Political Instability In China

Peggy MunroLet's Talk About Money0 Comments

Given that political and economic unrest have been so widespread this year, it should come as no surprise that there are political rumblings in the Middle Kingdom. China, the world’s most populous state, is watching its exports to the U.S. and Europe fall for the first time since it became an exporting powerhouse. Even as demand for its goods declines from the developed world, its costs for producing those goods has begun to climb.

As 2011 draws to a close, it is possible that this will become history’s greatest year of political change and volatility. The domino effect that began in January with the Tunisia uprising quickly spread throughout the Middle East to a group that includes Egypt, Libya, Sudan, Syria, and Yemen. The fabric of the European Union continues to seriously fray at the edges, and uncertainty and confusion still reign in Japan following the triple disasters of earthquake, tsunami and nuclear meltdown. Occupy Wall Street and its cohorts have taken over parks, plazas, and cathedral steps around the world, and even the repressive state of Myanmar has begun political reformation.

The problems in China, a topic which could fill many doctoral dissertations, are similar to what we’ve seen elsewhere this year; given the size of the economy, and the number of people involved, they are also unique. After the Communist Revolution in 1949 swept away most of the middle class, the Great Leap Forward demolished the private agricultural base of the country, and the subsequent Cultural Revolution in the 1960’s destroyed what little remained of a centuries-old way of life. By the time of President Nixon’s historic trip to Beijing in 1972, the new China consisted of a tiny consumer class, and an abundance of poorly-educated workers who understood that their role was to produce, primarily for export, not domestic consumption. The Revolution created a culture where doing without became the norm, not the exception.

Today, China is the world’s second largest economy, an economy that has grown at a ferocious rate, but has failed to bring all its citizens along for the ride. At the time of Nixon’s visit, everyone shared the same level of prosperity, or lack thereof; now, the opening of the markets has created urban privileged classes and rural under classes, and the disparity between them continues to grow. The middle and upper classes feed their unquenchable thirst for luxury consumer goods while the poor and underprivileged stay on the farm. So long as the rich and the poor remain separate, the government manages to keep the lid on discontent; once the two classes come into close contact, the resentments of the under classes begin to boil up. And the government, in its desire to build new cities and new areas of economic development, is actually compounding this unrest when they displace poor rural workers to promote modernization.

Engineering every aspect of life is the traditional Chinese way, including where you live, where you work, what you make, and how much you earn. As draconian as the collective experiments of the mid- twentieth century were, the most potentially damaging to the economy was not instituted until 1978: the one-child policy. Over thirty years after its institution, this well-intentioned attempt at population control is turning into a quagmire of unintended consequences. It is responsible for the incipient labor shortages and the demographic aging of the population, with fewer young workers to take the place of, and ultimately support, the elders. It is also ultimately accountable for the social unrest that is beginning to permeate much of Chinese society. The younger generations in China now contain statistically far more males than females, due to the preference of families that their single child be male.

As these young generations reach maturity, they are finding their opportunities to create stable families are hugely limited. Crime is increasing in the cities (young, unattached males are statistically the most likely to commit crimes), as is political Chunrest, both peaceful and violent. Think of the demonstrations in Tiananmen Square in 1989 eleven years into the one-child policy, and then multiply it by a subsequent twenty plus years of further one-child families, overwhelmingly male.

The Middle Kingdom, which has historically separated itself from the rest of the world, voluntarily opened its doors to foreign investment in 1972, and the intervening 40 years have seen that investment skyrocket. But their model is not sustainable, and the cracks are widening. Production costs are increasing as demand wanes, income disparity is growing, and there is little social or economic opportunity for upcoming generations. Add to that a repressive and corrupt government, and the result is a political time bomb that will bring down the Chinese government. Make no mistake, the coming implosion will completely change their way of life. And ours.