THE PARADOX OF CHINA’S POST-MAO REFORMS (2)
CHAPTER11 – THE NEW MIDDLE CLASS
Economic reform has created new social categories of wealth and power that have been
identified by many as China’s new middle classes. This identification implicitly
emphasizes the homogenizing impact of economic modernization on social change and
political development, particularly the potential for the emergence of capitalism and
democracy.
The Formation of Middle Classes
In general terms, the identification of emerging middle classes suggests individual
wealth, new markets, and more open societies, especially the potential for democracy.
However, this is not necessarily the case.
In China the era of economic reform has indeed brought the creation of considerable
individual wealth and the emergence of greater social and political diversity. Economic
reform has also brought substantially increased real disposal income for certain social
groups as well as patterns of expenditure – on housing, clothing, entertainment, private
education, for children, restaurants, and travel – all of which are suggestive of
contemporary middle-class behavior elsewhere.
The new middle classes who have emerged in China during the 1980s and 1990s do not
fall easily into the usual categories. The capital-owning entrepreneurs who have emerged
in the reform era are much fewer in number than the attendant publicity would seem to
suggest, and more likely to be found in small-scale enterprises.
Small-scale private entrepreneurs who grow and want to continue their expansion usually
do so through close cooperation with local government. In most cases this is institutional
interaction rather than just an associational relationship. Local government in its various
guises often has a substantial share of the equity in any sizable local enterprise, as well as
receiving management fees and related payments.
Owner-operators are a new socioeconomic feature of the reform era, but the same is not
generally t rue of managers, bureaucrats or professionals. These entrepreneurial manages
and bureaucrats not only maintain their links with the part-state, but much of their
successful, entrepreneurial activity is based precisely on exploiting those links. There are
vast income differentials within the new middle classes [eg. managers in particular often
receive technically relatively low salaries, even when bonuses and additional emoluments
are included], and control of and access to resources are clearly more important than
ownership.
Owner-Operator
The most highly publicized of the new middle classes are the owner-operators: initially
private entrepreneurs who have developed their own businesses. Originally regarded by
the CCP as rather small-scale entrepreneurs who could be mobilized to meet the demands
for flexibility and otheer demands not easily met by the planned economy, these owneroperators have become a key feature of the reform era and one that exceeded those
limitations.
One reason for the high profile of owner-operators is their conspicuous wealth. In a
society where in the recent past any consumption was regarded as ostentation and where
with few exceptions private entrepreneurship was discouraged, its relatively sudden reemergence is likely to be equated with untold wealth. The vast majority of owneroperators are business people on a very small scale indeed. One oiften-stated reason for
becoming or staying an owner-operator is the non-economic choice of preferring to work
for oneself.
Managers
Not att of China’s managers and bureaucrats are part of the new entrepreneurial middle
classes. In general terms it is possible to identify three subgroups within this section of
the new middle classes:
1
State Capitalists: State sector enterprises in 1996 produced only 28.5 percent of
GVIO compared with 76 percent in 1980. A large number of state enterprises are
regarded as technically bankrupt. At the same time a substantial number of state sector
enterprises have successfully restructured their activities, or used their resources to
establish new enterprises. Throughout the state sector, and even in nationally prestigious
heavy industrial concerns, some managers have transformed themselves into a form of
state capitalist by decentralizing their corporations, establishing conglomerates,
developing new enterprises based on previous workshops or sections of state sector
enterprises, and generally utilizing state sector assets in a more economically efficient
way.
For these members of China’s new middle classes, immediately realizable personal
wealth is less important than the influence they wield and their control of economic
wealth. The new breed of state capitalist are ultimately responsible for considerable
investments of state capital and the employment of large numbers of people. Moreover,
they are likely to have considerable hidden personal income.
2
Social Capitalists: In exactly the same ways that managers of state sector
enterprises have been encouraged to respond to reform policies and to restructure their
activities, managers of social-owner enterprises have been able to establish or develop
various activities, and in the process to gain status and to some extent personal wealth as
entrepreneurial managers. Social-owned enterprises are usually to be found in the
collective sector of the economy and owe much to the ideological imperatives of the pre-
reform era, where almost every social organization (notably schools and neighborhood
committees) were encouraged to establish small enterprises for political as much as for
economic reasons. The new middle class managers of social-owned enterprises are those
who have either restructured existing operations or who have created new businesses
based on some form of such social capital.
3
Suburban Executives: The development of township and village enterprises has
been only slightly less publicized than the private sector within the PRC since 1978. The
overwhelming majority of this rural industrial development has actually been a function
of urban development, located in the suburbs and rural districts of administratively
higher-order cities and urban areas.
The economic wealth of these suburban villages is not personal but is wielded
collectively on behalf of villages and townships by executives who are another part of the
new middle classes. Although the personal wealth of these new suburban executives is
not negligible, their importance is also derived from the economic wealth they control.
Village enterprises often expand and develop[ subsidiaries in a largely unregulated way.
In any one village the enterprises come together to act as a conglomerate owned
nominally by the village.
Service Providers
Far from being counted among the new middle classes, those who were the professionals
created by the modernizing state before the reform era (teachers, researchers, medical and
nursing professionals, etc) have come to regard themselves in a new category of poverty.
State-supported activities in general have seen their budgets cut and their numbers of
employees reduced. At the same time, though salaries and wages have increased they
have on the whole not kept pace with inflation.
There are however new professions and occupations that have been created with the
economic restructuring of the reform era. These include financial managers, business
administrators, and lawyers. There is a need for service providers to overcome the
deficiencies of the weak and developing financial, legal, and technological transfer
infrastructures. However, such activities often exist on the boundaries of the permissible
and the questionable, though not all such behavior can be described as illegal. The legal
framework is frequently unclear or ambiguous.
Identifying the New Middle Classes
Despite the greater social and political diversity that has emerged with economic growth
during the reform era, the different categories of the new middle classes remain
remarkably homogeneous in social, cultural, and political terms.
Socially, the new middle classes are characterized by their intense parochialism: the
overwhelming majority are natives of the locality in which they work, and their careers
provide evidence of remarkably limited social mobility, either upward or across country.
Culturally, the new middle classes are important because of their influence as
trendsetters. It is a function that many of the new middle classes accept with an
apparently high degree of self-consciousness. They are flamboyant in small ways in their
newfound identities and develop public obsessions or hobbies that cover a wide range of
unusual activities.
Politically, the new middle classes, far from being alienated from the party-state or
seeking their own political voice, appear to be operating in close proximity and through
close cooperation. As long as the CCP maintains its commitment to economic growth
there are few if any grounds for structural conflict between the new middle classes and
the party-state.
CHAPTER 12 – THE RISE OF RPIVGATE BUSINESS INTERESTS
One of the most dramatic aspects of economic reform in China has been the growth of the
private economy. The private sector is now a dynamic and growing sector of the
economy that attracts public sector workers, managers, party members, and even college
graduates with the promise of personal wealth, and apparent independence.
Expanding the Public and Denying the Private
The CCP understanding of the relationship between public and private both draws on and
contrasts with Chinese traditions. The CCP, like the Confucian state, came to power
claiming a monopoly on truth and sought to identify itself with the public good and to
deny the legitimacy of private interests that were associated with selfishness. However,
the CCP also introduced class analysis into its interpretation of the good society.
While the Confucian state subordinated private interests to the public good, there was an
expansive private realm of family, kinship, business, and religion that acted as a buffer
and intermediary between the state and the individual. In contrast, Chinese communism
sought to establish a direct link between the party-state and the individual citizen,
eliminating all intermediary societal organizations not directly under party control.
Indeed, the CCP under Mao sought to get rid of private interests altogether, beginning
with private business interests.
Re-legitimizing Private Interests
With the initiation of economic reform, Deng sought to mend the rift between public and
private by endorsing the pursuit of private interests and by tying the realization of the
public good to the attainment of material prosperity and national power rather than the
attainment of an abstract revolutionary vision.
As the legitimacy of private business was affirmed, the numbers increased and the
characteristics of the business owners changed. The private sector has grown rapidly in
the 1990s. There is however considerable confusion and controversy regarding the actual
size of the private sector. There is a lack of clarity in the classification and registration of
the township and village enterprises.
Business owners and local cadres who see private business as a source of local revenue,
jobs, and economic growth have, therefore used various subterfuges to obscure or shift
the focus from the private nature of private enterprises. Others have found innovative
ways to combine public and private. Since tax breaks and other incentives for foreign
investment are considerable, there are also a growing number of fake joint venture firms
in which an entrepreneur uses the name of a relative living in Hong Kong or overseas to
establish a joint venture firm.
The Public Debate on the role of the Private
The debate on the role of private business that has continued unabated since the initiation
of economic reform reveals considerable division and ambivalence over the nature and
role of private business. There seem to be three views:
1
The first of these is the moderate position, which has attempted to find a middle
ground between reformers and hard-liners and has been the official party position until
recently. According to this view, private business is a necessary supplement to the public
economy that function to stimulate production, enliven the market, expand employment,
and help satisfy the needs of the people. Although necessary, as a characteristic of the
primary stage of socialism, its role has been seen as both marginal and transitional. The
public `socialist’ sector is to remain dominant, the mainstay of the economy.
2
The reformers argue that the official explanation of the private sector no longer
conforms with Chinese reality and limits the potential of the private sector to act as an
engine of growth at a time when the public sector is flagging. They assert that the private
economy is already and should be more than just a supplement to the socialist economy,
and is a necessary component and an organic part of the national economy and of
socialism with Chinese characteristics.
3
The third view is that of the hard-liners argue that the official justifications of the
private sector does not comport with the economic and political realities. They use
Maoist rhetoric to argue that private enterprise is a candy coated bullet undermining
socialism which is identified with the state-run enterprises.
This hard-line critique of reform lost ground at the 5th Party Congress where Jiang Zemin
sought to initiate reforms that would enable private sector to absorb the unemployment
that would result from the reform of state enterprises.
Private Business in the Political Community
In recent years a small but increasing number of private business owners have become
members of the people’s congresses and the Chinese people’s political consultative
committees at every level in China. While participation in the people’s congresses
signals increased status for private entrepreneurs, the party remains the central organ of
political power in China.
Public Associations and Private Interests
Having made concessions to the existence of potentially powerful private businesses, the
CCP has sought to co-opt and control them by setting up new business association.
These associations in part reflect changing institutional arrangements and ideological
adjustments that move China in the direction of authoritarian state corporatism.
Corporatism resonates with China’s traditional conception of an organic society wherein
particularistic needs and identities were harmonized by the state. Under Chinese state
corporatism, the part-state remains the guardian of the public good that transcends the
private interests of individuals, groups, and classes.
Conclusion
The economic reform and the rise of [private business that has accompanied it have
resulted in a struggle to redefine private interests as part of, rather than in opposition to,
the public good. Although the party itself has remained divided on the direction of
reform, the expansion of the private economy seems inevitable. The public good is no
longer identified with revolutionary public spiritedness or the Communist vision but
rather with a more instrumental notion of material well-being and national power.