After Tiananmen

On June 4th, 1989 drastic actions of the CCP against thousands of students and intellectuals protesting in Tiananmen Square in Beijing, led to worldwide condemnation. The call out of the People’s Liberation Army and subsequent protestors’ deaths, and the arrests of many other surviving activists did nothing to warm the hearts of the Chinese people. Dissent was suppressed with martial law.

The action was taken by a divided leadership who believed that democratic protests were counter-revolutionary. Although many were inspired by Western ideologies, the students were only concerned with political reform and an end to official corruption. The main cause of the protest wasn’t about overthrowing leadership.

Nevertheless, it has led to the China we know today. In order to survive, liberals like Zhao Ziyang were purged from the Chinese leadership. This began its transformation from a broad coalition of liberals, conservatives and the technocratic elite into a cohesive political force led by a conservative and technocratic elite. So the party changed, and so did its relationship with Chinese society. It co-opted the China’s rising middle classes into its own ranks, stifling dissent by inverting Marxist class-consciousness and providing a ticket for material success for those among them that carried the party card. This spearheaded an impetus for economic reform, and forced the Chinese government to accelerate economic growth through liberalisation.

Although the Chinese people have won an increasing number of freedoms over the last 20 years, the leadership shows know immediate intention to let go of power. At the time, the West hoped that Tiananmen Square would lead to the end of the one-party system, just like the fall of the Berlin Wall eventually led to the fall of the USSR. Havoc ensued, and some of its consequences can still be seen today.

The Chinese leadership learnt from Russia’s lessons, and believes that change can only occur as part of a step-by-step process. So the reform agenda, which has embraced capitalism and globalisation, has kept the one-party state in tact. Many people though believe that democracy will be inevitable in years to come. Meanwhile its people, except in Hong Kong where free speech is guaranteed by its mini-constitution, cannot engage freely in political dissent without being questioned or facing severe consequences such as imprisonment for their actions.

Since then, the doors of liberalisation have been comparatively closed in order to protect the one-party system. The voices of the dissatisfied people have become louder and stronger due to the internet and the rise of citizen journalists uncovering “cases of corruption and official venality”, says the Wall Street Journal. As a result, more of China’s citizens have taken to the streets to demand justice. There have also been more protests over land and labour rights.

Nevertheless there have been land rights reform afoot with a new pilot scheme being trialled in the north-eastern province of Liaoning, which allows 151 households to use their land rights as collateral for mortgages. This means that farmers are being given access to credit for the very first time. It enables them to buy their land and frees them from state intervention. Under current legislation farmers are not allowed to use their properties as mortgage collateral, so any reform in this area, which began with decollectivisation in the 1980s, could turn them into economically significant players.  However, it has been asserted that these reforms don’t go far enough.

Since 2006 other reforms have been introduced, such as the country’s bankruptcy laws aimed at increasing investor confidence. Western companies were initially attracted to China because of its flexibility from a legal perspective, but things are changing. In 2008 China’s top legislature passed a package of tough environmental laws to underpin its climate change strategy with the hope of removing the label of being one of the world’s worst polluters. It set out reduced energy consumption by 20 percent, to double the usage of renewable energy, and to cut pollution levels by 2010.

Over the next three years financial reform will be crucial. It had stagnated, but the Chinese government has little choice but to act as a result of the financial crisis and its dependency on exports. Sources suggest that they grew by 19 percent a year, and the country’s average export growth of 27 percent was very focused on the debt laden growth of consumption in the US. Due to the recession this growth is unlikely to return over night, and only five percent growth is predicted over the next three years. This has led China to replace its lost productivity growth with a considerable monetary expansion. In order to maintain GDP growth it will need to entertain domestic market reforms, requiring the deregulation of the domestic service industries, many of which are still state-owned, and financial reform to improve capital allocation.  The latter will improve economic growth, created by each invested dollar.

What was once a lifeless bond market is now beginning to boom. Two years ago bonds were underwritten by state-owned banks and were subject to a quota system that was eventually ditched. And yet the bond market is now picking up. Between January and April 2009 it rose by up to 60 percent, and bond issuances are expected to increase over the next two years. Companies like PetroChina have joined the market. The nation is trying to move away from bank-lending in order to establish a more flexible financial system. There are, nevertheless, more bank loans being issued than bonds at the moment.

Such reforms are required to ‘re-balance the economy’. One of the key challenges of this programme requires China to change from being an exporter of goods, to one that has its own consumer economy. To create a burgeoning domestic consumer economic it has to embrace the rise of the urban middle classes. The trouble is that, while the country’s population will grow to around a billion by 2030, most of its citizens remain comparatively poor. About 90 percent of the population earns less than US$5,000 per year, and most of this is spent on housing, clothing and food.

Income levels have to increase if the drive towards a consumer economy is going to be successful, and most of the consumers with the money to spend on consumer goods live within the region of the Yangtze River Delta, the Pearl River Delta and the Beijing-Tianjin corridor. Most of its migrant workers who go to the cities to find work don’t have the means to enjoy Western-style consumerism, but incomes over time will grow and this in turn will spur on retail market growth. An appreciation of the country’s currency, the renminbi would help matters, making foreign goods cheaper and this in turn would open up the market to new consumers.

So China has come a long way since the Tiananmen Square massacre, shown by the way it was welcomed at April’s G20 summit. There’s clearly still work to be done, with many pitfalls ahead. China, with the rise of consumerism and economic prosperity, could end up creating an underclass unless better access to social services is provided; including the provision of public health and education.