The great divide

PUBLISHED : Friday, 23 September, 2011, 12:00am
UPDATED : Friday, 23 September, 2011, 12:00am


The recent political scene in China is odd. First, we have two Politburo members publicly slugging it out over approaches to economic and social development. Guangdong's party secretary Wang Yang prefers 'making the cake bigger' to smooth over the problem of unequal income distribution, while the red-song-touting party secretary of Chongqing, Bo Xilai, wants to start a 'get rich together' project to divide the cake right away.

Then, two premiers - one incumbent and the other retired - filled the state media with sharply different messages. Former premier Zhu Rongji has produced a book of his speeches, made when he was in office, in which he warned against an 'overheating' economy and real estate speculation. Meanwhile, in Dalian, Premier Wen Jiabao called for political reform and a serious campaign to fight corruption, similar to his other statements that have set him apart from the other leaders.

At first glance, this may seem encouraging for open debate about China's future among the top echelon of the leadership and could mean more political transparency. Moreover, these debates touch on a real problem in China: the widening income gap.

Indeed, a few years ago, the Chinese public would have been fired up by such a debate. But, this time, the people seemed to be suffering from 'stage fatigue' and few paid much attention to their leaders' 'public performance' because they are tired of their promises of change that, in reality, bring no progress.

Throughout the history of Chinese peasant revolutions, most notably during the communist revolution of the 20th century, demand for 'income equality' was the most effective rallying call for the disadvantaged majority. Today's China is facing the biggest challenge to the legitimacy of its government because of an unjustifiably widening income gap. According to the most recent statistics, the Gini coefficient in mainland China has reached 0.5, well above the level of 0.4 that is considered the danger point for social stability. The higher the coefficient, the more unequal the distribution.

Does the Chinese leadership see the writing on the wall? Of course it does. In fact, no serious rulers in Chinese history dared to ignore this problem. Confucius once said that a ruler:

'Does not worry that his people are poor, but that wealth is inequitably distributed;

Does not worry that his people are too few in number, but that they are disharmonious;

Does not worry that his people are unstable, but that they are insecure.'

Indeed, at the outset of reform, Deng Xiaoping himself said: 'If our reform should produce bipolarisation of income distribution, it would mean the failure of the reform.' The irony is that, even though the Chinese leadership has been keenly aware of the dire consequences of official corruption and the unstoppable trend of a widening income gap, no one seems capable of removing the structural factors that are driving this gap towards a socially explosive end. Chinese leaders have promoted the idea of building a 'harmonious society', but have so far failed to tackle the issue that causes the most disharmony in China.

Everyone knows that the primary driver for income inequality is political power play, rather than market forces. Three interrelated power monopolies make it well-nigh impossible for the system to eliminate this problem. First, there is the administrative monopoly over banking, land ownership and its legal use. Such a monopoly is the main reason behind property speculation and the accompanying large-scale official corruption. There is hardly any corrupt official who does not play the real estate game.

Second is the state monopoly of resources and their market prices. There's a huge income gap between those who have access to resources and those who do not.

Third, and the most widespread problem, is there are too many opportunities for rent-seeking activities due to the political power monopoly. Anything can be put up for sale to create a price, from personal promotion to government policy preferences, to a company, a city or an economic sector. It is thus clear that the income gap can hardly be corrected by cosmetic reforms such as increasing social welfare funding.

The real issue is the continuous large-scale wealth transfer through a monopolised state system. The 'cake' debate between Wang and Bo is a red herring. The fact that the personal economic activities of the elite are hidden from the public creates a serious political dilemma: as the people are frustrated over the income gap that's widening by the day, popular anger is increasingly targeted at the entire ruling elite.

In the dynastic days, the royal elite's obsession with secrecy could help maintain stability by creating a halo of mystic power. Today, the right to rule can no longer be granted to those who have 'royal' lineage, not constitutionally at least, thus the popular anti-elite sentiment is bound to grow strong, since the princelings as a group seem to have garnered huge wealth without any convincing reason other than their 'illegitimate' access to public power.

This may prove ominous for next year's power transition. No politician today in China can claim to be truly popular any more. The halo of mystic power for the entire political elite seems to be fading rapidly. Even for the so-called 'liberal-minded' politicians, their credibility of being close to the people, or as advocates of political reforms, becomes fatally wounded when stories of their family members' economic wheeling and dealing appear on the internet.

The problem is reinforced by the sharp contrast between the party's tough announcements on official corruption and its continued stalling of a move to make public the personal income and property of all party officials. The official explanation is that 'the timing is not right'. Such an absurd excuse only leads ordinary Chinese to think that officials need time to hide their wealth.

As a popular saying goes these days, launching an anti-corruption campaign will destroy the party, but doing nothing will destroy the state. Chinese people should understand the logic of dynastic history: that while the state can survive without the royal house, the royal house can only survive if the state does.

Lanxin Xiang is professor of international history and politics at the Graduate Institute of International and Development Studies in Geneva