Unravelling from the edges
What do a high-ranking Chinese Communist Party cadre and an executive working for a foreign multinational in China have in common? Both live in guarded, walled compounds, send their children to foreign schools, drive about in imported luxury cars and are bullish on the future of China's economy.
There is reason to be. Economic decentralisation has brought with it political decentralisation, an unravelling of controls. This has given the regions greater powers, as they are no longer beholden to central government budgets: in turn, they must support themselves. As Beijing sloughs off the burden, its powers to interfere diminish.
For advocates of free markets and democratic governance, in theory this is a good thing. But in the mainland context, it may be the beginning of an unravelling of order - with consequences dangerous for both the party and the foreign multinationals. The party's ability to govern is what assures stability and foreign investment returns.
Regional economic management frequently involves local corruption. But that is tolerated and absorbable, as long as the momentum towards prosperity is sustainable. The long-term question: is it sustainable?
Under Premier Wen Jiabao , decentralisation has gone even further. Government organs once capable of adjusting the levers of local economies and political apparatus no longer exist. The party finds itself increasingly locked into its own central offices, with its reach over local officials - and knowledge of what is happening within the country - diminishing daily. And, in parallel, there is a nationwide rise of 'mafiaism with Chinese characteristics' at the local level.
The party's local offices determine every position, from police chief to fire inspector. The result is that allegiances are formed within the networks of the local government, which are often transformed in substance into mafia-like groups prospering in a shadow economy of extortion and corruption. This explains why officials on salaries of only a few thousand yuan per month drive luxury cars and maintain multiple villas.
When local governments engage in showcase projects - burning cash on cement and wasting energy by lighting up mini-Tiananmen-style plazas - Beijing does not have much power to say anything. How the local officials pay for it all is up to them. This in turn has given them the power to say 'no' to the centre.
At the end of the last dynasty, corrupt Qing officials looted their own government, bankrupting it. The centre lost control to local officials, who subverted budgets and power to become warlords. During the Republican period (1911-1948), foreign investment flowed into cities like Shanghai, Tianjin and Qingdao - then as prosperous as New York, Paris and Munich. While the last emperor sat behind high walls in Beijing, reminding himself every day that he was still emperor, warlords ran the show - at least on their own turf. Foreign trade and investment flourished.
Given how history rarely repeats itself, it would probably be a gross error to make comparisons between that past era and the current situation. On the other hand, many local cadres behave like feudal warlords in suits. If not checked soon, mafiaism could lead to rapid decay of a system that may no longer be in control of its own apparatus.
If not for the enormous power of the foreign investment driving China's economy and sustaining its momentum, this decay might already have made growth unsustainable. The current flood of inbound foreign investment - which in turn drives exports, and with them China's foreign exchange reserves - is the key ingredient for social stability, the linchpin for economic prosperity in the mainland. A vested interest in that stability is perhaps the biggest thing that high-ranking party cadres and executives of foreign multinationals have in common.
Laurence Brahm is a political economist and lawyer based in Beijing
