A forty-year bond of trust between entrepreneurs and the government, the backbone of China’s meteoric rise, is in jeopardy because of short-term mistakes and long-term neglect. Some Chinese are apparently voting with their feet or lack of activity against what they don’t like.
It fuels and is also fueled by growing foreign mistrust of China.[1] It is something urgent the Communist Party has to address in a proper and timely manner, and perhaps the short-term mistakes are not as important as the long-term neglect.
A Bloomberg report[2] argues that wealthy people are fleeing China. They no longer trust the direction of China and seek refuge abroad.
It is not as dangerous as capital flight, as Bloomberg underlines, but it’s a risky brain drain, as for four decades, these people were the main drivers of China’s growth with their skills and hard work.
There are two issues behind this brain drain. One is that successful entrepreneurs have grown more cautious and no longer want to take risks in China. Moreover, younger people have given up on starting an enterprise as they see it as increasingly precarious.
Short term, some feel a different atmosphere in China, no longer supportive of entrepreneurs but keen on taxing people and stressing the “common good” over wealth creation. Long term, Chinese entrepreneurs don’t feel their property rights are sufficiently protected and guaranteed by the government’s unpredictable turns.
It may be true not only for millionaires but also for millions of homeowners and savers whose small investment is being eroded by the collapse of the real estate market and the general slowdown of the economy.
Here are a few elements.
There is a long argument[3] about the necessity of some kind of amnesty for past “economic crimes” that would ensure all Chinese their property rights. It would guarantee their loyalty to the country and reassure them they were safe being there and continuing investing there.
Promoting the common good, cheaper or accessible education, health care, and retirement plans are important to promote internal consumption.[4] To do all of this, China indeed needs more resources, and thus it needs more taxes.
Nobody wants to pay taxes, but people can be less opposed only if they feel they are part of the “management” of the state. That is, taxes would not just be spent on the state’s whimsical projects, but people would have a say through representation in how taxes were spent. Some kind of political reform is necessary to get taxes and the commitment of people paying those taxes.
It is a problem the late 1990s theory of Three Represents, pushed by then-president Jiang Zemin, tried to address. It did so by coopting rich people. But as wealth spreads, hundreds of millions must be coopted into decision-making, which is done through open controls and elections.
It is also linked with guarantees of property rights. Through an amnesty, people would feel their property rights are guaranteed by the state and could be more open about paying taxes and being economically active. These long-term issues have been neglected for over 20 years and have grown out of proportion. There is still hope that things will improve, as they did in the past.
However, this hope, although not gone, is wearing thin as a new fuse is kindling uncertainties. In recent years, Chinese entrepreneurs have been growingly skeptical of Beijing’s long-term political direction after the Covid crisis’s mismanagement, the Ukrainian war’s misjudgment, and growing tension with the United States and some of its neighbors. They, therefore, are thinking of running away and avoiding what some call the next period of the Cultural Revolution.
The short-term issues can be fixed and are arguably being fixed. The zero-Covid policy has been scrapped, and support for Russia, quite strong a year ago, has been cooling off in the past months. But long-term problems have not been addressed at all and have been fully exposed by the short-term crisis; therefore, the short-term fix may not work or will have limited effect.
Beijing can cope with these problems only through a comprehensive approach that deals with these elements altogether. Time is of the essence because a reform that comes too late will not salvage the situation.
After the hundred-day reforms (from June 11 to September 22, 1898) by Emperor Guanxu at the end of the 19th century, Empress Ci Xi tried to step up some reforms to salvage the empire. However, people no longer trusted the imperial system, and it fell apart. The government cannot choose to implement reforms when it suits it. Time is of the essence.
One danger for delays is war. Air force General Michael Minihan warned of a war with China within two years[5]. The danger is the conflicting territorial claims around China. The question can be: Can China “invade” some of its neighbors, or has it already “invaded” them by claiming control of the South China Sea, islands contested with Japan, and territory bordering India?
Maybe to understand each other and defuse the situation, we should go back to old Confucius’ Rectification of Names. What is “invading”? For some, China’s territorial claims are already ‘invading.’ A vassal-like relationship can be just ‘invading,’ stoking controversy arguing for the definition of “Chinese New Year” when Koreans want to call it “Lunar New Year,” it can be invading the cultural sphere.
In fact, there’s no way of rectifying names or even of reaching an agreement and then sticking to it, as Xunzi (Confucian philosopher, 3rd century BC) suggested.
Reality and names are always shifting with one another. Their relationship is based on temporary belief/trust and needs cultural/political high maintenance.
There was a time when neighbors skirted controversy to stick on Beijing’s good side. Now they invite disagreement, and China apparently stokes it, as with the Lunar/Chinese New Year case. So, perhaps the core issue is what to do about these un-rectified names that can lead to war.
The West can’t be cavalier about it, and neither can China. Big and small issues are lumped together, and it becomes more and more difficult to untangle the mess. Blame games don’t help.
China is caught in a vice: if it abandons its bombastic nationalism, it loses a critical domestic confidence driver. If it doesn’t abandon it, neighbors will grow more upset. Then how to get out of the mess? China lost international trust and needs to recover it. How? It’s a different matter.
[1] See http://www.settimananews.it/informazione-internazionale/%ef%bb%bftrusting-china/
[2] https://www.bloomberg.com/news/articles/2023-01-25/rich-chinese-plan-to-leave-with-money-with-covid-zero-s-end
[3] https://asiatimes.com/2016/01/latest-china-stock-crash-spotlights-urgent-need-for-financial-reform-sisci/
[4] See http://www.settimananews.it/informazione-internazionale/saving-without-economy/ and http://www.settimananews.it/informazione-internazionale/three-trend-puzzle-for-china/
[5] See https://www.washingtonpost.com/national-security/2023/01/27/us-general-minihan-china-war-2025/
