How to understand China's governance model and its real challenges today
Relatively high development goals and expectations will create a sense of loss in certain stages, and all parties in society need adjustments
The article GRR sampled today by Mr. 慕峰 Mufeng, on his WeChat blog 太阳照常升起 The Sun Also Rises. Mufeng's real identity is not known, but his commentaries, usually on politics and economics, are known by his readers as relatively unbiased.
The article was written in June of this year, during an emotional low point for many Chinese people after the Shanghai lockdown and more than a year of deleveraging in the economy. The article offers an open discussion about the resilience and weaknesses of China's unique system, and provides candid advice for how the governance model should adapt to this new era.
There are several key points that Ginger River has been impressed by:
Both the authorities (the Party and the government) and the general public must establish a mindset of stakeholders.
Different interest groups inevitably came into being when the economy took off, and the stakeholders of many social problems will no longer be a simple binary opposition between “the government and the governed”, “the regulator and the enterprise” or “the power and the capital”.
The rule of law and the construction of other social systems is a highly specialized process that requires the full participation of the people. It’s neither a bottom-up begging nor a top-down giving.
The quality of government officials is important to the rule of law, because officials with higher education and more professional skills are more likely to come up with solutions that abide by the rule of law.
The original title of the article is 如何理解今天的中国 How to understand today's China
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Over the past month, I had quite a few in-depth exchanges with friends in China and abroad and found that almost everyone is in low spirits wherever they are. The down feeling prevails in society right now, and there is no need to deny it. In the past several years, the public opinion has been quite uplifting. However, in some areas, the problems exposed in the epidemic control and prevention have made people ponder deeper issues. Voices of doubts and denial have emerged again amid the change of feelings in society. Can “propaganda” change these feelings? I don’t think so.
We are all small particles of the big era we live in. I’d like to share some views, just some personal opinions. They fall into four parts: goals and expectations, reform and deleverage, rule of law and public participation, choice and future.
I. Goals and Expectations
Setting social development goals is a characteristic of latecomers in modernization. Because they lag behind developed countries in various areas, including economy and social development, so "benchmarking" against developed countries becomes a common choice for the government and local enterprises. When universal "benchmarking" forms a common mindset in society, the mindset would in turn influence people's understanding and judgement of reality.
Judging from the starting time of development, sizes of economies and natural resources, the Chinese mainland ought to compare itself directly with other latecomers like India and Brazil. However, the situation we see today is that Chinese people are more interested in making comparisons with developed nations in Europe, North America, and Asia, which inevitably brings many disappointments.
The reform and opening up of the Chinese mainland is a continuation of the “East Asian Model.” That is to adopt a rather authoritarian system where political elites decide the direction of social and economic development, and the nation's development follows the map of industrialization, globalization and urbanization, just like what Japan, South Korea, and Singapore did in the early stages of development. Under the basic consensus of economic development first between the government and the public, non-economic issues are generally left "untouched" or to be solved via development. This is based on a basic judgement that most social problems that occur in the early stage of development would solve themselves in the course of economic development.
The above path avoids various problems brought by “democracy first” in many latecomers. An often mentioned scenario is that among all the latecomers of modernization, only the “East Asian Model” allowed developing countries to succeed in catching up with developed countries. Be it Southeast Asian, South Asian or South American countries, though their development took off at least 30 ahead of the Chinese mainland, crony capitalism has prevailed in these countries and they have fallen into the middle income trap, with an extremely wide rich-poor gap and all kinds of social ills. This is the root cause of why Chinese people no longer "benchmark" against these latecomers.
[Repeating contents were deleted here.] At present, China’s tier one and some tier two cities are just as prosperous as cities in developed countries and there is not a single slum in China's big cities with over 10 million population, while slums are commonly seen in big cities of latecomers of modernization. And the infrastructures of towns and villages in China (highways, railways, water, electricity, gas and communication networks) are even far better than in some developed countries. The economic achievement greatly boosts the public’s confidence. Especially after the humiliation China had suffered a hundred years ago, Chinese people, from the elites and the general public, all have a very strong yearning for a strong and wealthy China. Therefore, after overtaking many countries in economy and social development, China aims for becoming developed countries in Europe and North America.
However, a direct consequence brought by rapid economic and social development is the significant growth of the public’s consciousness of rights. People are demanding more and more. Their standards of social development rise higher and higher. After reaching the Lewis turning point, the labor cost would inevitably rise due to population aging. To stay strong in global competition, improving the rule of law, education and medical services becomes the only option. Moreover, the progress made in the rule of law, the spread of higher education and the vision of globalization will certainly drive people's social demands beyond equal opportunities in economic development. In other words, people want more than basic needs or moderate prosperity. [Some lines are redacted due to size limit. They are mainly about the backflow of talents due to China's development.]
People would expect more social progress in an economically fast growing society. Therefore Chinese people today no longer compare the motherland with other developing countries, nor with some runner-up developed countries. Instead, we start to set eyes on the most powerful developed countries. Beause China's economic achievement hasn't been given enough credit for a long time, while the young generation wishes to win the respect of the world, thus the official propaganda is more inclined to demonstrate that the country is getting stronger, which further elevates Chinese people's expectations. Many of these expectations go far beyond economy and enter the realm of social development and political governance. For high-level talents and for the general public, their expectations are rapidly growing in all domains. How to respond to these expectations has become a real problem.
In reality, "most developed countries established the comprehensive social system that they have now after passing the Lewis Turning Point.” (Richard C. Koo, 2015). When a country enjoys “demographic dividend”, its labor cost problem wouldn't be prominent and the public wouldn’t have too many demands or expectations. As the population ages, however, the gradual rise in labor costs coupled with the significant rise in people's expectations would accelerate the establishment of the social system. And the construction of the social system must respond to people's needs for opportunities in economic development, a stable future, equal education, access to medical care and social justice.
However, people don’t seem to understand that the construction of a modern system has always been a product of consensus. It’s neither bottom-up begging nor top-down giving. The effectiveness of a system relies heavily on the consensus that people follow willingly. It's not something that could be imposed. Moreover, it takes all stakeholders' deep participation to form consensus. In an economically backward society, social relations are rather simple. But different interest groups inevitably came into being when the economy took off, and the stakeholders of many social problems will no longer be a simple binary opposition between “the government and the governed”, “the regulator and the enterprise” or “the power and the capital”.
In the field of after-school tutoring, for example, at least six stakeholders are involved, including public schools and their teachers, private schools and their teachers, after-school tutoring services providers and their staff, investors, parents, and students. [Some lines are redacted due to size limit. It's a similar example in environmental protection.] As for the Internet platforms, they also have at least six stakeholders. The companies that build platforms, investors of platforms, merchants doing business on platforms, other entities participating in the platform economy, traditional players competing with the platforms, and consumers.
Today’s socio-economic environment is getting increasingly complicated. We can see that there are always trade-offs as long as different stakeholders have different demands. So the government’s support for one or several stakeholders inevitably constitutes its opposition to other stakeholders. No matter what choice the government makes, it’s a trade-off that will always please some people while displeasing others.
Therefore, the situation is quite different from the governance we had years ago. At the early stage of development, many problems can be solved under the basic consensus of economic construction. The route for the government is to “specify expectations” and “realize expectations”, and enterprises and the general public will have sustained development by “waiting for adjustment from the top”. The model results in the government’s initiative and the general public’s passivity at the same time. The government believes that "I'm just doing what's best for you", with sort of patriarchal care. And people also approve of such care. China's rapid economic development in the past decades makes people believe that the government’s decisions are always right eventually.
However, things have changed greatly. The emergence of different stakeholders leads to a situation where whatever decision the government makes would be (at least in the short term) supporting some entities, and others will complain. For example, the policies back in 2016 supported tutoring companies to go public, which increased the burden on parents and students and led to extensive discontent. From 2008 to 2020, new policies cut the financing channels of the education industry, causing widespread complaints from related enterprises and investors. [Some lines are redacted due to size limit. They are two more examples in environmental protection and Internet platforms. ]
The difficulty in reaching consensus today lies in the emergence of different stakeholders when our economy has reached a certain level of prosperity. This is in fact a manifestation of social progress. However, the manner and capacity of our social governance has yet to keep up. For the government, it still assumes the role of the “father”, hoping to make decisions for people in some cases, while the general public still holds the mentality of seeking patriarchal care and hopes that the government can stick up for them when their interests are harmed. Therefore, the discussions and disputes over many social incidents have become a fight to prove other stakeholders are the “bad people” while they are the “good people”. In the end, the policy would look like “helping good people to beat up bad people”.
But this is not the reality. Unless there exist behaviors that violate relevant laws or regulations, the appeals of stakeholders can be justified in every field. Therefore, if we see policies as "supporting one party and against others", it would inevitably lead to a situation: after a short uproar in the public opinion, the “battered” side's reasonable demands will slowly gain others’ understanding, which puts the government in a very embarrassing place. [Some lines are redacted due to size limit. They are wordy explanations on the points already made above.]
Most people do not have a deep understanding of issues and the reasons for the change of policies. They rely on amateurish influencers to get information and insights on many major social and economic issues. On the other hand, professionals do not bother to share their expertise with ordinary people, some experts and influencers never clarify the interest group they stand for, while grandstanding “for the country and the people”. Therefore, public opinion sinks into meaningless quarrels. Whatever the policy is, there are always loud criticisms.
Government officials thus feel burned-out.
Goals and expectations have become the primary issue facing China today because it is about “consensus”. Human society is built on stories and visions, so the fundamental consensus must have a deep explanation that can be stretched. The essence of the issue is that in the era with diversified interest groups, the direction of macro strategies should represent the interests of all people (a necessary vision). But the specific policies can’t represent all stakeholders. This fact won't change by criticizing the government or calling for reforms because it’s a normal state of a modern country.
In this era, decision-makers must realize that today’s socio-economic issues always involve different stakeholders, and each has its own rationale. Therefore, the government needs to listen to different voices of stakeholders to make decisions more sensible and rational. The general public must figure out their positions in socio-economic problems and be clear about their interests, and always bear in mind that only calm but active participation and expression can help the government make favorable decisions in the long run. It poses very high requirements to everyone, but it’s the only route for a modern society to become mature.
II. Reform and Deleverage
If we agree with the analysis above, we could make a relatively objective evaluation on the reforms in the economic field over the years. The reforms are heading in the right direction, be it financial deleveraging, restricting real estate development, strengthening environmental protection, regulating the tutoring industry, and anti-trust policies on Internet platforms. Those who are constrained by the new policies were generally beneficiaries of old policies, and the sectors mentioned above expanded rapidly, resulting in plenty of deep socio-economic issues. The regulations on those sectors are based on the long-term judgment of industrial balance and social balance. And the sectors would inevitably deleverage.
However, if we look at the bigger picture in a stretched period of time, we can see that other industries would expand when certain industries were scaled back. While Internet platforms are regulated and their market values plummet, the value chains of electric vehicles is booming and the market values of relevant companies are surging like what happened to Internet companies years ago. The government attaches great importance to productive industries (especially manufacturing) and diverts capital and human resources to them via policies. This is the judgment [after assessing] the populist surge in Europe and North America due to globalization. Most Chinese people don't have doubt about this direction.
The doubts [about implementation of the direction] are mainly twofold. First, people think that the policy making process is not transparent enough. In particular, the investors believe that they are not given enough time for preparation. Second, policies are implemented in a harsh way, and different levels of governments keep adding weights. The market believes that reforms in the short term, coupled with the pandemic led to economic contraction. The government has noticed the problem. At the (2021-2022) China Economics Annual Conference held in December 2021, Han Wenxiu 韩文秀, Deputy Director of the Central Committee for Financial and Economic Affairs, expressed openly that “要慎重出台有收缩效应的政策” "deflationary policies shall be introduced with care" to avoid the “合成谬误” "fallacy of composition” or the “分解谬误” “fallacy of division”.
However, when it comes to specific operations of local governments and industries, the policies are often made harsher and harsher. What’s the reason behind the phenomenon? Prof. Zhou Li’an 周黎安 with Peking University conducted in-depth researches on the “adding weights at each level” 层层加码 [A topic GRR touched in a previous article]. To put it simply, government officials at various levels are having a “political tournament” after the reform and opening up. In Steven N.S. Cheung’s words, this is “competition between local governments” 县域竞争. Early on, economic development had the highest priority and officials’ KPI assessment was rather simple with GDP growth as the only indicator. Based on this premise, different levels of governments would make the policies harsher before passing them down to gain an upper hand in the competition with their counterparts. [Some lines are redacted due to size limit. The author's views are already well presented in argumentation above.]
However, as China’s social development enters a new stage, non-economic areas attract more attention. People are more concerned with the environment, food safety, medical safety, the quality of education, equality, and social justice. They are not traditional indicators for assessing government officials, while economic development remains to be a critical task. So, for local officials, they must strive for both GDP growth and other achievements at the same time. [既要、又要、还要, "Both ... And... While Also..." This is a common phrase describing some conflicting policy objectives grassroots organizations face with, as noted by 半月谈 Banyuetan, a biweekly on its eighth issue in 2022] The change of assessment standards was triggered by long-term judgment of higher-level authorities rather than the appeal of the general public. Thus progress would still be made in a top down manner, and the inertia in governance causes "adding weights at each level" in the economic field to spread to regulations in other areas. Local regulators find themselves in a dilemma, because they shoulder the responsibility of building the economy and regulating market entities. Trade-offs are almost impossible to make. So, on some serious matters, officials would rather be hardliners to make sure they don't miss anything.
But the price would eventually be paid by enterprises and the public. In regions where governance level is higher, officials would do a better job in balancing policies and would take into consideration the opinions of enterprises and the public. This is determined by the overall atmosphere and the level of social development. However, in places where government officials are not competent enough, they can hinder economic development, induce social tensions, sometimes even lead to rent-seeking in powers. Today, the general public's awareness of their rights is rising, and people are constantly exposing new problems on the Internet, which in turn triggers doubts of more people. At present, backward places are forced to improve governance. The situation might go on for a while, and won't be solved by simply transferring some officials to other posts. Nonetheless, as the general public’s consciousness of rights grows and the top-down supervision system becomes mature, transformations will come sooner or later.
These situations are new challenges to decision-makers. New reform tasks are highly professional in nature and have the potential to make the economy shrink. Therefore, the quality and competence of officials in different places determine the effectiveness of policy implementation. On the other hand, if local officials' abilities are known beforehand, decision-makers should take that information, along with the influence of assessment indicators on the result, into consideration. Frankly speaking, this is no easy job. If you know a thing or two about big corporate governance, you would know how hard it is to set the KPI.
[The section here is redacted due to word limit. Here, the author advocates for more transparency about ones' own interests when different stakeholders and influencers participate in public discourses.]
III. Rule of Law and Public Participation
You might have a deeper understanding of “expectations” and the “sense of security” after reading part one and part two. These two issues are the most concerning problems for many entrepreneurs, investors and high level talents. But the rule of law is the highest concern of the general public.
In the past half month, I had some in-depth discussions with some overseas Chinese on the progress of the rule of law in the Chinese mainland. I have two basic opinions: 1. The rule of law is a dynamic process. 2. The rule of law requires a high degree of expertise.
From the end of the Qing dynasty, China started to bring in modern laws from abroad. The rule of law was interrupted and then restarted in the 1980s. The rule of law needs two basic premises. First, a country must have comprehensive basic laws. Second, a sufficient number of legal talents. Under these two premises, most socio-economic matters can operate on the track of law. The spread of the concept of the rule of law is a slow social process that needs efforts of generations. The effective binding of power is slowly achieved in the rule of law, and it wouldn’t happen overnight. Although the crony capitalism in South America and Southeast Asia is labeled as the rule of law and democracy, it's more like an empty title. Oligarchs could even trade money for power publicly. Don't forget that the US was still going through Civil Rights Movement in the 1970s. It is hard to imagine that so many people had no basic rights and protection in the US 50 years ago.
The process of the rule of law in developed countries and regions in East Asia was built upon the emergence of specialized government officials of high quality. This is closely related to the population size. Singapore has less than five million permanent residents, Hong Kong has seven million and Taiwan has 24 million. Because of their small populations, most government officials graduated from prestigious universities. Regardless of the abilities of politicians, the career officers are very professional. However, if we copy the same model to the Chinese Mainland, which has 1.4 billion people, the same standard would require chiefs in county governments in the central and western regions of China to graduate from Peking University or Tsinghua University. Is that possible? Today, not all government officials in central and western county governments have a college degree. However, we must see that the degree spillover caused by the spread of higher education is continuously promoting the quality of Chinese officials at different levels of the government. If this process is made faster, it would accelerate the building of the rule of law in China. The quality of government officials is important to the rule of law, because officials with higher education and more professional skills are more likely to come up with solutions that abide by the rule of law.
On the other hand, the rule of law is never unilateral. The rapid growth of people’s consciousness of rights would lead to a growing demand for the rule of law. Chinese people are paying more attention to the rule of law and evidence, as shown in voices in social incidents in the last couple of years. Although we can still see some unacceptable incidents from the Internet, people are braver about publicly speaking up for the victims. They would disclose various evidence and sometimes even target certain government officials. These demands and accusations are responded, which shows that the supervision mechanism of power has begun to function.
People’s expectations of the rule of law will not stop here, nor will Chinese people compare themselves with other developing countries. They would have higher standards. The process of the rule of law in China is indeed constrained by the demographic structure, which requires a sufficient amount of time to change. However, if we could accelerate this process, it would be more beneficial to our country. At any time, the rule of law needs extensive participation from the general public. And the public participation should not be confined to extreme social events. A more important role of the rule of law in today’s society is that it will become a powerful weapon in restricting “adding weights at each level”. The legislation and amendments, as well as the formation and adjustments of policies can all be seen as the rule of law in a general sense, and they are related to all stakeholders behind every social problem.
IV. Choice and Future
If people’s expectations of China’s development in the past decade weren’t so hyper, they wouldn’t have such great sense of loss. Just as I said years ago, those who supported me may not truly understand my ideas and those who opposed me may not be completely wrong. For many people, today is yet another moment for them to make choices.
I talked about emigration with many friends recently. Individuals’ choices shall be based on their own situations and others’ views are not that important. Nonetheless, since it's quite a hot topic, I’d like to say something about it.
1. As far as I know, wealthy people don’t have to think about this question at all because they already have overseas passports, and they are more concerned about the allocation of their wealth. Many wealthy people don’t spend the majority of their time abroad for two reasons. First, their businesses are still in China. Second, they are more used to the domestic lifestyle.
2. People who consider emigration are mainly from the middle class, or the upper middle class at most. A common feature of this class is that they know something about their emigration destinations, but not much. My advice to them is, have more understanding of other countries and less wishful thinking. It would be more beneficial to the long-term judgment.
In my opinion, the emigration of Chinese people to other countries, especially the emigration of high-quality talents to developed countries is a good thing. If we look at the history of globalization since the industrial revolution in England, the spread of civilizations are always based on the flow of people in the world. Therefore, we should remain open to the cross-border flows of the population. And in turn, if we want to attract high-level talents, we must satisfy their expectations of the social environment. This is the progress prompted by global competition.
In fact, the younger generation can no longer accept the foreign judgements and criticism of China with the same vision as 20 or 30 years ago. It requires enough knowledge for someone overseas to criticize China today. If one judges China solely based on the information obtained from the Internet without enough background knowledge and a deep understanding of China’s reality, they are very inclined to mistaken some particular issues as common issues of 1.4 billion people. The younger generation can now recognize biased accusations on the Internet quite easily. This is made possible by the economic foundation, social development, and the spread of knowledge.
Nonetheless, it’s still necessary to reflect on the realistic problems China is facing nowadays. What people really care about is not criticism itself, instead, they care about the state of their own lives. Thus China has entered a stage where the Chinese people start to feel many criticisms from abroad are acceptable but biased. And our own problems might not be solved by other people’s analysis. As a result, people start to take the initiative to know the world, and begin to participate in improving it.
Last, I’d like to conclude several basic points about China's development:
1. China’s economic development and opening-up are clearly irreversible.
2. Global competition will force China to place greater importance on high-level talents and exchanges with other countries, which in turn, will boost social development.
3. From the history of civilization, we know that the speed of technological advancements and economic development is way faster than other aspects of social development.
4. Relatively high development goals and expectations will create a sense of loss in certain stages, and all parties in society need adjustments. It requires sufficient time to understand social development and system construction. Meanwhile, all parties shall actively participate to shorten the process.
5. The rule of law and the construction of other social systems is a highly specialized process that requires the full participation of the people. It’s neither a bottom-up begging nor a top-down giving.
6. Both the authorities and the general public must establish a mindset of stakeholders. The mentality of binary opposition like "the government and the people", "state owned enterprises and private enterprises", and "power and capital" can no longer explain the socio-economic reality today.
7. For major and extensively disputed socio-economic issues, the traditional hearing system no longer satisfies the demands in the age of the Internet. The government may try and establish different open debate mechanisms that involve different stakeholders. Such mechanisms will make decision-making more transparent and scientific. Surely, when participating in the debate on social problems, professionals should state whether they represent any particular party or not.