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A Communist Façade but Capitalism Within

China’s economic miracle is beginning to show signs of strain. The recent change in leadership has cast light on the Communist Party’s growing fear of losing its own identity as high ranking party members highlight the growing uncomfortable links between government and hidden wealth as well as signs of increasing inequality.

The economic darling of the last decade, China’s annual double digit GDP growth became a barometer for “acceptable” levels of economic expansion. However, in September, China recorded it’s lowest quarterly GDP performance since the first quarter of 2009 at a “dismal” 7.4% for Chinese standards. Granted, the Chinese economy is not on the brink of collapse, rather it highlights a growing chorus of voices within the country to search for a more sustainable level of growth, shifting from an export based economy and focus on developing its domestic consumer demand.

More importantly, some party members are putting into question the long-term value the last decade of explosive growth provided, in terms of ensuring stability and party unity. Hardline, Maoist members are becoming more critical in an accelerating liberalized economic environment, not to mention renewing sentiments of Maoism among the general population. All eyes are now on the Communist Party’s new general secretary, Xi Jinping, to continue China’s economic prosperity for the next decade. However, he faces a much more delicate and pressing task of managing the growing ideological divisiveness among Party members.

While the economic miracle of the last decade moved millions of poor, rural citizens into urban centers and a consequential rise of influence in Southeast Asia, tension among common citizens is rising. Stagnant salaries, rising prices, unimproved working conditions(notably in factories across China) are contrasted with the towering skyscrapers, luxury hotels and condominiums for the newly minted millionaires and billionaires. According to the Pew Research Center, a study before the November 14th transition of power, gave state officials worrying signs of an increasingly irritated population about corruption and inequality. Pew’s research polls (conducted in China, with a slight bias towards urban centers for sampling) indicate that a full 50% of Chinese think corrupt officials are a “very big problem”. That figure is a significant jump from the 2008 poll putting the number at 39%.

The more alarming statistic, however, revolves around a growing sense of inequality. A startling 81% of Chinese surveyed believed with the given statement that “the rich are getting richer while the poor get poorer”. This growing unequal playing field can be traced back to the highest echelons of power. High-ranking party officials are reported to get ministerial salaries of about $12,810 a year and are banned from gathering large amounts of wealth. However, observing the actions of some Party members, the math clearly does not add up.

A recent trickle of reports over the last few months leading up to the transition of power has highlighted the quiet rise in the wealth of China’s elites. The secret holdings of Wen Jiabao (or rather his extended family) provides a clear example. In 1999, Party rules required the break up of struggling insurance company Ping An after the Asian financial crisis of 1997. Mr. Jiabao, not only the Vice Premier but also head of China’s central bank, used his position to reverse the decision after a personal appeal from the Chairman of Ping An. Today, Pin An’s market capitalization is valued at $52.16 billion, worth more than A.I.G or Prudential.

More interestingly however, is how Mr. Jiabao’s 90 year-old mother and extended relatives managed to accumulate up to a $2.2 billion fortune through a shell investment company based in Hong Kong that had shares in Ping An from an initial investment of $65 million, before trading opened to the broader public.

Even Xi Jinping, who built his career on “clean government”, has relatives that somehow amassed up to $376 million through investments in public companies like a June 8th acquisition of an 18% stake in Jiangxi Rare Earth & Rare Metals Tungsten Group Corp. Interestingly, China holds about 95% world-wide market share of rare-earth minerals, vital elements for wind turbines, cell phones and even U.S. smart bombs. China’s recent restriction of the supply of these minerals has caused global prices to skyrocket, naturally equating to hefty profits for his family. His ascension to China’s top raises even further the question of conflict of interest as he now wields more power to control the supply.

Some argue that there is hope that Xi will put China back on the correct path. Xi is a “princeling”, the son of Xi Zhongxun who was not only close to Mao but to Deng as well. Xi’s predecessor, Hu Jintao, never had the luxury of a “royal” pedigree as he came from a commoner background. This can give Mr. Xi the ability to more easily deal with China’s ruling elites and families in order to push reform and reign in corruption. Of course, this birth rite could very well be used in the opposite manner, to further collude with the rich and powerful and only widen the inequality within the country. Mr. Jinping appears to be taking the latter road and maintaining the status quo of the Chinese elites: warning against the ills of capitalism but leaving the backdoor open to greed.

–  Alexander Gardinier


(Featured photo: PaternitéAttributionphogel, Flickr, Creative Commons)

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