.[51] Whether China is divided between village, town and metropolis or between eastern coast, centre and western interior, there are major differentials in resources, incomes and services between rural and urban China which have widened in recent years. It cannot be stressed too often that behind the growth rates and economic boom of the modern metropolises of Beijing, Shanghai, Tianjin and Guangzhou or the manaufacturing belts making up the Pearl River Delta, the Yangtze plains and special economic zones lie the interior rural, remote and mountainous regions of the western provinces, the barren aridity of the northwestern regions and the impoverished cities of the northeast which have lost much of their manufacturing base. In these regions reside more than half of China's 1.3 billion popultion.

On any measure, whether it be GDP, the Human Development Index or the World Bank's gross national income index, the regions and social categories of China span the indices from the highest to the lowest categories.[52] Within China, income, lifestyle and other social surveys suggest that China's society is pyramid-shaped with a small minority of high-earning income categories at the apex, a thin layer of middle-income groups and a large base made up of low-income groups and that disparities are widening rather than diminishing leading to more downward than upward mobility of middle-income groups.[53] These studies also suggest that, although overall incomes have risen, so too have the cash demands on those incomes largely as a result of the rising costs of public services and lack of social security. The widening gap and proportional numbers of poor to rich suggest that China's present pyramid-shape is unlikely to be replaced, at least in the short term, by the more conventional diamond-shape with a large middle-income component apparent elsewhere in East Asia and anticipated for China.

2.2 Urban inequality

Much has been made of the rise of the affluent and super-rich elite who can be seen in visible numbers in the large and metropolitan cities and there is no question that, for almost all of China's city residents, incomes and standards of living have risen and that there are greater working opportunities and life-choices than ever before. However, for the majority of urban workers, any income rises and new opportunities have been offset by loss of status, rising costs and less security in employment than in previous decades. Urban surveys and interviews also recognise that there is growing inequality in the cities with the majority of China's city residents located at or near the base of the urban-wealth pyramid.[54] Moreover, despite rising incomes and standards of living, many city workers and especially those in the manufacturing sector have lost their previous socio-political status and have been caught in a downward spiral of economic impoverishment. In short the privileged status and secure livelihoods of the majority of China's urban workers have been threatened over the past ten to fifteen years by the very process of reform itself and in particular by the restructuring and shrinking of state-owned enterprises. This is particularly but not exclusively so in the northeastern provinces which, home to 107 million persons and once the show case of China's industrial development, had more state-owned enterprises than the rest of the country.

Since the mid 1990s, there have been many references to urban poverty as China's "new urban poor" have emerged as a larger social category and are now made up of the unemployed or laid-off workers as well as of elderly, disabled and other disadvantaged categories. Their numbers are estimated to range between 13 to 37 million depending on where the poverty line is drawn.[55] Hovering around or just above any of the designated poverty lines are the lower-paid workers who commonly describe themselves as "just getting by" with some scrimping and saving as they struggle to meet the basic costs of food, clothes, housing and health care and education fees. However it is the large numbers of urban migrants, amonting to around 120 to 130 million at any one time[56] who constitute the most disadvantaged of all urban social categories employed as they are in menial and low-paid jobs with few employment rights. Without city registration which provides for access to urban services, they are frequently owed wages, work long hours in poor working conditions and live on the work-site in dormitory conditions and without the benefit of local health and education services.

In the cities, there have been reports of large and growing numbers of disputes, protests and demonstrations provoked by the close of enterprises in circumstances that benefit managers, employers or officials and by lay-offs, low severance payments, the reduction or stopping of wages and the the ending of meagre unemployment of other benefits. A few years ago, as reports of numbers of labour-related demonstrations and unrest increased, Western press observers forecast that such incidents would multiply and eventually bring down the government.[57] However, despite the rising numbers of demonstrations, the protests have so far continued to be enterprise-specific and brief largely because the government has shown some sympathy with and tolerance of such incidents, there is no organised dissent and because the laid-off still tend to retain their housing, services and benefits which tie them to their enterprises. So long as there is no attempt at co-ordination, such demonstrations are likely to remain contained and fragmented. Despite the fact that there are large concentrations of urban migrants who are especially disadvantaged, there is little unrest occasioned by this category as most of the urban migrants find their new lives in the cities a welcome contrast to life back on the farm.

2.3 Rural inequality

There is widespread acknowledgement that rural living standards remain far behind those of the cities, that under- and un-employment are common, that services are less accessible and more expensive in relation to rural incomes and that taxes, levies and fees collectively known as the "farmers" burden' generate widespread resentment. After the success of the early rural reforms in raising farm incomes in suburban and richer regions, there is not only a serious and widening urban-rural gap but there is also widening inequality with sharp divergences between the rich rural suburbs with ready access to city markets and services and coastal regions or eastern provinces and the interior central or remote western provinces where villages can still be without roads or water supplies. It is certainly the case that half of the country's population lives in the poorer and less hospitable western and central regions and that a goodly proportion of this population continues to hover below or around the poverty line. China's government has rightly been applauded for its achievement in reducing the large numbers of poor positioned below China's own austere poverty line ($0.66). Neverytheless around 200 million in the countryside live below the World Bank poverty line of $1 a day and there may be a many as 400 million or half of China's rural poulation who live on less than $2 a day which allows for little more than subsistence.[58]

China's rural wealth distribution is also pyramid shaped with less than 5% earning high incomes[59] and it is widely ackowledged that there is some impoverishment of China's farmers as agriculture employs a diminishing proportion of the work force and as any expansion in the range of agricultural and non-agricultural activities remains limited. Migration out has become a common household strategy with as many as four out of five rural households having a member who is a migrant worker. National data suggests that it is wages paid to rural migrants in the cities rather than higher profits associated with farming that have contributed to recent rises in rural per capita incomes and mitigated the likelihood of unrest.[60] It is sometimes forecast that there is a real possibility of social unrest in the countryside if incomes continue to fall further behind their urban counterparts and there is widespread under- and un-employment however, so far, farmers seem more likely to migrate than protest. Nevertheless there are widespread and increasing reports of unrest in the countryside. Again, as in the cities, these are largely incident-specific rather than poverty-related and linked to the confiscation of land, local industrial pollution, the exaction of excess taxes, fees and levies or the corruption of local officials who often connive or turn a blind eye to such misdemeanours or ignore local problems.

3. SOCIAL PROBLEMS

A number of specific social problems can be identified which already have stalled economic reform, undermined economic growth and, the subject of some discontent, are likely to pose the greatest challenge to China's government in the coming decades. These include increasing unemployment, lack of social security, the rising costs of public services and widespread corruption all of which may not only affect livelihoods and lifestyles but also their early resolution may make the difference between confidence in China's government and widespread ambivalence, discontent or opposition to the government.

3.1 Unemployment

The scale of lay-offs and unemployment in the cities over the past decade has caused widespread loss of jobs and generated fears among the employed abour job security. The closures and lay-offs in the state-owned sector with the loss of more than 24 million state-owned enterprises employing some 10% of the urban labour force between 1998 and 2002 have continued with some 2,500 state owned enterprises and mines with a total staff of 5 million due to be shut in the next few years.[61] In some cities dependent on a few industries and especially those in the northeast, the unemployment rates in 2004 were estimated to be as high as 40% with those most likely to be affected employed in manufacturing industries.[62] One factor which mitigates the lack of unemployment provision is that many of the laid-off remain attached to their work units, receive residual benefits and find new or additional sources of informal income. In these circumstances, the unemployed and laid-off seeking work in the informal sector find themselves in direct competition with urban migrants in the same labour markets albeit those characterised by low pay, insecurity or poor working conditions and with few benefits or employment rights.

In addition, there are approximately 12 to 13 million young persons entering the labour force each year a number which by itself far exceeds the total of new jobs likely to become available over the same time period. Since the number of graduates has tripled since 2000 to total nearly four million, there have been numerous reports of widespread graduate unemployment with the result that many are having to take lower-status and lower-paid jobs than they had expected.[63] It is not lost on the government that under-paid, unemployed and discontented graduates have played a role in generating discontent and founding rebellious social movements over past centuries.

In the countryside, the numbers employed in agriculture have fallen by some 20% and with the decline in township and village enterprises, it is estimated that surplus rural labour amounts to more than a third of the rural population.[64] At present, even conservative estimates suggest that the number of urban and rural unemployed amount to some 200 million persons and that this figure is likely to be much higher when seasonal, the partial and under-employed workers are included.[65] Although the government has attempted to reassure its citizens that there will be sufficient jobs in the long-term, it has been very difficult to persuade them that there will be less unemployment in the future and allay their very considerable fears and anxieties around job and other forms of security.

3.2 Social security

Given the continuing lack of pension and insurance safety nets in China today, urban and rural populations continue to worry about short-term support in the event of unemployment and long-term security in retirement or old-age. In the countryside where insurance and pension provision has never been widespread, the family continues to provide the main form of social security but, in the cities, many of the previous schemes linked to state-owned enterprises and work-unit security have been eroded and new systems are either not yet in place or implemented on the scale required to meet the expectations of urban workers. Certainly all the evidence suggests that the numbers of employees covered by and receiving unemployment insurance, the number of retirees eligible for and receiving pensions and the number of non-waged or low-paid receiving minimum-income subsistence by no means include all those eligible and that many more are not included in such schemes.

Perhaps a more serious threat to urban security and confidence in China's future stability, given the country's ageing population, has been the loss of pension provision with the widespread reduction in and non-payment of pensions to present-day state-sector retirees. This trend has aroused considerable disquiet, is perceived to be a serious breach of the socialist contract and there are many protests or demonstrations by urban retirees who object to the non-payment of their pensions which receive widespread public and official support. As in the countryside, it is interesting to note that even the notion of retirement is becoming outmoded in the cities as older workers seek to retain their jobs or find new employment for as many years as possible. The loss of the iron-rice bowl and the inadequacy of alternative sources of support alongside the corresponding transfer of risk from the state and work-unit to individual workers in the cities is considered by many to be the most disadvantgeous consequence of reform. Without the continuing payment of residual payments and without family co-operation to cushion the effects of such a transfer, the consequences for government-society relations and urban social stability would be more severe.

3.3 Public services

An additional cause of disquiet, scrimping and saving with the potential for creating underlying tension and fuelling criticism of the government are the rising costs of public services and in particular of health and education which take increasing proportions of incomes and are probably the most talked about topics in households, work units, village lanes and city streets. Already, the fees for tuition, books, heating and other expenses at all educational levels in both city and countryside are high in relation to incomes and, rising, these expenses constitute the most common reason cited for high rates of household saving. In the cities, there is fierce competition for a place at the key or better-quality schools with a complex array of formal and informal fees that dominate household budgets and often necessitate second-jobs or over-time by parents. In the countryside and away from the suburbs and richer rural regions, the costs of the fees and quality of education are such that many pupils still do not complete primary school let alone progress to junior or senior middle school. For higher education, the number of universities has expanded although the requisite entry standards and fees tend to discriminate against rural and poorer students.

The costs of health care have also continued to rise in both city and countryside as government spending on health has declined, as charges for services and prescription drugs have increased and as previous subsidies, benefits and insurances remain limited to a small proportion—perhaps one-tenth of the rural and one-sixth of the urban population—and then only for limited forms of treatment. As for the quality of the services themselves, China's public health system is not only ranked by the WHO below that of India, Indonesia, Bangladesh and some of Africa's poorest countries, but the up-front costs of treatment and medicines are such that many in low-income households delay treatment or avoid hospitals altogether. This trend has had serious reperecussions not only for levels of health and life-span but also for the return of infectious diseases such as tuberculosis, measles and snail-fever.

3.4 Corruption

Throughout the reform years, a unifying cause of popular disquiet and the subject of increasing protest and demonstration are the levels of corruption ranging from large-scale official embezzlement to everyday petty bribery which have diverted millions of yuan from national and local budgets and done much to erode public confidence in the reform process and popular support for the government. It is widely recognised that officials, personally and frequently, have benefited from the closures of state factories, property development schemes and any number of loans and bribes both in major cases which grab media headlines as well as in small-scale and local practices which require extra payments for permits, access to services, funds and jobs. Increasingly, there are media reports of local protests and demonstrations several of which have ended in violence. They are often caused by popular resentment and anger directed against officials who either benefit from or provide protection for those who close factories, confiscate land or housing, pollute rivers and land or participate in financial scams which all have the potential to threaten livelihoods, housing, health, and savings. During the past decade, China's leaders have become less sanguine and are now more ready to admit that the social costs of a narrow go-for-growth policy may slow economic reform, undermine economic growth and lead to widespread social instability.

4. RESPONSE OF CHINA'S GOVERNMENT

While taking pride in China's economic growth and achievements, maintaining social stability has been of overriding concern to China's government but what is novel about the approach of this generation of leaders is that there has been as much interest in the "social" as in "stability" with a shift in focus to social development or people-centred well-being. Both Hu Jintao and Wen Jiabao aim to promote "fast" and "good" economic AND social development in order to achieve their goals of a prosperous, sustainable and harmonious society that benefits all social categories.[66] At the same time, in 2005, there have been several frank and official admissions that so far reforms remain superficial, tentative and flawed and that perhaps the very process of reform itself has never been more complex or difficult than at the present time.[67] At the centre of the government's response to these difficulties lies the commitment of the new leadership to reduce regional and income disparities and make good the social costs of China's go-for-growth policies. To this end the government has directed attention to policies designed to reduce the social fault-lines or tensions and resolve social problems the most serious of which have been outlined in the previous section.

4.1 Reducing disparities

The top priority of the government is to reduce the widening gap between the rich of the cities and the poor of the countryside, hence the present leadership is focusing on the acceleration of rural development or "building a new socialist countryside".[68] To this end the government has very recently abolished the agricultural tax, hastened tax-for-fee reforms to reduce the farmers' burden, reformed village election procedures and made plans to improve the rural education system and reduce education fees in the countryside. The government also intends to proceed with plans for urbanisation or the encouragement of migration to new and expanded small and large towns or cities in order to raise incomes and improve the livelihoods and lifestyles of rural residents. In addition, the government has again focused attention on particular urban and rural poor regions including the poorer, mountainous and more remote western rural regions and the cities of China's northeastern "rust-belt" which have been hard hit by closures of state factories and mines. Central to these campaigns and to effecting improvements in the well-being and quality of life of those who have been disadvantaged by or have not yet benefited from reform are specific government policies aimed at creating jobs, increasing social security, improving public services and reducing corruption.

4.2 Creating jobs

The government has made it quite clear that the creation of new jobs and matching China's labour resources to the changing needs of the labour market are both daunting but essential tasks that should be accorded a high priority. A number of national meetings on employment attended by China's top leaders have noted that the scale of the unemployment problem was such that "resolving it would be a difficult and long-term task".[69] For several years now, the government has established job creation schemes and agencies to expand employment and re-employment opportunities in small and medium-sized enterprises, but it has not been easy to create the number of jobs required by China's growing and under-employed labour force. Despite high growth rates, there is some evidence to suggest that job creation has slowed and that most new jobs are to be found in the private, professional and service sectors which do not always receive the same investment priority or regulatory encouragement as the manufacturing sector which is already losing jobs to cheaper countries. In the countryside, the scale of under-employment and limited opportunities for creating new jobs there are such that, in recent years, the long-term solution most often mooted by the government is to move between 300 and 400 million rural surplus labourers to smaller towns and cities.[70] However, the implementation of this policy is fraught with difficulties to do with the logistics of movement, job creation, the development of destination infrastructure or facilities and urban apprehension about such an influx which perhaps are all reasons why the government has very recently refocused attention on rural development which until the last three months has taken second place to relocation and urbanisation.

The government does not just intend to expand job opportunities in the low-cost production sector but also to expand the number of skilled labourers, technically-qualified personnel and enterprise managers in order to develop a skilled work force, support sophisticated technical innovation and establish a range of well-organised global brands. At present, the government is expanding opportunities for business and management training including the establishment of a raft of new MBAs and training courses to make good the shortages of senior and middle managers. It has also embarked on a new set of policies to improve and upgrade the educational skills and vocational training opportunities for rural migrants by establishing pre- and post-employment training opportunities to enhance their qualifications for entry into the urban labour force. Finally, the government has set about increasing the utilisation of employment contracts and improving working conditions especially in the sweatshops and regimented work places of China's southern provinces and in mines where there are high numbers of industrial accidents with little prospect of compensation for loss of limb or life.

There are fears expressed both within and outside of China that, in coming decades, the creation of new jobs is unlikely to meet the country's needs or the demand for jobs and this shortfall is one of the reasons why the government finds itself on a treadmill with no choice but to put in place policies which encourage high rates of economic growth. As well as maintaining economic growth and entering a new technological age, China's government can anticipate a new demographic phase in which the number of young persons entering the labour market will decline in the next 15 years or so and thus diminish the supply of entry-level, low-skilled industrial and migrant workers. It is also possible that the workers themselves will enjoy more bargaining power and that, at the same time, the declining supply of the younger recruits may create more employment opportunities for the laid-off and under- or un-employed. In the meantime such is the fear of urban unrest, that the government has opted to defer further reform of the state-owned sector rather than add to the numbers of laid-off or unemployed at least while a compensatory social security system is not yet in place.

4.3 Improving social security

To help manage the risks associated with unemployment and the lack of safety nets to subsidise those on the poverty line, the government has re-emphasised its commitment to improving existing social security schemes, accelerating their spread to larger sections of the population and to increasing budgetary allocations in support of such schemes. To this end, it has improved and widened the take up of a national employment insurance programme as the best means of providing basic subsistence support for the laid-off staff and workers of state-owned enterprises. It has also set new minimum wages for employees and minimum subsistence allowances in both the city and countryside and recommitted itself to the establishment of a nation-wide pension system combining state, employer and individual contributions. However in each of these cases, improvements in and the spread of these new systems have been impeded by resource shortfalls, the inability of state and employer to make contributions and the lack of trust that state and employer will honour their obligations and not deploy individual contributions for other purposes. Despite some improvements in their provision and spread, few are the schemes that have achieved their objectives and been implemented widely so that family support and savings are still the main forms of support in hard times.

4.4 Improving public services

To help families and individuals meet rising cash demands on their incomes and reduce a major source of anxiety, the government has attempted to stabilise the costs of public services and in particular those of health care and education. There is no expectation that health-care reform will abandon the fee-for-service principle, rather government measures have focused on consolidating existing insurance schemes to help individuals and family meet the costs of health care and on shifting the provisioning of health care from the state to the private sector. The government has continued to implement a number of pilot health-insurance schemes introduced to cover basic medical expenses and to provide more comprehensive insurance for the poorest of urban and rural families. So far most of the insurance schemes are capped, do not cover cancer or chronic illnesses and are not yet widespread in operation. In the aftermath of the SARS scare, and in the face of a potential outbreak of bird flu, the government has also sought to establish a more reliable public health surveillance system. However, alongside these reforms, government funding has been reduced hence there have been a number of new and it has to be said controversial schemes introduced to encourage the private sector to provide and charge for health services. There are fears that the role of privatised care may limit accessibility and increase costs, hence the government has made more recent attempts to regulate the pace and degree of privatisation by limiting it to certain types and levels of hospitals, by minimising the role of drug companies in privatisation programmes and by revising rules and regulations to encourage better medical and management practices. Despite these reforms, there have been a number of hard-hitting government think-tank reports published in recent months which have drawn attention to the continuing inefficiency, high costs, corruption, low standards and poor service in much of China's health service and calling for the government to undertake further reform.[71]

For all levels of education, current government reforms aim to increase the number of schools and universities, improve standards and make for greater accessibility by reducing or capping fees for tuition, books and heating which especially disadvantage rural, migrant and poor children. Very recently and in a major new step, the government has promised new central and county funding to adopt free nine-year compulsory education for the country's rural children. It has also introduced new regulations to cap urban tuition fees, reduce the exaction of excess informal fees and permit the deferral of college tuition fees for poor students. Nonetheless the costs of education are such that most family savings are earmarked for this purpose, and despite the high priority accorded to education by parents and government alike, many pupils have to withdraw from primary school, middle school or university long before they reach their desired objective.

4.5 Ending corruption

The government continues to draw attention to unacceptable levels of corruption and to reaffirm its commitment to stamping out bribery and embezzlement by leading a number of public campaigns against corruption at both national and local levels. It has strengthened the role of the National Audit Office which is credited with stirring annual "audit storms" across government departments and public bodies as it exposes the misuse of public funds, official embezzlement and the imposition of extra-budgetary levies.[72] Highlights from these reports make headlines in the media and such audit storms are said to place "huge" pressure on anti-corruption agencies to take concrete action against those named and shamed. In recent months, government officials and Party members have been subjected to new educational campaigns and warned not to involve themselves in bids for construction projects, real estate activities or negotiate on behalf of others and accept any form of payment. In 2005, a total of 115,000 Party members were reported to have been punished for bribery, influence peddling, fraud and other offences.[73] Although it can be argued that China is betwixt and between relations-based systems of socio-economic trading and of political trust that are highly personalised and a new rules-based system based on contracts, legal sanctions and accountability, the passage of money or gifts often remain the best means of procuring orders, goods and services—drawing a fine line between establishing guanxi or connexions and corruption. However, the stripping of assets, diversion of public funds and access to land often with the connivance of local officials for personal gain are still endemic and constitute the most common common causes for petition, protest and demonstration in China today. A question much debated is how far do these petitions, protests and demonstrations threaten China's social stability?

5. GENERAL ASSESSMENT

Anxiety that petititons, protests and demonstrations will lead to widespread social instability is expressed by government leaders, the media and individuals in both formal interview and informal conversation. Very recently Wen Jiabao and a number of leading economists and academics have warned of growing instability[74] and much rests on the success of the government in taking action to reduce social problems and tensions.

5.1 Government actions

There is no doubt that China's present leaders, Hu Jintao and Wen Jiabao, are commited to improving the lot of the rural poor, the urban unemployed and the well-being of migrant workers. Although there is always the danger that this support is little more than rhetorical, there are several reasons why the commitment of the present leaders to reducing disparities is likely to influence their actions as well as words. The two leaders have both lived and worked in the western and northeasern provinces and they have shown an increasing awareness of the consequences for economic reform, economic growth and political continuity should social problems and tensions remain unresolved. It is the incremental increase in the numbers disadvantaged by reforms or who feel that the benefits of rapid economic growth are passing them by that has underpinned their decision to halt economic reform in the state manufacturing and banking sector and to redefine development to include social and environmental objectives. Most importantly, there is an added and important economic incentive for reducing social disparities in that the government has a vested interest in increasing incomes, living standards and consumption across all population categories if it is to succeed in its bid to develop China's own domestic market and so reduce the country's dependence on export markets abroad over which it has little control. In the past few years, increasing domestic demand has been elevated to the top of the economic agenda as a key long-term strategic principle in maintaining and increasing China's economic growth and peaceful rise.

However, personal commitment and incentives are not in themselves sufficient to counter the continuing constraints which the government faces in its pursuit of economic reform, economic growth, political legitimacy and social stability. A consistent impediment in the implementation of new government policies for social security, public services and other forms of support has been the continuing shortfall in central and local government funds to finance the necessary infrastructure and services. The introduction of a nation-wide and efficient tax system based on individual and corporate contributions has not proved an easy task because any the concept of personal taxation is relatively new, there is fierce competition between central and local government for existing tax reveneues and much diversion of revenue towards capital and high-prestige projects rather than into systems for increasing social security, improving public services and redistributing wealth. Appropriate investment portfolios and a working taxation system are very much dependent on efficient and supportive financial and banking systems which are not yet in place and on popular trust in the government to tax and spend transparently according to consensual objectives.

Although there is widespread suppport for the government's long-term objective to reduce widening socio-economic disparities, there are reports that the leadership itself is split between those who think that the speed and scale of economic reform is not fast enough and would go all out for immediate growth in the purusit of long-term benefits and those who argue that the speed of a go-for growth policy has been so fast and divisive that it would be preferable to adopt a slower more inclusive approach that will not widen disparities and weaken the political legitimacy of the Party. The resolution of this and other tensions within the leading group is likely to take some time or at least until the 17th Party Congress in 2007 and, in the meantime, much will depend on the responses of China's population and in particular of the have-nots to government policy and the degree of popular support accorded to China's leaders.

5.2 Popular responses

There is much everyday debate about China's social problems, tensions and the future shape of China's society in homes, work units, village markets and city restaurants and evidence of a wide variety of popular responses. Despite the talk about individual opportunities, getting rich quickly, lifestyle changes and some optimism about China's rise and future, there is a widespread sense of uncertainty about "where China is going" and some anxiety that China's social problems are so serious as to make it difficult for any government to reduce social disparities—at least in the short term. There is a general consensus that the maintenance of social stability very much depends on whether the present number of protests and demonstrations can be contained and do not spill over and take advantage of an underlying sense of uncertainty and ambivalence about the speed, scale and direction of economic reform.

The latest figures published by the government show that such incidents are rising in number each year from 58,000 protests involving some 3 million persons in 2003, to 74,000 involving 3.76 million persons in 2004 and to 87,000 protests riots and other incidents in 2005.[75] Most of these are issue or incident specific, many involve land rights and disputes and nearly all occur where other forms of public criticism, petitioning or legal attempts at redress have failed to have any effect. Their number is likely to increase so long as there are few alternative outlets for venting frustration, channels for redressing infringed rights or means for removing officials who misuse their power to counter the rights and interests of local populations or for personal gain. Although there is an evident new readiness to take local action on instances of injustice, it seems unlikely, barring some major incident such as a run on any of China's banks jeopardising savings, that these local and small-scale incidents will lead to demonstrations of such magnitude that they could cripple or topple China's government.

6. CONCLUSION

Although in the international media there there is much talk of China's "inexorable rise", within the country there is not the same confidence expressed by either government or people that the rise is so certain. It is my own view that there is no question that for the majority of China's citizens, the pace of change has intensified uncertainty and anxiety about the future, but there are three main reasons why it is unlikely that the general mood of uncertainty, widespread discomfort at widening social disparities and growing discontent with corruption and disregard for property will spill over into widespread unrest. The first is that it is very noticeable that within China there is a genuine appreciation of the overall rise in incomes, living standards and greater freedom of expression resulting from economic reform and growth which is also shared by the poor and disadvantaged who still hope that they or at least their children will yet share in the benefits. Secondly, there is much fear that any instability will not only jeopardise the gains of the reform decades but also return the country to the years of disruption during the Cultural Revolution or the early years of the former Soviet Union. Thirdly, there is widespread support for China's political system with much criticism and protest aimed at securing better governance and protecting individual rights and interests rather than for a change in the political system or for democracy. These are the main reasons why government actions to reduce the number of "have-not" and hence the likelihood of instability have widespread popular support.

In these circumstances and in the short-term, it is unlikely that widespread social instability will occur and bring down China's government. However, in the longer term, maintaining social stability will very much depend on the ability of China's leadership to achieve good governance, safeguard individual rights and maintain rates of economic growth sufficient to create large numbers of jobs, raise the living standards of the urban and rural poor and so reduce social disparities. These factors comprise sufficient reason to support China's government in its serious endeavour to introduce and implement new social policies, direct attention to social development and reduce socio-economic disparities in the interests of maintaining social stability and ensuring the peaceful rise of China.

Elisabeth J Croll

School of Oriental and African Studies

March 2006

REFERENCE

(Much of this memorandum is based on my own field work and personal observations in China. Hence only figures and quotations are referenced here.)