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A blog by Leon Oudejans

China’s new social contract

On October 21, Bloomberg sent me an email newsletter, entitled China’s new social contract. I was immediately reminded of the new Dutch political party with the same name: New Social Contract. In my view, that party is vague in its ambitions. I have a similar feeling about China’s new ambitions.

In my view, any society that hinders a market economy is doomed to fail. A “Values-Based Legitimacy” does not create jobs. Government jobs need to be funded by company income taxes. State-owned companies are often characterised by a lack of efficiency and bad decisions.

China and its state-owned companies will (probably) copy the Russian social contract. Russia resembles a kleptocracy, including an active removal of disloyal state officials (eg, Wiki-1), and company officials (eg, Wiki-2). I’m curious if the recent sudden death of China’s former premier is related; also see Nikkei.

The increase in economic trading between China and Russia (eg, CNBC, CNN, Nikkei, Reuters, WSJ) is likely to result in an economic cooperation, similar to the European Economic Community in 1957. Their geopolitical bloc will delay their geopolitical decline.

I do agree with Bloomberg conclusion on China (see below): “[..] the growth slowdown may not be enough to sink its authority.”

Xi Jinping Drops Economic Growth for ‘Values-Based Legitimacy’ (Bloomberg)

By: Chris Anstey
Date: 21 October 2023

China’s recent economic performance and policymaking have prompted a slew of economists—Bloomberg’s included—to lower their estimates of the country’s trend growth rate for coming years. But don’t count on this to undermine the Chinese Communist Party’s grip.For decades, the CCP encouraged the idea that its legitimacy flowed in large part from stoking rapid growth. Deng Xiaoping, the Chinese leader famous for his “reform and opening up” mantra, declared that development is the “hard principle” driving policy. Year after year, China’s leaders have touted GDP figures showing how the party was delivering on this mandate.

Go back further than Deng and you’ll find a different contract between Beijing and its people. Mao Zedong’s initial version was ensuring the common people won the “class struggle” against land-owners and businesspeople (in part through mass killings).

These days, Xi is writing up another contract, says Arthur Kroeber, a China economist and founding partner at Gavekal Dragonomics. In a recent lecture, he said “there’s a fairly extensive propaganda effort going on to shift away from that old social contract,” in part to avert mass criticism of a slowdown in Chinese growth.

The new iteration? It’s called values-based legitimacy.

What are the components of this new contract? They include culture, history, nationalism and an anti-corruption drive aimed at easing concerns about rising inequality. Daniel Bell, a political theorist at the University of Hong Kong, postulated the “values-based legitimacy” idea after picking up on a “Confucian comeback” in China from his previous perch as a dean at Shandong University. The university is located in the eastern Chinese province from which the sage of Chinese antiquity hailed.

A key tenet of the Confucian tradition is the idea of “responsibility to others,” Bell says. That’s quite different from the “capitalist style modernization” over the past several decades that led to “atomization” of society, as Bell described it at Harvard’s Fairbank Center for Chinese Studies last month.

So one can see how it would appeal to President Xi Jinping to highlight contributions to Chinese identity made by Confucius and his followers. Xi’s campaign to do just that began with a visit to the philosopher’s birthplace a decade ago. It’s one component of his new initiative, called “Xi Jinping Thought on Culture.”

Indeed, China’s cabinet said in a statement earlier this month that “confidence in one’s own culture” is “the most vital, profound and enduring wellspring of strength for the progress of a country and its people. ”

Ironically, under Mao, the CCP championed the destruction of China’s cultural heritage, viewing it as an impediment to socialism. So many symbols of old China were broken and burned that antique dealers in recent years have taken to traveling to Tokyo to snap up Chinese chests and other relics preserved in Japan during the chaos in China.

Today, China’s ancient timeline is a source of manufactured legitimacy, one Beijing draws on to press its claims on the world stage. Xi regularly cites 5,000 years of Chinese history as having made an “indelible contribution” to world civilization. By associating the CCP with this timeline, he creates a narrative that allows rejection of Western style democracy.

Beijing has spent a lot of money on building this narrative. Archaeologists have been pressed into service, dredging up Ming Dynasty ships from the South China Sea in an effort to show how Chinese vessels have plied those waters for centuries (even if their crews might not have been Chinese).

Nationalism may be an easier card for the party to play than ensuring jobs and income growth, though it’s becoming a more dangerous one—as evidenced this week when a Chinese fighter jet buzzed a Canadian aircraft pursuing a United Nations mission. It was the latest example of increasingly dangerous behavior by the Chinese military.

Another key plank of Xi’s new-old story is his drive against graft. Yuhua Wang, a Harvard professor of government, observed this month that “when Xi Jinping took office, the party was facing a major legitimacy crisis, due to corruption issues that had been growing since the 1990s.”

By now, millions of people have been swept up in his anti-corruption campaign. And the fact that Xi has taken out even some of his own appointees illustrates that it’s an unending effort.

Will China’s people be satisfied with values over rapid income growth? It’s probably impossible to predict. Neighbor Japan saw its rapid growth end decades ago, and it still has the same ruling party—in a democracy—as it did through almost the entire postwar era. The CCP may face challenges for other reasons, but the growth slowdown may not be enough to sink its authority.”



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