After a stock market boom that saw the Shanghai Composite more than double in the course of a year, this summer brought with it unfamiliar sights. On the floor of the Shanghai Stock Exchange, sullen traders averted their gaze from PC screens only to be met with the downward glare of the same disappointing figures reproduced as an electric green monolith. It’s important to note that, in Chinese finance, losses are denoted in green and gains in red, a patriotic inversion of the Western chromatic symbolism. Since the stinging losses of this summer, all eyes have been on China’s financial markets. Global markets have responded with volatile swings, supposedly shocked by a sobering reassessment of the strength of the Chinese economy. But fluctuations in China’s financial markets are scarcely an indicator of the challenges China’s economy faces. Unlike in mature economies where the total value of everything in financial markets (market capitalization) is often greater than GDP, China’s market cap has hovered around 45% of GDP for the last ten years (The US’s is well over 100%). Simply put, China’s financial markets are not representative of the economy in whole, a notion we have become accustomed to in the West. China’s economy is plagued by a network of judicial politics, corruption, and state enterprise that existed long before the Shanghai Composite went tumbling and will continue to impede China long after numbers rebound. Reforms that would begin to untangle this web of structural issues would also corrode the base of the Chinese Communist Party’s (CCP) power. Without a radical reordering of the Party apparatus, China’s economy will be unable to reach its full potential. Thus, the CCP finds itself stuck between a rock and a hard place: a choice between upheaval of entrenched rule or an economy that will continually underwhelm the Party and the people. The inner workings of the CCP are opaque, but Xi Jinping’s fabricated rule of law, shifts in propaganda, and the state’s continued focus on vanity projects indicate that the Party is attempting to carve through this conundrum by redefining the Chinese criteria for political legitimacy.
Bounded to the CCP, courts cannot operate independently because any case that has minute political implications is dominated by the Party’s agenda. A legal institution that values expediency over justice tarnishes all legal proceedings, not just those that concern the Party. Individual CCP ministers can pressure judges into rulings for unofficial, personal gain through the same channels that the Party uses to control the judiciary. Corruption is rarely exposed, but in instances that it has been, judicial corruption is most common in civil cases. National politics aside, courts are still far from independent. In many provinces, a desperate lack of funding traps judges in micro-economies of perverse incentive. Although a “dual-track” system supposedly funds courts (i.e. the courts’ budgets are unrelated to their revenue), the hollowness of this imperative rings true when money is tight. The chief of staff of a Jiangxi Province city court anonymously discloses: “The ‘dual-track’ regulation is never enforced here: the city government always returns 100 per cent of what we hand over, and that’s it; they give us no more! But now litigation fees are too low to run the court.” Conversely, when local government funds courts, courts have a strong incentive to illicitly protect their budget. For example, county governments spend money to attract investment. Courts are expected to rule in line with the government’s initiatives. A judge in a basic people’s court explains: “Attracting investors is difficult; investors who are already here need to be protected. Enforcement according to the law will set bad examples for other enterprises that are thinking about moving here.” Adjudicating to the letter of the law is not the priority of courts that must scrap for their own funding. When judges are responsible for generating their own salaries, the line between official salary and income from illicit activity becomes blurry and irrelevant.
A corrupt judiciary makes business in China unnecessarily risky and prohibitively challenging. Unsurprisingly, virtually all firms in China avoid court. When most firms sign contracts, they stipulate that disputes will be settled by private mediation rather than litigation. Those that choose to litigate are usually politically well-connected. This is anathema to private business. Enforceable contracts are the cornerstone of a private market. Without access to reliable litigation, even bare basics like private property are not guaranteed. In addition to unenforceable contracts, state-owned enterprises (SOEs) account for approximately forty percent of the nation’s economy. Private firms face overwhelming difficulty while operating in an increasingly interdependent economy. At any turn, a political issue, SOE, well-connected individual, paid-off judge, or simply a dishonest competitor, supplier, or client can destroy the work of a private firm. The energy put into circumventing these obstacles is a productivity black hole for entrepreneurs and their employees. Despite all the impediments of an unworkable legal system, private firms still far outperform SOEs. On average, private companies in industrial sectors generate double the returns of SOEs. Faced with slowing growth, the economic-legal ecosystem in China stifles the same sector of the economy that is desperately needed to steer clear of the doldrums.
Photo by Flickr User ‘2 Dogs’
Reforming judicial corruption would undermine the Party’s ability to rule. To become independent, courts must be able to enforce the letter of the law, which includes ruling against the government if it oversteps its bounds. The CCP’s monopoly on political power is predicated on its ability to react to any and every political issue; the prospect of giving up absolute political control is inconceivable. Just this summer, China’s parliament passed a new battery of security laws written in retro-nationalist language. The laws merge national security and the Party’s control of the country into a unitary concept. With sections that read more like an ideological affirmation than actionable legislation, the Party intentionally creates legal ambiguity in order to step in whenever and however it likes. As long as this non-legal channel of influence remains open, officials will continue to appropriate it for personal use. Even if it were possible to thwart private corruption without ending Party command over legal affairs, doing so would wipe blank Party members’ lifelong accumulations of power and thus shatter the delicate order of the ruling hierarchy.
The ecologies of corruption and politics are one in the same. Throughout the entire Party structure, from city councils to the omnipotent Politburo Standing Committee, are individuals who have achieved their rank through their abilities to survive and thrive in this ecosystem. The hierarchy of China’s ruling class is not arranged according to a neat flow chart of titles and responsibilities. Instead, it is a grinding heap of connections and leverage. Order does not follow a predetermined outline; order is control of whomever is beneath and selective subservience to those above. By nature, these mechanisms of control are opaque, but it’s not hard to imagine the forms they take: SOE business, appointments, legal decisions, state investments, police activity, financial market regulation, and any other CCP decision that affects money is susceptible to be adulterated, leveraged, and bartered for private gains. Through an exchange of blind eyes, collusion, owed favors, and brute force, Party members accumulate the capacity to rule throughout their careers. Those who are on top of the hierarchy command the greatest accumulations of control mechanisms. In addition to political power, control mechanisms also generate immense wealth. CCP ministers are often in the same boat as judges of underfunded courts. An illustrative example is the salary of President Xi Jinping and the six other members of the Politburo Standing Committee, who received a 62% pay increase this year‒‒ their official salaries now stand at $1,832 per month. To rid China of graft would be to rob influential Party members of their political agency and personal wealth.
The CCP finds itself on precarious footing. Extreme reform is needed to unleash the economy, but the same reform would weaken the rule of the Party and debase the careers of Party members. Predictably, Xi Jinping’s government is not pursuing the deep-cutting reform necessary to rescue the stuttering economy, but it isn’t blind to the issue. China’s government isn’t democratic, but it must respond to the people. Instead of risking a reelection, the CCP hangs over a more perilous threshold: the threat of a popular uprising. As quiet disapproval swells, the CCP edges closer to an invisible cliff. For the last few decades, the CCP has ruled on the back of astronomical economic growth. A popular perception of lack of rule of law is dangerous, especially if it is tied to dissatisfaction with an underperforming economy.
Through a combination of approaches, Xi Jinping’s government is striving to establish the appearance of a reinvigorated rule of law. Mr. Xi’s anti-corruption campaign, executed by Central Committee for Disciplinary Investigation (CCDI), is an astute strategy. It masquerades as a long overdue crusade against the culture of corruption while conveniently consolidating Mr. Xi’s power in the process. The head of the CCDI, Wang Qishan, a longtime friend of Mr. Xi, has become the second most powerful man in China. With the sensationalized conviction of Zhou Yongkang, a former Politburo Standing Committee member, and Xi Xiaoming, a high-ranking judge on the Supreme People’s Court, it seems that no one is untouchable. Clearly, control over the CCDI is an immense source of power for Mr. Xi, as he can effectively end the life of whoever crosses him. Moreover, the anti-corruption campaign has been outwardly framed as a step on the path to a stronger rule of law. Mr. Wang has publicly envisioned the campaign to have three phases: instilling fear, strengthening the rule of law to make it harder to be corrupt, and arriving at a culture where no Chinese official would dream of dealing under the table. Mr. Wang is carrying out the first step with panache.
One of the trademark initiatives of Xi Jinping’s short tenure is a Party resolution passed in October 2014 that calls for a “profound revolution” in the way China is governed. It aims to establish “rule of law” by 2020. More visible elements of the policy include the launch of “National Constitution Day” and a requirement that new Party officials swear an oath to the constitution. In light of a string of harsh crackdowns on independent lawyers aiming to litigate against the government for abuses, including corruption, it’s evident that the Party’s notion of “rule of law” is vastly different from those prevalent elsewhere around the world. Although Mr. Xi’s rhetoric promises major advancements in the reliability of the legal system, the Party’s rule is regressing deeper into a non-legal, authoritarian mode that more seasoned Chinese are all too familiar with. Given the heavy handed suppression of popular participation in the establishment of rule of law, the last two steps of Mr. Wang’s vision are unlikely to come to fruition. Instead, Mr. Xi entreats an unchallenged government to clean up its own act, or at the very least give the appearance of doing so. The Party cleverly intends to conjure itself a new lease on legitimacy by setting an objective then entrenching its physical power while appearing to pursue it. Indeed the anti corruption campaign is unprecedented in reach and scale, but if anything it emboldens the central government to flout the “rule of law” rather than heed it.
Photo by Asia-Pacific Economic Cooperation
The potemkin construction of rule of law has taken subtler forms as well. At the outset of Mr. Xi’s rule, the Party published twelve “core socialist values” now splayed on posters, signs, banners, and flat screen LED monitors across the country. Of course “rule of law” is included in this doctrine, but so are “integrity” and “harmony.” It doesn’t seem like much, but the enshrinement of these traditional Chinese values signals an unprecedented return to Confucian ideals. In 2011, the Party erected a 31 foot bronze statue of Confucius in Tiananmen Square, directly across from the mausoleum of Mao Zedong. Just a few weeks later, the statue abruptly disappeared in the night. In February 2014, Mr. Xi gathered Politburo members for a collective study of traditional Chinese culture, which he asserts is a “wellspring” that should inform the Party’s values. Confucius was not explicitly mentioned, but the pervasiveness of Confucianism in traditional Chinese culture and the virtues Mr. Xi championed at the study clearly signaled the source he is drawing from.
Confucianism holds that social harmony arises when every individual knows their place in the “natural order” and performs their role well: “There is government, when the prince is prince, and the minister is minister; when the father is father, and the son is son.” The Party’s recent activities‒ the security laws and anti-corruption campaign behind the “rule of law” rhetoric and reintroduction of Confucian ideology‒ are part of a short term play and a long term blueprint. In the short term, the Party is feigning a progressive reordering towards “rule of law” in order to earn a valuable but temporary stint of popular legitimacy. But the anti-corruption campaign and shifting Party line aren’t just populist showpieces; they also fortify the regime from fermenting economic discontent. The elimination of Xi’s enemies, crackdown on dissidents, and new security laws grant the Party the strongest grip it has had on the nation in decades. The reintroduction of Confucianism is the final piece of the puzzle: an attempt to foster a new cultural status quo that grants legitimacy to the Party by mandate of a “natural order” rather than by results. The Party is aware that it is hitting a reform wall, so it’s bracing for impact. In the foreseeable future, CCP policy will increasingly become an impediment, rather than a catalyst for, China’s modernization. The Party’s strategy for controlling dissidence is two pronged: increased capability to crush agitators and mitigation of new unrest through the gradual re-establishment of a cultural order uninterested in rebellion. In an ideal future for the CCP, citizens will more readily submit to Party rule through a combination of ingrained cultural norms and the deterrent of brute strength. Flexing political muscle is an ancient approach to maintaining control, but in a globalized era the Party intends to intertwine the concepts of national essence and CCP rule by reaching back to the most fundamental origins of the imagined Chinese community to make political submissiveness a venerable virtue that is distinctly Chinese.
It’s likely that Xi Jinping and his government are acutely aware of the irony of this tactic. The CCP traces its earliest roots to the intellectuals behind the overthrow of the Qing dynasty, the last in a millennia old imperial order. Every October 10th, Party members celebrate the anniversary of the Xinhai Revolution in 1911, when an ancién regime established upon Confucian order was ousted for its bloated bureaucracy an inability to lead China to “modernity.” The national will to modernize is rooted in the humiliation of the nineteenth century, when China was effectively colonized by Western powers. Since the overthrow of the last emperor, progress towards “modernity” has remained imprinted in the national consciousness as the primary criteria for legitimacy. Through the turmoil of devastating war, the totalitarian rule of Mao, and the absolute chaos of the Cultural Revolution (where any vestiges of traditional China, including countless Confucian monasteries and relics, were vandalised or desecrated), the yearning for national redemption through the vague notion of “becoming modern” has endured. The momentum of this longing is precisely what the CCP fears. What happens when the Party’s China loses its economic dynamicism, when its bureaucracy is parasitic and counterproductive, when the masses lose faith that the CCP can keep moving China forward? The Party has engineered a long term response that operates on political, cultural, and social fronts. But it doesn’t stop there; the Party aspires to tame the heart of the threat: the modernity dialogue itself.
So we return to the Shanghai Stock Exchange, site of this summer’s unsubsiding financial drama. Looming over this sterile, steel-skeletoned rendering of ancient Chinese currency isn’t the specter of asset bubbles or sell-offs. Rather, it’s the crown jewels of a Party seeking to end the modernity dialogue. Just five hundred meters from the stock exchange is the world’s only grouping of three adjacent “supertall” buildings. The Jin Mao Tower, Shanghai World Financial Center, and recently completed Shanghai Tower measure 1380, 1614, and 2073 feet respectively. The gleaming triplet was constructed by a consortium of state-owned enterprises and dominates the Bund across the river, home to colonial constructions erected during the peak of China’s national humiliation. The soaring, and frankly gorgeous, Shanghai Tower is the capstone of the Party’s symbolic intent, that China can compete toe to toe with Western powers, that the nation has been redeemed, that never again will foreigners be able to seize and degrade the Chinese identity. National flags cap every peak, tip, and coppula of the Western architecture that marks the center of China’s highest end district, the stomping grounds of China’s elite. Although they are uncharacteristic of the shoddy concrete metropolises throughout the rest of the nation, state-sponsored vanity projects are purused with vigor. It’s the Party’s proof of concept: by the order of their rule, China is capable even if incomplete. Faced with slowing growth, the Party seeks to offset declining physical justifications for legitimacy with an equilibrating increase of faith in the CCP as the protector and savior of the Chinese identity.
The future is shrouded in uncertainties, but there are two likely ways the story unravels. The new security laws and anti corruption campaign are already in full swing, so the Party’s deepening entrenchment against popular resistance shows no signs of reversing. The success of the second element of the Party’s strategy, the metamorphosis of the Chinese identity, is the critical unknown. If Confucian indoctrination and token shows of modernity are convincing to the Chinese public, then the Party will have safeguarded its rule for the foreseeable future, despite the frustration of slowing growth. But if this cultural mitigation of discontent fails, then the paralyzed growth conundrum may force substantial change. Given the political might of the Party, seething popular discontent is unlikely to spark a mass anti-government movement. Rather, surging unpopularity would echo up the chambers of the Party and influence the selection of the next regime when Mr. Xi’s term ends in 2022. The succeeding administration would be compelled to overhaul the legal system in order to unleash China’s economy, at the expense of fundamentally altering the CCP’s rule over the country. A shift to a legalized mode of governance would be the most significant reform since Deng Xiaoping’s opening up to the world economy. It would represent an equally massive breakthrough in the advancement of the Chinese miracle. The future of reform is contingent on the upper echelon’s balancing of two competing costs: the loss of the Party’s customary complete control of politics and the growing risk of meeting the same fate as the Qing, the last longstanding unproductive regime. An increasingly unlikely third scenario is that Mr. Xi seeks to reform the legal system but is first insulating himself from the intra-Party backlash he will encounter when the ecosystem of corruption comes crashing down. The deceptive reality of Mr. Xi’s rule of law rhetoric thus far suggests that this third option is improbable. With the extent of China’s economic decline and the efficacy of the Party’s strategy unknown, we can understand where the CCP’s rule stands, but are left waiting for invisible forces to reveal themselves before we can be certain about where it is going.
