The Pigs Are Flying in China
Earlier this month, Chinese authorities were forced to temporarily suspend trading of shares in the online unit of the People’s Daily newspaper, the official mouthpiece of the ruling Communist Party. The price had soared so rapidly since the website’s April debut on the Shanghai Stock Exchange—giving it a greater market value than the New York Times—that it triggered regulatory rules aimed at halting speculative manipulation. This development is just the sort of absurd extreme that comes shortly before an economic bubble bursts.
It should be noted that the People’s Daily website is not among the most popular in China, currently ranking 46th. With its usual fare of stultifying propaganda and official pronouncements, it lags far behind more vibrant, privately owned web portals like Sina, though they too are obliged to enforce government censorship directives.
So why the stock surge? The shares could have been artificially boosted by state-owned enterprises, which already owned much of the minority stake not held by the People’s Daily parent company. Or perhaps, as some analysts have suggested, investors were betting that a website with the closest possible ties to the Communist Party authorities had an ironclad advantage in China’s politically controlled media landscape. This attitude resembles a sort of Stockholm syndrome, in which terrified and overawed capitalists embrace their Communist overlords. In any case, the stock’s performance does not reflect the normal functioning of a market economy.
In that sense the incident may be representative of China’s broader array of by now well-known economic distortions, which also have politics at their root. State-owned banks and enterprises with close links to the political leadership dominate the domestic economy, marginalizing private entrepreneurship and squeezing ordinary bank depositors with interest rates below inflation. Investment priorities at the provincial and local level are determined by political leaders, who have an incentive to boost growth figures through capital-intensive projects, regardless of actual demand or long-term profitability. And the system is rife with corruption, further reducing transparency and efficiency.
Now that the global downturn has put new strains on the export-dependent economy, the leadership is beginning to see the need for reform. But it remains unclear how quickly or effectively would-be reformers can act, given the powerful vested interests involved and the opaque, consensus-based decision making of China’s one-party system. Even if the central government moves boldly on changes to the structure of the economy, it may be hampered by false reports or flawed implementation by local officials with hidden interests and liabilities of their own.
Moreover, Communist Party leaders refuse to take any step that might shake their grip on power. The sorts of changes that would encourage private business—property rights enforced by fair and independent courts, leeway for journalists and prosecutors to combat fraud and official corruption—would require dismantling the party’s thoroughly institutionalized control over systems like the judiciary and media. And by exposing abuses, such changes could also threaten the legitimacy of the regime, which is already hard-pressed to stamp out scandals and unrest through heavy censorship and coercion.
Two recent scandals—involving the misdeeds of purged Chongqing Communist Party boss Bo Xilai and the extralegal detention of activist lawyer Chen Guangcheng—have demonstrated how consequential small, seemingly isolated problems can become when they are suppressed and allowed to fester, rather than tackled early and openly. And in both cases, after years of containment, the “problems” burst out at inopportune moments and landed literally at America’s doorstep: Bo’s former enforcer, Wang Lijun, fled to the U.S. consulate in Chengdu in February, while Chen took refuge in the U.S. embassy in Beijing last month. The incidents have put pressure on bilateral relations, and perhaps more importantly, roiled China’s domestic political environment.
In a democracy, problems are exposed sooner, bubbles burst earlier, and corrections are more easily made. If a leader or policy is discredited, voters can replace them without bringing down the whole political system, and the country moves on. In an authoritarian regime, the truth takes much longer to come out, and when it does, the collateral damage is extensive.
China’s leaders have been able to perpetuate their country’s macroeconomic growth for more than three years since the global financial crisis crippled the economies of the United States and Europe, and they have remained in power even as governments elsewhere have been toppled by angry voters or protesters. The regime may keep this up by making the necessary reforms, but it is certainly more than a few tweaks away from long-term stability. If America and the world underestimate the risks of inaction and fail to adequately support those working toward a more open and democratic system in China, they could eventually find a much bigger problem than Chen Guangcheng knocking at the door.