What Does China Think?

For Wang Hui, China’s last fifteen years have felt like a hallucination:

those who thought that the movement had speeded up the process of Chinese democratic development discovered that they had been abruptly dragged back into an era they thought was passing away – the old language, old patterns, old characters, old announcements, old faces that should have retired from the scene all took the stage once again. These old patterns created a hallucinatory effect, such that no one became conscious of the fact that the actual functionof the repressive measures was precisely to re-establish the links among market mechanisms that had begun to fail.

On the surface it looked as though the old guard was emphasizing its Communist ways, but in reality market forces were being pushed through with unprecedented speed. This created an ironic situation where right-wing economists like Zhang Weiying – who like to talk about the withering of the state – have, in fact, been the biggest beneficiaries of one-party rule. The Communists have faithfully implemented his ideas for reform, while silencing critical voices on the Left.

Zhang Weiying was not immediately sure how things would pan out so he left Beijing for Oxford University to study for a PhD under the Nobel Prize-winning professor James Mirrlees. By the time he returned to China in 1994, the breakneck pace of reform had resumed. The size of the non-state sector had grown exponentially and China was already overcoming the international opprobrium which its brutal suppression of the demonstrations had provoked. Zhang Weiying immediately returned to the action, dividing his time between the business, academic and policy worlds. As well as sitting on a number of government task-forces, he runs the prestigious Guanghua School of Management at Beijing University, and advises a dozen of the biggest firms in China. Since 1995 he has been the most cited economist in Chinese economic journals.

Wang Hui and the left-wing reformers had a tougher time in the 1990s. Numbed by the ferocity of the assault on the protesters, disorientated by the bizarre alliance of convenience between the Communist Party and the new capitalist elite, and depressed by a growing body of thought that believed that history was coming to an inevitable end, he and his colleagues went underground. They fell back on the three weapons that James Joyce had advocated against repression: ‘silence, exile, and cunning’.

The rise of China’s ‘New Left’

I met Wang Hui in ‘Thinker’s Café’, a bright and airy retreat with comfy sofas and fresh espressos that sits on top of one of Beijing’s largest bookshops. Within a stone’s throw of three of the country’s most prestigious universities – Tsinghua, Beida and Renmin – it reverberates to the sound of earnest intellectual chatter. Today’s Wang Hui has overcome his despair. He has the guise of an archetypal public intellectual: a thin man with cropped hair, wearing a brown jacket and a black polo-neck sweater. He loves discussing abstract notions like ‘enlightenment’, ‘teleology’ and the meaning of ‘modernity’. Neither his J.-P. Sartre chic nor his trendy theoretical discourse would be out of place on the Left Bank of Paris.

But Wang Hui has not lost his anger about China’s condition. He has managed to stand aloof from the commercial mainstream. Because he has not joined the party, he has no official positions (unlike Zhang Weiying, he is not the director of a university institute or department). For a decade he held an influential post as editor of Dushu – the leading intellectual journal in China – but it was taken away from him with very little notice in advance of the 17th Party Congress in 2007. Although he is a professor at Tsinghua University, Wang Hui has an uncomfortable relationship with the authorities: writing reports exposing local corruption and helping workers organize themselves against illegal privatizations. He often uses the media to put the spotlight on government failings.

Wang Hui is one of the leaders of the ‘New Left’, a loose grouping of intellectuals that is increasingly capturing the public mood, and setting the tone for political debate. They are ‘new’ because unlike the ‘old left’ they support market reforms. They are Left, because unlike the ‘New Right’ they worry about inequality. Many sought exile in the USA in the 1990s, but now they are back to join the debate about China’s future. In an interview, Wang Hui set out their stall: ‘China is caught between the two extremes of misguided socialism and crony capitalism, and suffering from the worst elements of both systems … I am generally in favor of orienting the country toward market reforms, but China’s development must be more equal, more balanced. We must not give total priority to GDP growth to the exclusion of worker’s rights and the environment.’

Their philosophy is a product of China’s relative affluence. Now that the market is driving economic growth, they ask what should be done with the wealth. Should it continue accumulating in the hands of a privileged elite or can China foster a model of development that benefits all its citizens? Thirty years into China’s reform process they are challenging the philosophy of growth as the ultimate goal: instead of hurtling towards nineteenth-century laissez-faire capitalism, they want to develop a Chinese variant of social democracy. And while, like magpies, they adapt ideas from all over the world to Chinese conditions, they feel that China’s development should be built on Beijing’s terms. As Wang Hui says:

We cannot count on a state on the German or Nordic model. We have such a large country that the state apparatus would have to be vast to provide that kind of welfare. That is why we need institutional innovation. Wang Shaoguang [a political economist] is talking about low-price health-care. Cui Zhiyuan [a political theorist] is talking about socialized capital and reforming property rights to give workers a say over the companies where they work. Hu Angang [an economist] is talking about Green development.

Their goal is to challenge the imported ideas of ‘Pearl River Capitalism’ and replace them with a home-grown philosophy: ‘We have to find an alternate way. This is the great mission of our generation.’ And as the list of problems arising from the market grows almost as long as the many achievements, the senior leadership is taking note of their ideas. They are beginning to feel that their time has come.

Yellow River Capitalism

Henan literally means ‘South of the River’, because of its location on the banks of the Yellow River. This is the heart of inland China, the spiritual opposite of Shenzhen. Traditionally regarded as the birthplace of Chinese civilization, it is also home to a village that became the poster boy of the ‘New Left’ in the 1990s: Nanjie. In a deliberate experiment, Nanjie’s leaders created a synthesis of the market and collectivism, as they abandoned their agricultural heritage to embrace industrialization (the authorities built twenty-six factories making everything from instant noodles to plastic wrappers). Village life in Nanjie is resonant of nineteenth-century experiments in ethical capitalism such as Robert Owen’s New Lanark in Britain. The workers are paid above average wages and everyone is given free housing, free healthcare, rations of meat and eggs, and a daily bottle of beer. Primary and even college education is subsidized. The authorities look after the moral welfare of their citizens, not with religious sermons as in New Lanark, but through compulsory study-sessions of Mao’s philosophy and regular ‘criticism and self-criticism’ of each other’s behaviour. In 1996, the village was immortalized in a glowing book by the ‘New Left’ political theorist Cui Zhiyuan.

For him, the village was a living embodiment of an ‘alternative way’. It showed that the market could be used to finance social welfare; that success could be achieved in the rural communities of inland provinces rather than only on the coast. And it showed how government intervention – to provide health and education – could improve economic dynamism. Today some of the sheen has come off Nanjie, which is increasingly seen as an artefact rather than a model. But even in 1996, Cui Zhiyuan did not think that Nanjie could be universalized. Instead, he argued that it showed how China could survive in market conditions without slashing the wages, terms and social protection of its workers. It was an emblem of an alternative form of capitalism to that practised in the Pearl River Delta, one which I will call ‘Yellow River Capitalism’.

Where Wang Hui speaks slowly and deliberately, Cui Zhiyuan can be exhausting to follow. When he talks his sparkling eyes almost pop out of his head. His delivery is breathless with the enthusiasm of a mad scientist intoxicated by the pursuit of knowledge. As he draws on learned quotations to back up his points, one gets the sense that he is holding the ring for a perpetual argument that is going on in his head between his intellectual mentors: Niccolò Machiavelli, Jean-Jacques Rousseau, John Stuart Mill and James Meade. Cui Zhiyuan is one of the most optimistic members of the ‘New Left’, seeing experimentation as a key to solving China’s problems: ‘The present experience of Russia – and the experiences of developing countries around the world – demonstrate that these countries cannot achieve the wealth, strength and freedom of rich industrial democracies by simply imitating the economic and political institutions of these democracies. They must, to succeed, invent different institutions.’ For the ‘New Left’, the key to the Yellow River Capitalism is a philosophy of perpetual innovation – developing new kinds of companies and social institutions that marry competition and co-operation.

The weakest state in the world

‘Big state bad, small state good’ was the mantra of the economists in the 1980s and 1990s. But the ‘New Left’ team of Wang Shaoguang and Hu Angang has done much to turn that debate on its head. This odd couple – who had a chance encounter at Yale University – emerged as a sort of Lennon and McCartney for ‘New Left’ economics in China. In an influential report in the early 1990s, they argued that the Chinese state had the wrong kind of power: despotic rather than governing. Its ability to restrict the personal freedom of its citizens was second to none. However, when it came to running the country in an effective way, China’s state was one of the weakest in the world.

They showed that central government’s revenue had steadily fallen as a percentage of GDP from 31.2 per cent in 1978 to 14.7 per cent in 1992. As the central state’s budget fell, the income of local governments grew and grew, creating a series of ‘red barons’ in the provinces who used dubious ad hoc charges to line their personal and provincial coffers and increase their power. By the end of the 1980s, the ‘red barons’ had become as powerful as the central government.

For the ‘New Left’, almost all of the problems hampering China’s reforms – corruption, overheating of the economy, bad investment, non-performing loans, low levels of domestic consumption and growing inequality – had come about because the central government was too weak, rather than too strong.

Hu Angang estimates that the combined costs of illegal bribes, tax evasion, arbitrary local charges and straightforward theft add up to a staggering 15 per cent of China’s GDP every year. He shows how, without democratic accountability from below or fear of sanctions from above, provincial leaders put their own interests above those of the people, spending most of their extra-budgetary revenue on themselves and their families: higher salaries, cars, air-conditioning, refrigerators and shiny new office buildings. The solution, according to him, was to centralize the collection of taxes in order to prevent the proliferation of arbitrary charges and to create central institutions to tackle corruption.

The ‘New Left’ made a similar argument about the expensive white elephants such as luxury hotels, skyscrapers, state-of-the-art amusement parks and giant stadiums which local governments have become addicted to building. These unproductive investments, which contribute to an overheating of the economy, are built with money from China’s banks which Deng Xiaoping had freed from central control.

However, their most powerful argument is that a stronger state could help stimulate higher household consumption which currently stands less than 40 per cent of GDP, the lowest of any major economy. The ‘New Left’ claim that China’s model of development is unsustainable because there is a limit to the amount of goods and services that the rest of the world will be able to buy, so China will need to start consuming more of its own products. In the future, China will quite simply need to spend more, and save less. The ‘New Left’ correctly argue that domestic consumption will only rise when Chinese citizens feel less insecure. As long as there is no welfare state to protect Chinese citizens from illness, unemployment or old age they will save their money for the future, rather than spending it as they earn it. The ‘New Left’ claim that only a revitalized central government can provide the social safety net which would give Chinese citizens the confidence to consume. Their words have not fallen on deaf ears. The percentage of central government tax revenue has been gradually increased since 1994, and – rhetorically at least – Hu Jintao and Wen Jiabao have committed themselves to rebuild China’s welfare state.

Protecting public property

‘Property is theft’ has been one of the Left’s favourite expressions ever since Pierre-Joseph Proudhon first coined the phrase in 1840. But while the French anarchist was speaking primarily in conceptual terms, in China it is literally true. The ‘New Left’ talk of a new ‘enclosure movement’ – referring to the way that private landlords grabbed common land in England between the twelfth and nineteenth centuries – that is ripping up China’s social protection system and creating mass inequality. Every week newspapers and websites carry stories of party bigwigs carving up and plundering the nation’s assets under the cover of privatization. Property that was once taken from the rich and given to the peasants is confiscated from farmers and given to developers. Entire villages have been forced off their land to allow property speculators to build new developments; factories have been sold at knock-down rates so that their assets could be stripped and plundered. These cases have seen corrupt officials and crooked businessmen become overnight millionaires while the workers and land-owners whose assets they appropriated received derisory amounts of compensation.

The three letters that have come to symbolize the most brazen pillaging of collective resources are ‘MBO’, short for management buyout. In 2004, a little-known Hong Kong-based academic called Lang Xianping became a national figure when he used his slot on an obscure local Shanghai TV station to investigate and expose some of these abuses. His show caused such waves that Gu Chujun, the chairman of one of the companies that he exposed, took him to court for defamation with a plucky battle-cry ‘I’m fighting for the honour of the entrepreneurs.’ Before Gu Chujun lost his case and was put in prison, the economist Zhang Weiying came to his defence, complaining about the practice of ‘monsterizing and vilifying entrepreneurs’ and arguing that privatization should continue both for reasons of efficiency and principle. He argued that State Owned Enterprises will never take risks because their managers are appointed by bureaucrats; only capitalist entrepreneurs will create new wealth. Even if there are some irregularities in the privatization process, he claimed, it is a price worth paying because China will only be able to develop when the state has retreated from the economy, and its biggest companies are in private hands. Privatization will benefit all.

The ‘New Left’ disagree that state-owned companies will necessarily underperform, arguing that they too can recruit professional managers from the market who could be rewarded or punished according to their performance. What worries the ‘New Left’ most are the social costs of privatization. State Owned Enterprises, for better or worse, provided an ‘Iron Rice Bowl’ for their workers: as well as paying workers a salary, they organized education, pensions, housing, healthcare and even sport. Privatization and economic restructuring has not just deprived millions of workers of jobs, it has stripped them of the social protection that made their families’ lives viable as well. The fact that China has gone from full employment to a situation where there are 40–60 million unemployed – as well as tens of millions of migrant workers (mingnong) who live as exiles in their own country with no rights because they have no certificate of residence – has led to work becoming a commodity. The Chinese political elite have been divided for over a decade over the idea of introducing a law to protect private property. Wang Hui talks for many in the ‘New Left’ when he says ‘we have nothing against protecting private property, but shouldn’t we also have a law to protect public property?’

Cui Zhiyuan has an even more radical idea: a new way of sharing the profits of China’s State Owned Enterprises. China’s 169 biggest companies declared net profits of over 600 billion Yuan ($75 billion) in 2005. But in spite of their enormous profits China’s state companies do not pay dividends to their main shareholder: the state. The government is finally preparing to ask these firms to pay up. However, Cui Zhiyuan wants them to give the dividends to the people rather than the government. His model comes not from China’s socialist past, but from Alaska. Since 1982, the government of this bleak polar state has used some of the income generated by its massive oil reserves to set up a giant trust fund for its citizens, paying them a ‘social dividend’ worth thousands of dollars every year. Cui Zhiyuan argues that profits of State Owned Enterprises should be treated like Alaskan oil, going to the mass of Chinese people rather than a wealthy elite. He claims that this social wage would help to remove Chinese insecurity, allow citizens to take low-paying jobs and increase domestic consumption.

Green Cat Development

China’s ‘New Left’ do not just worry about the social impact of China’s breakneck development; they also worry about an environmental nightmare. On my own visits to Beijing, I always know when my plane has entered Chinese airspace: the pollution is so bad that I cannot see the ground. China’s air, water and land are being laid waste by the country’s relentless pursuit of economic growth. As development advances from the eastern coasts, the hinterland is becoming a barren, hellish wasteland – the poorest regions have been transformed into a dumping ground for industrial detritus. Two-thirds of China’s electricity comes from dirty coal, with a new coal-fired plant built every week. China’s factories blurt out toxic fumes and dump chemicals and waste in the rivers and lakes. Chinese agriculture uses fertilizers that are banned in the rest of the world. Already a quarter of China’s land has turned to desert, as a result of deforestation, and this is spreading at a rate of 2,460 km a year. As a result 30 per cent of China has acid rain; 75 per cent of lakes are polluted and rivers are contaminated or pumped dry; and nearly 700 million people drink water contaminated with animal and human waste. There is a shortage of arable land, as millions of peasants find that their fields are confiscated for development or contaminated by chemicals.

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