World - China's Economy the Key to Quelling Social Unrest

China's Economy the Key to Quelling Social Unrest
Joel Brinkley

For a burgeoning world power with the planet's second-largest economy, China may be the most paranoid nation on earth.

Chinese leaders, utterly terrified of their own people, are taking every possible step to avert an uprising like those under way in the Middle East -- even though the only signs of fomentation so far have been vague musings on obscure blog posts.

The anonymous calls for peaceful demonstrations appear on hidden sites because, nationwide, China blocks Facebook, Twitter and numerous other sites it considers a threat. As if that were not enough, the authorities have been rounding up, beating and imprisoning Western journalists who were waiting to cover protests that never happened. Democracy advocates are simply disappearing while authorities disrupt e-mail and disable some cell phones whose users utter the word "protest."

President Hu Jintao called for bolstering the "the great firewall," China's vast and sophisticated censorship machine. As it is, however, few Chinese really know much about the Arab uprisings. The Beijing Daily, a Communist Party newspaper, told its readers that "the vast majority of the people are strongly dissatisfied" with the protests, "so the performance by the minority becomes a self-delusional ruckus." (Tell that to the people in Tunisia, Yemen, Egypt or Libya.)

A full-blown popular uprising of the sort we've seen across the Arab world seems unlikely. But that doesn't mean the government needn't worry. In fact the leadership has a far deeper concern: China's economic problems could bring its downfall.

Certainly the Chinese people have no real love for communism, and no one, anywhere, appreciates authoritarian repression. But the communist leaders have made a tacit bargain with the people. As Deng Xiaoping, the Chinese leader who pushed the country to adopt a market economy 25 years ago, often put it: The government's goal should be to make everyone rich. That way, he seemed to be saying, they will appreciate us.

These days, China's leaders talk about maintaining a "harmonious social environment," as President Hu said during his once-a-year news conference in March. That's code for ensuring universal prosperity.

Well, the government has a long way to go. More than half of China's 1.35 billion people still lead impoverished rural lives. Even with all those newly wealthy people in Beijing and other eastern cities, the average income remains about $4,000 a year -- less than Albania's. Fifteen percent of the nation's children suffer from stunting. Half the people don't have access to a toilet.

Still, the growing middle class, now hundreds of millions of people, appreciates the status quo. They are the beneficiaries of Deng Xiaoping's grand bargain, and they don't want to jeopardize what they have. But today the economy these people rely on is a house of cards.

Consider this: Right now China has one of the world's most expensive real-estate markets. Global Property Guide, which provides data on housing prices worldwide, shows that one square meter of urban property costs, on average, about 30 percent more than China's annual per-capita income. Shanghai Mayor Han Zheng called the prices "distorted." Meanwhile, banks are handing out so much easy money for real-estate loans that Premier Wen Jiabao vowed to curb bank lending.

How familiar does all of this sound? Didn't the United States face exactly this problem, causing the great crash of 2008-2009? But there's more.

China ensures that the exchange rate for its currency, the yuan, remains unnaturally low. That means other countries can buy Chinese goods at discount prices. As a result, the economy is awash in foreign funds, leading to galloping inflation -- at 4.9 percent in February (compared to 0.5 percent in the U.S.).

Chinese leaders are panicking about this. Inflation is hammering the middle class, the government's only real supporters. Food prices rose 11 percent in the last year, and the costs of commodities and other goods are not far behind. For the moderately well off, standards of living are beginning to fall.

Inflation "concerns the people's well-being" Premier Wen acknowledged in March, "and affects social stability." In other words, if we can't keep these people prosperous and happy, they'll come after us. "We must, therefore make it our top priority" to "keep overall prices stable."

But as Wen and the other senior leaders know full well, there's only so much any government can do to micromanage its economy, especially when it is tightly bound to the larger world economy. And if that housing bubble bursts, as so many economists fear, China may well face a major citizens' uprising of its own.

Joel Brinkley, a professor of journalism at Stanford University, is a Pulitzer Prize-winning former foreign correspondent for the New York Times