Trade war raises the spectre of a ‘China collapse’, and Beijing should worry

Deng Yuwen warns that the impact on China’s economy could destabilise a country already dealing with the twin problems of low public trust and unresponsive government bureaucracy. But although change is inevitable, an eruption of public anger is not

PUBLISHED : Wednesday, 15 August, 2018, 5:00am
UPDATED : Wednesday, 15 August, 2018, 2:36pm

The “China collapse theory” was popular in the international community 10 years ago. However, with China becoming the world’s second-largest economy and exerting a growing international influence, despite the chorus of doom, such talk has died down.

Yet, taking the long view, 2018 is shaping up to be a turning point for China. Today the country faces serious internal and external challenges, and is in the midst of a social transformation.

Given the Chinese government’s ability to maintain stability, the transformation is unlikely to be a radical, dramatic rupture. Rather, the change may be cumulative. Like the proverbial frog in a pot of water that’s gradually brought to a boil, by the time people realise a transformation has happened, it will already be in place.

Looking at the changes that have quietly taken place in Chinese society this year, it is obvious that a transformation is gestating.

Firstly, people’s trust in the authorities has fallen to freezing point, whatever their political leaning. The recent Changsheng vaccine scandal illustrates this development.

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Substandard vaccines directly affect the health and safety of children. When a government cannot even guarantee children’s basic safety, public trust in government is an unaffordable luxury.

Food and drug safety scandals are not new in China. What’s different this time is that people’s expectations of the government have changed. For five years, the current government has led a robust campaign to root out corruption in the government and party. Although it has yet to bring tangible improvements in people’s livelihoods, it nevertheless raised expectations that it could at least ensure a safer, more secure life for most. This was its promise.

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However, the Changsheng scandal made clear that more than five years of the most severe social controls could not even get a vaccine problem under control. The Chinese people, especially growing children, still live in an unsafe environment. So why do they need this unprecedented level of social regulation?

Public antipathy has grown more widespread. After similar scandals in the past, the far left in Chinese society would typically voice their unconditional support for the authorities. This time, most have maintained a rare silence, even if they have not directly criticised the government.

When the public condemns the authorities in unison, when even the most basic trust is lost, it is a sign that a regime has lost its legitimacy. For this to happen when the authorities are trying to forge a “new era”, alarm bells should ring.

Secondly, the Chinese governance system has lost its ability to perceive and respond to social discontent. Individuals within the government, including high-ranking officials, are aware of the maladies afflicting society, of people’s discontent, and of the desperate need for a cure – to scrape the poison off the bone, so to speak.

But as an organisation, the government appears to have lost this sensitivity. It has become very slow to react to public dissatisfaction, much less respond effectively.

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In game theory, this is explained by the “prisoner’s dilemma”, in which rational individuals who make decisions for their own benefit collectively lead to a poorer outcome for all, including themselves. And an organisation that allows this to happen will have failed as a system.

In China’s case, the polarisation of the leadership in recent years, leading to a high concentration of power in the hands of one person, has exacerbated the problem of the follow-the-leader phenomenon that existed in the past. Information is not properly disseminated within the system, and most officials become passive and just wait for orders from their superior.

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Take the vaccine scandal. Even after news of the irregularities led to a public outcry, local authorities were still sitting on their hands. The highest leader of the land had to give instructions for action before the government machinery jumped to tackle the problem, holding meetings and launching investigations.

After 40 years of economic reforms, Chinese society has amassed too many contradictions. Public dissatisfaction with the authorities is well known. Even the most desensitised person could feel it. Yet the government appears insensitive to it. Because the bureaucrats in the system don’t want to take responsibility, all they can do is push the responsibility to others. System-wide, inertia dominates.

If this inability to effectively respond to social grievances persists, the system will slowly lose all its vitality.

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Thirdly, the economic impact of the trade war with the United States is likely to exacerbate the crisis in Chinese society.

So far, the tariffs imposed on Chinese goods have caused China’s stock and currency markets to fluctuate and public pessimism to spread. Even after the initial shock wears off, the tariffs’ impact on China’s employment, prices and financial system will be very real.

Depending on how the conflict develops, we may see large-scale business closures, a rise in unemployment and serious inflation. If the economy sinks into a recession, living standards may fall sharply.

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Since reforms began, there have been highs and lows in the Chinese growth story. Western sanctions imposed after China’s crackdown on the pro-democracy protests of June 1989 led to some hardships, but people tolerated them. The difficult days of the Cultural Revolution were not so far behind then, and living standards weren’t high to begin with.

Things are different now. Many of those born in the 1970s and after have not gone through the poverty their forefathers experienced. If living standards fall sharply for them and their family because of the trade war, how will they adapt and will there be a chain reaction? Some scholars have warned that the trade war might trigger an eruption of public anger.

Chinese society is poised for change. For the authorities, 2018 will be a big test of their ability to govern. Whether they pass or fail, one thing is clear: an overall restlessness is appearing in society and people are crying out for changes to the system.

Without such changes, the government leadership will only be able to delay the outbreak of a crisis if they handle the situation well under the current constraints, or they will accelerate the transformation if they mishandle the situation.

Deng Yuwen is an independent political commentator and international relations scholar. This article is translated from Chinese