It is 25 years after the Tiananmen Square incident, but many Chinese remain clueless about this sad episode of their history. We may have stepped into the digital age, when the answers to anything and everything can be found in a matter of seconds, but the Chinese ruling party is just as effective in keeping people in the dark as it ever was. The stories about the violation of human rights, lack of social justice and malfunctioning judicial system continue to make rounds, but the Chinese are not revolting. Why?
Despite the atrocities of Mao’s cultural revolution, the Chinese ruling party has managed to stay in power after his death thanks to a promise of economic well-being. Since then, the modern China has turned into perhaps the most Machiavellian of all social systems. Stories of national pride and communist legends about Mao have been replaced by a tacit agreement between the ruling party and the Chinese nation. As long as there is an economic growth, the communists stay in power.
To this day, the arrangement has worked well. The combination of a seemingly inexhaustible inflow of cheap Chinese workers, high level of investment and artificially weak Renminbi have turned China into a party-controlled export mâchina. But with the improving living conditions, China has entered the “middle-income trap”, when the growing number of Chinese no longer accept menial working conditions and their idea of a satisfied life now includes a house, car, TV and a smartphone.
“The one who adapts his policy to the times prospers”. True to its Machiavellian nature, the ruling party is seeking to adapt once again. In 2013, Xi Jinping, the new general secretary of the Chinese Communist Party announced a new slogan – “Chinese dream”. Without a hint of pretension, the phrase aims at the strongest Chinese desire – their longing for the American style of life. Nothing could ensure a continued rule of the ruling party better than the promise of the affluence of American middle classes.
The “American dream” has always been a synonym for the opportunity for prosperity achieved through hard work and access to equal opportunity. Often associated with the image of the 1950s post-war America, in which the privilege of middle class comforts belonged to the vast majority of working Americans; the ideal of “American dream” is precisely what the Chinese ruling party needs to stay relevant. In the “new” modern China, the economic growth will no longer be built on cheapness and export-driven mass production. Instead, the growing Chinese middle class should transform the economy, so that the higher rate of spending, aspiration for luxury and pursuit of quality would become the new engine of economic growth.
Only very little is required from the Chinese government itself. Chinese shadow banking has soared in recent years. Financial institutions outside of the remit of banking regulations have been giving out loans frivolously and this has led to excess debt and over-investment. By curbing this phenomenon, the ruling party will quell both concerns about the robustness of the Chinese financial industry and bring down the bubble in the property market. Cheaper houses will bring the Chinese closer to their ideal of a middle class life as will promoting the government blessed urbanization. In past, the movement of Chinese workers was closely but clumsily controlled by the ruling party, so that rural-urban workers have often lost right to social benefits.
These reforms should rejuvenate the Chinese economy and endorse a major social uplift of millions into the realms of middle class comforts. This is not just the wishful thinking of the ruling party, but rather a consensus accepted around the world. According to McKinsey&Co, by 2022 more than 75 percent of China’s urban consumers will earn $9,000 to $34,000 a year (http://www.mckinsey.com/insights/consumer_and_retail/mapping_chinas_middle_class). Foreign investors are thirsty for opportunities in the growing Chinese middle class market. Most gaps however seem to be filled already. With growing incomes, the Chinese are expected to eat more meat. But much like Americans, the Chinese are protective about their food industry, which they see as a matter of national security, so that investing in it is nearly impossible. Exporting consumer staples into China would be just as doomed tactic. The country is a production behemoth, so that trying to compete on price is impossible.
And yet, the opportunities to bet on the Chinese growth are immense. Elite fashion brands, premium car-makers and producers of expensive wine and whiskey all alike cannot get enough of China as the new growing middle class is turning snobbish. The more exclusive, the better. Anyone with the rights to an obscure defunct luxury brand from Europe and a talent for storytelling can go big in China. According to the same research by McKinsey&Co., the luxury-goods consumption has surged at rates of 16 to 20 percent per annum for the past four years.
“Bread and circuses” – a Roman sarcasm holds just as true today as it did in the days of old Romans. The Chinese ruling party has managed to buy itself another decade of an unchallenged control. A decade, but no more. First based on cheap production, then the rise of its domestic consumption, the Chinese economic progress continues to lack one essential quality – ingenuity. Until now, the growth of Chinese economy was simply based on their competitive advantage in two factors of economic production – labour and capital. For years economists discussed the importance of ideas, innovation and ingenuity and argued that labour and capital cannot explain the economic growth alone (http://www.homerdixon.com/projects/ingen/ingen.htm). The modern China is brilliant in reproducing, but lacks innovators. The Chinese thirst for European luxury is more than just status-seeking – it is a desire to be inspired.
In future, the new “snobbish” China will struggle to find export markets for its more expensive products. If the Chinese economic growth stalls, there will be no more “bread” for the people and Mr Xi may find his Chinese dream to become a nightmare.