|
|
|
|
CIAO DATE: 6/99
China in Transition: A Canadian View
February 2, 1999, Hong Kong
There are probably more speeches given on change in China than on virtually any other subject. And I suspect it has ever been so. Since the turn of the century, when my grandfather, moving to Hong Kong after twenty or so years in Fuzhou as a tea-trader, purchased a book of water-colors entitled "Sketches of a Vanishing China", China has in fact known almost unrelenting change-scrutinized and dissected by a vast array of China watchers, diplomats, market analysts and well plugged-in business people from the extraordinary vantage point of Hong Kong.
I am grateful that you, perhaps the world's best informed community about China, would pretend an interest in the views of a Canadian diplomat, especially one who has a virtually unblemished record of inaccurate predictions.
So is the change we are seeing in China today any more significant than that which we saw in 1992, 1978, 1976 or 1963? In some senses I think it is. It is not an event or specific turning point that is producing this change but a series of transformations. It is in different dimensions of the Chinese reality that are collectively producing a change so profound that the societal moorings we have known since the creation of the People's Republic are being irrevocably pulled up. In their place will be new anchors of yet uncertain weight and holding power, for the forces of transformation, now underway in a China already beyond the cusp of irreversible change, may be leading down a course that is neither charted nor storm-free.
There are four great transformations underway in China today, some unquestionably begun intentionally as major course adjustments but which today are forces unto themselves, beyond control and with impacts and outcomes that defy clear prediction. These are:
Economic Reform
The first and greatest of these four transformations is economic reform. This was first launched by Deng Xiaoping in 1978 with the adoption of the "household responsibility system" which allowed farmers to sell their products in the free market after meeting their government quotas. In the true spirit of "crossing the river by feeling the stones", economic reform was deepened throughout the 1980s, based on an inherently conservative approach of regional experimentation and gradualism. But the reforms soon took on a momentum of their own, finding fertile ground in the entrepreneurial and hard-work ethic of the Chinese people. Today, the former planned economy is a phantom of its earlier self: it is estimated that some 95 per cent of prices in China are set by the markets, not bureaucrats.
Indeed, in a state that had once systematically endeavored to destroy the roots of capitalism, the results of this unleashing of entrepreneurial spirit have been astonishing. And the global community is now deeply aware of China as the world's 10th largest exporter and second largest destination for foreign direct investment. The volume of Chinese textiles and trinkets and toys and tools that cram every global marketplace from Vancouver to Vladivostok and from Hong Kong to Halifax, bear stunning witness to this explosion. And there are now almost as many registered private businesses in China as there are Canadian citizens! And this, of course, is a most important dimension of the economic transformation underway - an ever increasing proportion of the population is now economically emancipated, voluntarily or involuntarily now responsible for the basic decisions that are determinant of their quality of life.
One could even say that China is more capitalist than Canada: while improvements are being made, one continues to see an unbridled brand of capitalism here that is not hemmed in by enforceable rules that discipline the market, such as bankruptcy law, anti-trust law, and so on. In addition, as a developing country China still lacks a basic social safety net to provide for the casualties of market forces. Viewed through this prism, I would say that if China is in the "primary stage of socialism", then Canada is at least in the third stage of socialism!
Deconstruction of the Communist State
The central government is privatizing - or "commercializing" - large chunks of state enterprises and other public assets. It is instituting new regulatory and supervisory regimes, and gradually shifting management and fiscal responsibility in a number of areas to provinces and municipalities. All this is prompted by the recognition of the relative costs and administrative burden of direct central control of its vast array of government programs and services.
The government has also stepped up its efforts to separate government from business. This is a very positive move in the direction of a polity based on the rule of law - but what a challenge this is! Despite the phenomenal growth of the private sector and entrepreneurship over the past ten years in particular, government and business are still intricately entwined, perhaps the most defining attribute of the "socialist market economy".
The state administrative apparatus is also being radically overhauled. Gone are the great line ministries that had been largely modeled on their Soviet counterparts and in their place are emerging structures that are much like our own in Canada: policy departments, operational departments, regulatory agencies, and state-owned corporations that are either gradually privatized or forced to act like private companies in competition with new private competitors. Gone is the Ministry of Heavy Industry, the Ministry of Machine Industry, the Ministry of Coal, the Ministry of Electric Power, the Ministry of Internal Trade, the Ministry of Chemical Industries, and so on and on. Forty-one huge Ministries have given way to twenty-nine smaller ones, and those remaining are undergoing personnel reductions of a magnitude never before seen in China, with the average reduction being somewhere between forty and fifty percent. That state deconstruction and reform has happened faster in Beijing than in the provinces is perhaps inevitable, although it has added to confusion if not real tension in central-provincial relations.
We have seen central-provincial tensions rise to the surface from time to time - - think of the debates in 1994 about the division of fiscal powers and revenues among the two levels of government, or the speculation among some more recently that the closure of GITIC was more about reining in the "Guangdong cowboy" than in cleaning up the financial sector. We in Canada have more than 130 years of experience in trying to manage relations and jurisdictions between different levels of government, and may well be able to offer advice not only in what works but what should be avoided at all costs!
The restructuring of the State has also given rise to a system-wide need for a whole range of previously unneeded services, such as life insurance, health insurance and unemployment insurance. Previously provided by the employer or danwei, these services offer tremendous potential for diversification of China's expanding service sector and for creation of new employment and wealth.
To compensate for privatization, downsizing and the evaporation of a proactive State devoid of the need for funded welfare, China is experimenting with new social safety systems, with the state taking on the role of supporting the most needy and the people themselves having to shoulder ever-larger proportions of the decisions and costs involved in their own well-being. The need is great for social policy instruments, for the effect of downsizing and pushing the state-owned enterprises out into the rougher winds of the marketplace will be increasingly destabilizing. Millions of workers were let go last year, and millions more will lose their work again this year.
There are already (and will be more) demonstrations and workers' marches to protest the growing layoffs and the failure of either the work-units or the state to compensate or help. I think the Chinese leadership is ready for a few more squalls on the socio-economic front, and may well continue to be tolerant of protest that are focussed on workplace and local livelihood issues, although if problems or protests look like they are starting to catalyze broader social action, we can still expect a firm and possibly unpopular re-establishment of order.
Deep changes are coming to the medical insurance and unemployment insurance systems. This means people are losing the security of the paternalistic state, while gaining the freedom to choose - provided they can afford it - where they live, what kind of medical treatment they want and how they will manage if they don't have a steady job. This gradual shift to a system based on the survival of the economically fittest is welcome by the winners, but has produced a palpable sense of vulnerability among the losers, who fear not only that they have lost out, but that their lot today will determine the cards their children can play tomorrow.
Redefining the Relationship between the Individual and the Collective
Perhaps the most important of all the transformations underway in China, partly a derivative of economic and structural change, is the radically recast relationship between the individual and the collective - the relationship that defines the day-to-day existence of practically every Chinese citizen.
The disintegration of the paternalistic relationship between the state and the individual is a largely under-reported revolution, psychologically and sociologically. For close to forty years the state was directly involved in determining virtually all the major parameters of a citizen's life: education, job assignment, housing, social benefits, etc. The famous "iron rice-bowl" of lifelong work, along with significant responsibilities of the work-unit for cradle-to-grave responsibility for workers and their families, is well on its way to becoming obsolete.
The shift from a dirigiste and paternalistic state to a competitive approach encouraging the survival of the fittest has resulted in the economic dynamism for which China has attracted the world's attention. However, it has also resulted in a widening gap in standards of living between haves and have-nots, the emergence of a new type of social stratification, with money replacing political cachet as the determinant of status, and increasing disparities in education and opportunities for betterment. This has led to growing resentment by those left behind by these reforms: the unemployed, pensioners, low-level state employees, unsuccessful migrant workers, and farmers still struggling to earn a living.
One of the most fundamental reforms in further undermining the role of the state - or the collective - as a big brother to the individual, is housing reform. Given a bold push in March of last year, but now proceeding at a somewhat more measured pace, this reform will result in subsidized public housing that had previously been distributed as a form of welfare being sold to residents. However exciting or scary to home-owners, and however promising to the providers of new housing and mortgages and building products, the most significant dimension of housing reform is that individuals must now worry about meeting another critical basic personal need themselves. This will mean that people will look to the real estate market, to the banks and to their mortgage rates to draw conclusions about their future ability to provide for themselves and their families.
In a society where in the past it was the state that shouldered these burdens on behalf of its citizens, this shift in the relationship between the individual and the collective is profound indeed. When tomorrow's state mishandles its affairs, or when it asks the people to contribute more to the collective, there may well be an ever-growing tendency to ask "Why?", or "What have you, the state, done for me lately?". Political power will no longer be a derivative of ideology, and political legitimacy will have to be earned.
What is most striking about the deconstruction of the communist state and the redefining of the relationship of the state to the individual, is that there is no grand plan showing the end point where this will all finish. The economic and social policy reforms are being instituted because existing systems are simply unsustainable. For example, the one-child policy was established to deal with the tremendous population pressures. Regardless how a Canadian father of four might look at such a policy, it makes sense. But how can one predict what the implications will be for a society, long enriched by complex and formalized relationships between and among extended family members, in which people have no cousins or uncles and aunts? There will in their stead two parents and four grandparents, perhaps all retired, eventually putting potentially unburdenable social and economic demands on a single working adult that they collectively spoiled as a child. What kind of citizens will these changes produce? Will their quest for individualism result in demands for greater political and economic reform, or lead to a substantial loss of social cohesion?
Shifting Moorings for Political Legitimacy
The challenge for the Chinese government is how to maintain policy cohesion while balancing the desire for continued reforms with the recognition of the disruption they cause, socially and politically. In other words, the legitimacy of both the Party leadership and the structure of the State are being undermined by disparity and inequity. Inevitably, these disparities will be further aggravated by planned reforms to SOEs, housing, government restructuring, and so on.
At the local level, officials are being forced to become more accountable while having to implement reform policies which, in the short term, will be unwelcome by the majority. In many instances, reforms also reduce the officials' opportunity for personal benefit. This is, of course, what the local rural elections are all about. That they are fairly carried out and reasonably democratic, and that they are heralded as important by the central leadership is testimony to the recognition that legitimacy must be earned and the faith of the people in systemic accountability restored.
At the national level, the Chinese leadership has consciously shifted towards a society constructed on the rule of law as the primary collective antidote to the erosion of legitimacy based on ideology. It is aware of the questions arising from many quarters about the fairness with which it rules, the virtually absolute power it wields and the lack of effective constraints on corruption and abuse of power. It recognizes that these questions can be countered in part by the formulation and implementation of clear, consistent and fair laws and regulations, transparency and accountability. As I mentioned earlier, Canada is engaged with China on several fronts to strengthen civil institutions, helping we believe to put in place new foundation stones for the society that is now being built.
It is still early days in the introduction of precepts of good governance such as the rule of law and increased political accountability. Societies tend to change slowly, and it will be years before the legal culture of China catches up with its legal instruments, and perhaps longer still before its political institutions catch up with expectations for greater sensitivity in addressing the real problems of real people. But we are seeing real change. People are becoming more demanding that their governments at all levels tackle environmental degradation, overcrowding, unacceptably poor service levels and other problems.
Government institutions are becoming more accessible and open, and we hear constantly of a gradual shift to a more open policy-formulation process and a decrease in tolerance for the abusive wielding of power. What the next stages of this evolution will be is hard to predict - perhaps reform first within the Party, or perhaps increased democracy within the institutions of power - but it seems most unlikely that the genie of pressures for increased accountability and responsiveness will be susceptible to being permanently "put back in the bottle", despite some recent apparent attempts to do precisely that.
Over the last few years there has been so much positive change, and the atmosphere last year was so open that many journalists were talking about the blooming of a "Beijing Spring". Advances in the rule of law were particularly evident, such as the 1997 changes to the Criminal Procedures Act to incorporate the presumption of innocence, the right of legal counsel and the prohibition against extended arbitrary detention. And yet the image of real forward movement is quickly washed away when the old-style state reacts with the same reflexive harshness that so many had wished to believe was something of the past. And what made the recent dissident trials additionally disconcerting was that not even Chinese law and legal procedures appear to have been respected. When one is watching the one step backwards today, the two steps forward of yesterday are quickly forgotten.
And I do not think there is really that much doubt about the decreased limits of tolerance for misbehavior and the abuse of position or power in China. The truly impressive response of the PLA to last summer's floods and the honest respect that so many have for the country's most senior leaders cannot mask the general increase in critical understanding that more and more bring to bear on the exercise of power. Over time it is this trend, driven deeply home by the growing realization that one's future increasingly depends on one's own ability to protect one's interests and not on the State's benevolence, that will radically reposition the roots of legitimacy.
The Asian Crisis and its Impact on China
Although the Asian financial crisis has had less direct impact on China than on other countries, there should be no doubt that it creates an enormously challenging and turbulent environment through which Chinese leaders are trying to guide their country, already buffeted by the series of huge forces that have been unleashed internally. In a sense the Asian financial crisis has increased the stakes and decreased China's margin of maneuver.
The Asian crisis has caused China's leadership to take a long, cold look at its economic management policies. There are many lessons for China in the economic undoing of Indonesia, South Korea, Thailand, and indeed, Japan: the dangers of government meddling in the allocation of credit, the importance of a robust private sector, the dangers of crony capitalism, the rigors of free capital flows, and so on. What I find encouraging is that the Chinese leadership has studied the experiences of their East Asian neighbors and has resolved to avoid them.
Among the lessons learned, none is as critical as the danger of an ineffectively regulated and inherently unstable financial and banking sector. The reforms in this sector in 1998 were wide-sweeping in scope and impressive in intent. As is often the case in China, however, the policy is somewhat disconnected from its implementation, and this is clear in the financial sector where banks continue to be used (although to a lesser extent) as lending arms of the state. Let there be no mistake - the complexities are very real, and the dangers are clear of turning off the funding tap to entities in the State sector that are poor performers but big employers, before there is an effective social safety net in place and during intense pressure on the labor supply side.
The problems are tightly intertwined in a sort of vicious circle, of course, because until the country's financial house is in order there is unlikely to be the needed capital to support the kind of safety net that other reforms will require. And so progress is not as fast as some would like, but at least it seems to be very well thought out and proceeding on all of these inter-related fronts; a bit like adjusting the height of a three-legged stool, it is important to keep a keen eye on balance, especially if you are sitting on it!
A second lesson from the Asian crisis clearly driven home is the need to deal with corruption and non-rational allocation of resources for reasons of patronage or personal bias, as well as to grapple seriously with the corrosive practices of corruption and tax evasion. The recent national anti-corruption and anti-smuggling campaigns are real and more than token heads seem to be rolling.
Thirdly, and just as importantly, the recent prohibition on the PLA and other arms of the state engaging in business activities appears far more serious than past similar efforts. Once again, however, do not expect changes overnight: while the PLA's business assets have now been "transferred" to government authorities, the PLA will continue to run many businesses, including some of those transferred, for some time to come, and at least until the central government can make up for lost income with fiscal transfers. That said, this is a very positive, long-term move.
And finally it has undermined the credibility of those who have argued in a rather facile way that the Asian miracle was due to Asian values, and then characterized those values as respect for others, education, hard work and so on, ignoring the fact that these are in fact universal values and that no value system can be forever used as a blind behind which nepotism, abuses of power and other excesses of authoritarianism can be hidden.
The possibly greater long-term impact of the financial crisis is a shift in the prism through which China views its neighborhood, and the models it had been more or less trying to emulate at both the macro-economic and industrial policy levels. The currency bonfires that took place in Southeast Asia and Korea had a threefold effect for China: a rapidly decreasing pool of overall liquidity that had been a major source for investment in China; a repositioning of China as not only the most stable of Asian economies but also the key to avoiding further rounds of competitive devaluations; as well as a demonstration of the degree of inter-dependence the Asian region was beginning to reach. China's decision to participate in the international bailout plans for Indonesia and Thailand was its debut onto the dance floor of global economics, and it has largely enjoyed the image of a popular and sure-footed dancer. Coinciding with this responsible economic role has been a gentle shift in China's global political role. With the nuclear tests of both India and Pakistan, China is now viewed as a better-behaved and stabilizing influence, and its chairmanship of the UN Security Council in deliberations on both the South Asian nuclear issue and complex tensions in the former Yugoslavia produced both a more multilateralist, self-confident China, and the image of a country more willing to shoulder its share of global problem-solving.
The Canadian Connection
I have made some references to Canadian activities in China, but perhaps I owe to you a few remarks about the general policy context in which we pursue our relationship with this massive, important and sometimes tentative global powerhouse.
In November of last year, my Prime Minister, the Right Honorable Jean Chrétien, visited China for the third time since he was elected in 1993. During that visit, he had his ninth bilateral meeting with President Jiang Zemin, participated in his fifth annual general meeting of the Canada China Business Council and met for the fifth consecutive autumn with the sitting Premier of China. With no other country has Prime Minister Chrétien made that same sort of commitment in terms of time and attention.
There are many reasons why our relationship with China has moved healthily up to a very high priority. Some, such as economic size, market potential and political weight are obvious. Another is our Hong Kong connection and the changes that have been brought about in Canada by a sustained and welcomed migration from Hong Kong, from the mainland and other parts of the huaren archipelago. As many of you know, the result is that today our third largest ethno-linguistic community, after English and French, is Chinese. The shifting faces in photos of our best national students bear witness to this, as do street signs and, regrettably but also true, networks of the drug trade, financial fraud and other less welcome dimensions of people movements and porous borders.
But our engagement in China goes way beyond commercial interests and growing people ties. We see the evolution underway in China today as of fundamental importance, not just for the future of the citizens of China, but for the whole world. That is why we are engaged in development in the poorer regions of China, as many of you may have seen when Prime Minister Chrétien visited Gansu in November. We are engaged in sharing our experiences in fiscal management, criminal law systems, public service reform. We help in the training of senior judges, prosecutors and in the establishment of legal aid systems. We are starting to engage seriously with China on the global problems of environmental degradation, particularly climate change. We are trying to support initiatives in the cultivation of a more civil society at the most local level, and we are deeply engaged with China in trying to find solutions to international problems, sitting as we do these days side-by-side on the UN Security Council.
And I believe that Canada's supportive approach to Hong Kong, before, during and after retrocession, and our special relationship with the territory have served Canada well in validating our distinct role and our special relationship with China as a whole.
Conclusion
These are indeed extraordinary and exciting times in China. The magnitude and breadth of transformations underway are unparalleled in the modern world. I believe that the commitment to deep systemic reform, and to a substantially different but still Chinese future, is also widely shared by the country's leadership of both today and tomorrow, the latter group representing as competent, intelligent and globally-aware a class as one can find anywhere on the face of the globe.
And that in the end is the source of my greatest hope and confidence. While it is beyond anyone's ability to give an accurate prognosis of what the huge transformations now underway will mean for China a generation from now, I can tell you that it is the integrity and ability of those I see ready to take tomorrow's helm that leaves me, personally, an enthusiastic optimist about the prosperous, responsible and law-abiding great power that China is destined to become.
Thank you.
Howard Balloch is Ambassador of Canada to the People's Republic of China.
Email this citation