Will the Financial Crisis Bring Upheaval to China?

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Greg Baker / AP

Chinese women walk through a quiet Beijing shopping mall.

For a while, it seemed China night be different. Maybe the unique factors that have allowed its economy to grow at an unprecedented rate for nearly 30 years would keep it afloat when the rest of the world was succumbing to the impact of the growing global financial crisis. But that hope has now been crushed under an increasing tide of grimmer and grimmer statistics that seem to portray an economy in free fall. China will have its hard landing in 2009, and even the most optimistic economists now concede that GDP growth will be far below the 8% annual pace that Chinese economists and officials generally regard as the minimum necessary for the preservation of social order, possibly hitting 5% or under.

As the depth of the slowdown becomes clearer, voices from all quarters have warned of the dangers of unrest. In mid-November, President Hu Jintao said the crisis would be a grave test of the Communists Party's ability to rule China, a warning echoed by other lower ranking leaders. At a December speech, Premier Wen Jiabao confessed to being particularly worried about unemployed workers and university graduates. Even the head of the country's Supreme Court warned judges to take social stability into mind when passing rulings. Overseas, too, worry swelled about just how deeply China's fragile social compact might be shaken by the experience of economic hard times for the first time in 30 years. The Obama administration should have a contingency plan for "what we would do if there's a major collapse of the political order," Roderick McFarquar of Harvard, one of the world's most respected China scholars, recently told a reporter. (See photos here of China on the wild side.)

But though there are certainly bothj pessimists and optimists=, a large number of China scholars and analysts seem to belong to what might be called the "China will muddle through" school. They believe that, although worst case scenarios such as rioting and protests in the streets like the 1989 Tiananmen protests are possible, circumstances this time are very different and make a messy but relatively stable transition to whatever the country's next stage of development may most likely be. (See the Top 10 News Stories of 2008)

One important reason is that the driving cause of the crisis is external, in contrast to 1989, when the protests were sparked by anger over corruption, inflation and other domestic issues. "I simply don't see any kind of nationwide challenge to the Party emerging because you can't blame them for what's happening, it's coming from outside China," says Cheng Li, a China scholar at Washington's Brookings Institute. Li points out that, as it has been at pains to point out regularly in the official media, the government's reaction has been swift and decisive, including everything from announcing a 4 trillion renminbi ($587 billion) stimulus package, repeatedly lowering interest rates and taking substantive moves to bolster the property market and encourage consumer spending. "They've done everything right so far and very fast," says one western diplomat in Beijing. "Often it's been bigger and faster than other countries like Germany, and they aren't afraid to advertise that fact in the papers and on CCTV."

Another contrast to 1989 is the fact that the Party's leadership is solidly united about how this crisis needs to be tackled so as to best preserve its authority. Internal disputes about how to handle the Tiananmen protest allowed them to drag on for months and swell in size. This time, says Li, although they may disagree about some of the details, there is solidarity at the highest level to avoid any sign of a split among the top leadership. "This generation of leaders had two defining experiences in their lives," says Li, "the Cultural Revolution and Tiananmen. From the first the lesson they learned was that social stability must be preserved at all costs. From the second they learned that whatever happens there must be no public divisions in the leadership."

Just as the political elite is united, the forces that would have to oppose them in any move to change the country's political order are fragmented, says David Zweig, a political science professor at Hong Kong's University of Science and Technology. Though it is miserable for those thrown out of work, millions of peasants going back to their villages are highly unlikely to pose a threat to Beijing. "Remember, Beijing has done this before: between 1998 and 2000, the government put tens of millions of workers at state-owned enterprises out of work. There were plenty of strikes and protests that made the government a little nervous, but overall, they were able to survive pretty well." Currently, the official figure is 4 million unemployed; but other estimates have the number at twice or three times that. (See pictures here of China's dust bowl.)

"For regimes to be overthrown you need an overriding ideology like democracy or the mysticism of the Taiping and Boxer rebellions in the mid 1800s and early 20th Century," Says Zweig. "For regimes to collapse now you also need the middle class, and I just can't see that happening. They have been the core of Communist Party support for a decade or more and their future is still very much tied up with the Party's."

"You can tell that the senior leaders know political change will come to China eventually and that the Party can't hang on indefinitely," says the diplomat. "That's why 90% of their children are in business, not working their way up the Communist Youth League or whatever. But that change is 15, 20 years down the road. That's not going to happen now, even if it is a very bad downturn. Change will come to China. But not yet. Not now."