Jiang Xueqin

China Power blogger Jiang Xueqin answers readers’ questions on China’s economy, the Wukan protests and why things are looking good for Shanghai.

Matt Walters (LinkedIn):
What is your view concerning the recent protest movements in Wukan? Do you feel such incidents were just an isolated event or more of what’s to come?

“Wukans” have been happening throughout most of Chinese history, even in seemingly stable and prosperous times. Wukans happen because local officials run villages as their own personal fiefdoms, and because much of the wealth in the Chinese economy is generated by exploiting powerless and uneducated peasants in one way or another.

While Wukan-like incidents have been happening all over China for years now, Wukan generated a great deal of Western media attention partly because it tied into the Arab Spring paradigm, and partly because more and more Westerners are questioning China’s stability. While the Communist Party has managed to defuse the Wukan stand-off this time, there are bound to be many more Wukans in the future with much bloodier results.

And there’ll be many more “Wukans” because peasants just don’t matter. It’s really the urbanites who hold negotiating power with the Communist Party in China, and the urbanites hate the peasants even more than they hate the Party. Much of this is just self-interest (the countryside feeds the cities), and there’s nothing that scares the urbanites more than the idea of enfranchised peasants.

Jennifer Watkins (LinkedIn):
What do you think of this week’s visit by Chinese Vice President Xi Jinping? Do you think relations with America will move forward with this apparent emphasis on personal relationships?

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Vice President Xi Jinping’s visit to America had many goals, foremost among them to show to the inner Communist Party that he’s capable of representing China on the world stage, to continually engage America with the “peaceful rise” narrative, and to reinforce the importance of Sino-American engagement to a Chinese domestic audience. While there’s been a lot of heated discussion of Chinese nationalistic rhetoric and military maneuvers, the inner Party is pragmatic enough to realize that, for better or worse, China is too dependent on America economically to damage the Sino-American relationship. While Americans will probably pester Xi with specific questions that he can’t answer (like the Syria veto), Xi would prefer if his actions speak for themselves, like the fact that he’s visiting Iowa and emphasizing his American ties.

Sanjay Khabra (Facebook):
The financial news media talk about China being threatened by a property bubble bursting. Is this unfounded or based on some truth? How would the Chinese government respond if a property bubble burst with the possibility of slowing growth?

With good reason, Westerners (such as China economist Nicholas Lardy) have been saying the Chinese property bubble market is about to burst since the late 1990s. And today, real estate prices have reached so high they’re beyond the reach of most middle class Chinese. But while middle class Chinese are frustrated, middle class Chinese who’ve seen the value of their real estate drop (most recently in Shanghai) cry bloody murder, and take to the streets. At a macro level, real estate is financed by bank lending, and so real estate prices are tied to the entire health and stability of the financial system.

Now if you’re a Western economist or anyone with any common sense, this situation is frightening.  But people sometimes forget that the Chinese economy isn’t a free market system – it’s still a command economy in which the state controls bank lending, and real estate companies are usually arms of local governments. Because of the interference of the state, bubbles can reach a more greater unsustainable level than in free market economies, where bubble bursts are healthy corrections of the economy.

So the short answer is no, the Party won’t permit the real estate bubble to burst because the consequences would be unpredictably grave. The Party would rather just print money, which is what it’s effectively doing now.

Patrick Chang (LinkedIn):
You’re often scathing about the state of education in China, and actually China generally. Is there anything you see day to day that makes you feel at all optimistic about China today?

With my writings, I aim to inform the reader as to the general situation in China, and because of China’s structural issues I’m necessarily bleak. China is, and has been for a long time, an unmanageable behemoth:  It’s much too populated, too poor, and too diverse to govern effectively using a monolithic bureaucracy.

And China’s economy is mainly dependent on the few (city folk) exploiting the cheap labor of the many (peasants), which causes a great deal of political, social, and cultural tensions. These two reasons – the use of a monolithic bureaucracy to maintain national unity, and the continued economic exploitation of the peasantry – mean that China lacks the structural capacity to become an open, innovative, and progressive economy and society.  My education articles are meant to offer a specific instance of this nationwide reality.

That said, I’m optimistic about certain cities in China, such as Shenzhen, Shanghai, Hangzhou, Suzhou, Chengdu, Qingdao, Dalian, etc. These are relatively well-functioning, well-organized, high-performing cities with a highly-educated middle class. Their future prospects are very bright, irrespective of what happens to the rest of the country. These cities are already showing glimpses of democratic tendencies and a fledging creative class.