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China’s Domestic Political Economy Guides Its Foreign Policy

Border skirmishes align with long-term Chinese interests to contain competition from a developing India.

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How will China’s economic slowdown affect its foreign policy?
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The recent discussions about China’s actions in the global arena, be it the launch of the One Belt One Road initiative, tensions in Doklam or the BRICS summit, have been silent on how its domestic political economy affects it foreign relations.

As China enters a period of economic slowdown, the hitherto unchallenged Asian giant narrative will be put to the test by domestic political developments.

China’s meteoric rise and enhanced global stature has come at the cost of environmental degradation, high pollution levels, systemic corruption and inequality over the past three decades.

How State and Society Interact

In India, the government derives its legitimacy from a process of free and fair elections. Whenever we are saddled with an incompetent administration, we have the option to vote it out. Elections act as a valve for releasing any discontent that may have accumulated within society over time.

However, in China, as Pratap Bhanu Mehta notes, the state derives legitimacy from its ability to maintain stability and deliver economic development. The absence of a democratic process puts the state under direct threat of mass rebellion when the government is unable to deliver.

The Tiananmen Square movement underpins this relation between the Chinese state and Chinese society. It was not as much a movement for democracy as it was a means to express anger against a leadership that was reluctant to push forward with economic reforms.

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Past Economic Reforms

In 1978, the first phase of economic reforms allowed markets and a centralised planned economy to co-exist. After the disastrous experience of the Cultural Revolution, attempts were made to improve the lives of peasants. Restrictions on farmers were relaxed and they were allowed to sell any produce beyond what they were mandated to sell to the government, in the open market. Thus creating a dual-track farm economy, where the planned and market sector co-existed.

Following the successful reforms in the countryside, a similar dual-track approach was adopted for the industry. Town and Village Enterprises (TVEs) were allowed to develop. State Owned Enterprises (SOEs) were permitted to produce and sell in quantities beyond the quotas fixed by the government. These reforms led to rapid industrial growth.

For instance, by 1988, the total steel production was more than double the combined planned allocation of the Central and local governments. The market reforms brought efficiency to an erstwhile wasteful planned economy and boosted both rural and urban incomes. At the same time, these reforms were unique in the sense that they were ‘reforms without losers’. No groups were disadvantaged as a consequence of reforms, thus making them politically popular.

By late 1980s, markets were a significant part of the Chinese economy. It was increasingly becoming clear that the first stage of economic reforms had run their course, and further growth required institutions that could support the development of markets. However, the next stage of reforms could not follow the old approach of ‘reforms without losers’; any further development of the markets would create winners and losers.

The government dithered from taking a stance. The macro-economic turmoil of 1988-89, stagnant rural earnings and high inflation in urban areas diminished workers’ purchasing power. These circumstances created discontent. Matters precipitated with the sudden death of reformist leader Hu Yaobang, leading to widespread demonstrations and the Tiananmen Square movement.

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In the aftermath of the uprising, it became clear to Chinese policymakers that reforms were the way forward. People wanted growth and development. Deng Xiaoping declared “it doesn’t matter if policies are labeled socialist or capitalist, so long as they foster development”. Therefore, ‘development became the only hard truth’ for Chinese policymakers. If they were to prevent events that led to the Tiananmen Square massacre then the future had to be one of reforms.

Widespread reforms followed in 1993, and continue to this day. These include accession to the World Trade Organisation in 2001 and the enactment of the Anti-Monopoly Law in 2008, after over a decade of deliberations.

Today, China is again at a crossroads. In order to deliver economic growth and meet the aspirations of its citizens, it needs to strengthen the market economy. Economic reforms entail stronger commitment to property rights, strict enforcement of competition laws, development of a robust financial sector and imposing limits on state interference in the markets.

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Is China Ready for Democracy?

The possibilities of economic development under an authoritarian regime could have only brought China so far. Policymakers in Beijing realise that any substantial market reform would be effective only if it follows political reform.

However, the question is whether China is ready for democracy.

French sociologist Jean Louis Rocca points out that even the Chinese liberals do not believe that China is prepared yet for a transition to democracy.

They believe that China first needs to create an informed citizenry before people can be trusted to choose their representatives. The peasantry, which forms a large part of the population, they claim, is not ready for a democratic transition. However, the middle classes, though growing and content, may demand greater accountability and political reforms in the future.

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It is evident from Xi Jinping’s unbending crusade against corruption, commitments to a greener economy and his predecessor’s efforts to reduce poverty that the Chinese government is alive to issues that if left unaddressed, could cause domestic disturbances.

China can transition into a democracy through the creation of an informed citizenry.

This involves assisting the economic ascension of the peasants into the middle class. China’s international expansion and aggressive financing of development projects abroad is a reality today because economic opportunities at home do not create enough jobs to absorb the large workforce. Multinational projects like One Belt, One Road and Maritime Silk Route create opportunities for deploying Chinese resources, both human and capital. The attendant benefits of these projects are a fuel for sustained economic growth in China. Any attempts at containment of these projects are a direct threat to a stable future for China.

Border skirmishes, the large trade deficit that India runs with China or the so-called ‘strings of pearls’ strategy to encircle India align with long-term Chinese interests to contain competition from a developing India. While Hindi-Chini Bhai Bhai may have been the spirit of the times gone by, today domestic political economic considerations guide the aggressive Chinese foreign policy.
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(The author is a Charpak Scholar at Sciences Po, Paris where he studied Chinese capitalism. This is a personal blog and the opinions expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)

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