Jacob Dreyer is an editor and contributing writer for Noema based in Shanghai.
– ONE –
“If wealth doesn’t grow, common prosperity will become … a tree without roots.”
— Liu He
SHANGHAI — As the story goes, when Zeng Liansong set out to design the flag for the brand new People’s Republic of China back in 1949, thoughts of the cosmos dwelled on his mind — in particular the proverb “盼星星盼月亮.” (“Longing for the stars, longing for the glow of the moon.”)
On the eventual flag, the Chinese Communist Party was depicted as the big star. The design brief insisted that the original Maoist coalition of workers and peasants be represented, so they got one star apiece. Recalling an older caste system, Zeng added a star for the scholar class — the class that has become China’s technocracy — and added a fifth and final star for the bourgeois merchants.
Preciously small in Zeng’s day, it is this fifth star that is today ascendant in China, pulling the others in its wake toward a new sort of nation — toward the moonglow of an imagined future. Under the CCP’s overarching goal of “common prosperity,” all sorts of reformist projects seek to enlarge a consumerist middle class. Maoist ideas of shared struggle are recuperated and joined to market forces to fuel a blended economy that very much includes entrepreneurship and foreign capital. In the process, China is slowly redefining itself from a worker’s state to a consumer’s state — from the factory of the world to the marketplace of the world.
Building China — in particular, the houses that Chinese people live in — was a generational task. Scholars recently estimated that 88% of all housing in China has been built since 1990, 68% of which since 2000. Now, the government has decided that that’s done and wants to move on to the soft infrastructure of a middle-income society moving up: schools, hospitals, retirement homes. This feint to the left masks the intent of unleashing China’s consumer market, creating the economic equivalent of gravitational forces.
In a way, the back-and-forth between the state and the market — two distinct forms of social organization — is the structure of Chinese history itself. In “Doctrine of the Mean,” one of the central texts of Confucianism, a disciple of Confucius asks his teacher how to be strong. Confucius replies:
Are you asking about the strength of the southerners, or the strength of the northerners, or the strength of you? To teach others with a tolerant and gentle attitude, even if others are rude to me, they will not retaliate. This is the strength of southerners, and gentlemen belong to this category. They often sleep with knives and guns, wear armor, fight on the battlefield and die without regret. … Strong people of the north belong to this category.
In other words, to put it less elegantly, the idea is that southerners are wily and good with money (somewhat like the stereotype for blue states in the U.S.) and northerners are rough and honest and traditional (like red states).
In a similar vein, the Chinese word for city, 城市, includes two dissimilar concepts: The first is a military-style fort enclosure, and the second a vibrant marketplace. So which is it?
Confucius, who came from a place equidistant between contemporary Shanghai and Beijing, advocated a sort of fusion of the two concepts and geographies. Achieving that has been a challenge ever since he was alive back in the 5th century B.C.E.
Han Fei, a sort of Chinese Machiavelli who penned one of China’s classic legal texts, warned against the chaos that follows attempts to administer a country whose regions are radically different from each other. During moments of chaos, authoritarian leaders like Mao Zedong cited Han to articulate the need for a sovereign above the law who can hold the country together by repression and willpower. That’s the voice of the north speaking — the merchants Mao wanted to integrate mostly lived in the south, then as now.
“China is slowly redefining itself from a worker’s state to a consumer’s state — from the factory of the world to the marketplace of the world.”
Much like today’s exporters of Guangdong and financiers of Shanghai, the southern merchants who would go on to populate diasporas never had much use for being told what to do by northerners. But China integrates or it disintegrates. Historically, when it splinters into sub-polities (like during the warring states period or more recently the 1911-1949 interregnum between the Qing Dynasty and CCP), China becomes an easy victim for colonizers. For scholars of this history, the roadblocks between Shanghai and Zhejiang during the COVID lockdowns made for uneasiness; regional inequalities between east and west and north and south make for a simmering sense of crisis.
A country divided against itself cannot stand — as Xi’s slogan goes, “East, west, south, north and center; the Party leads everything.” Historically, the rationale for Chinese authoritarians has been that some sort of equality of conditions is the vital prerequisite for a country’s existence. Today, a bonfire of local regulations is unleashing market forces to further centralize the provinces around the capital, and the world around China.
– TWO –
“Less than half of all rulers die of illness.”
— Han Fei
China was disintegrating, or so it seemed.
Not so long ago, the hyper-development fueled by debt-driven real estate investment had created a situation in which powerful regional officials didn’t feel that they had to answer the phone when Beijing called. The mountains were high and the emperor was far away for Bo Xilai, the Party secretary of Chongqing from 2007 to 2012. Those were the years when many of the pressing social issues that today we hear discussed under the rubric of “common prosperity” — changes to the hukou (the household registration system that dispenses benefits like access to employment and schools), subsidized housing, a property tax and other reforms — had their trial run. All of it, then as now, was swept up in the “red” language of a bygone era, while political enemies on the business-friendly right were removed.
Cui Zhiyuan, the Chicago-trained economist who studied land markets in Chongqing during Bo’s reign, wrote that integrating rural people into the city would encourage the development of a highly educated population capable of innovating. Observing the expansion of private-sector GDP in supposedly “red” Chongqing, he wrote: “The Chongqing experiment demonstrates that public ownership of assets and private business are not substitutes for one another. Rather, they can be complementary and mutually reinforcing.” Meanwhile, Niall Ferguson, who visited in 2008, saw it as the antithesis of Chimerica: endless housing estates occupied by villagers who the city had swallowed up. Ferguson thought Chongqing signaled “the coming reality of a huge Chinese domestic market.”
Like Goldilocks and the three bears, Mao’s economy was overly dominated by the centralizing state, and Deng’s was spinning growth so quickly it almost lost sight of who the growth was meant for. Xi’s updated vision for a common prosperity — of which Bo’s Chongqing was indeed a premonition — is driven by private-sector entrepreneurs and seeks to achieve a fusion of the two. In China, the joke is that the government is run like a business, and businesses are run like the government.
But Bo’s Chongqing was dangerous to the Chinese national system because of the immense popularity that grew in favor of his policies and of the man himself. Consensus rule was being undermined. Layers of bureaucracy and mid-range elites were swept away as Chongqing became Bo and his people, with not much in between. The bureaucratic class, heirs of the Confucian scholarly tradition, were removed during politically selective anti-corruption campaigns, which many speculated were simply a way for Bo to solidify his grasp on power.
“Invoking the politics and language of Marxist struggle in China is to play with fire.”
When I visited Chongqing in 2011, it seemed like the city’s contradictions were about to explode. Soon enough, they did: Bo’s Mongolian sidekick Wang Lijun fled to the U.S. consulate in Chengdu, pleading for amnesty from his lawless boss.
As the story unfolded, it became clear that the dreamworld of Chongqing was unimaginably lurid. It turned out that the line between populism and gangsterism was a thin one. Bo is now in prison for life, the first scalp claimed in what would become Xi’s own anti-corruption campaign.
Today, the system has integrated many of Bo’s policies and attitudes as its own, having seen how popular they were. Huang Qifan, Chongqing’s mayor at the time, is now a major advocate of “common prosperity.”
But as happened with Bo’s “red culture” movement, invoking the politics and language of Marxist struggle in China is to play with fire. China is a radically unequal society. In internet cafes in the lonely suburbs of provincial capitals, alienated youths talk about life in the “human mine” and the unfairness of being another cog within the machine. If Bo’s Chongqing was unable to balance leftist rhetoric with capitalist reality, will Xi be able to do it with the whole country in 2023?
– THREE –
“Behind every great fortune lies a great crime.”
— Honoré de Balzac
The mafias that flourished in China between 1979, when Deng’s reform and opening began, and 2012, when Bo was arrested, had their root, above all, in the real estate industry.
Take Qiao Si, a Harbin gangster in the 1980s who was immortalized in a novel by Kong Ergou and a spinoff CCTV show. Vaguely based on true events, Kong’s story tells of a man orphaned in the Harbin working-class districts during the Cultural Revolution who falls in with a group of toughs and starts to do petty tasks for corrupt local officials.
As property was privatized in those years, local governments had to fulfill responsibilities they weren’t legally able to. (The legal system hadn’t yet caught up to the realities of a semi-privatized commonwealth, and wouldn’t for some time.) So if a local government wanted to build new buildings for a new society, but the people and buildings of the old society were in the way, they called Qiao, who beat them up and made them disappear. In the book, demolishing one stubborn “nail house,” Qiao cut off his own finger in front of the tenants to freak them out. The communities he was helping to demolish were being torn apart violently, just like his body.
In one famous line from the book, Qiao waxes maudlin, saying that the “red society” of the past had been replaced by the “black societies” of mafias, which brought together working-class youths to struggle and live in a different way than socialism had, as the radioactivity of socialism dissolved into a half-life of gangsterism.
In the real Harbin, the real Qiao built a criminal underworld that became necessary for the overworld of the real estate industry to function. It was another case of the central government losing control of a volatile regional economy where, following Deng’s instructions, some were getting (quite) rich first. Due to his connections with the local government, Qiao was untouchable; in the end, well-armed military police were sent to arrest him. A firing squad shot him on a hillside in the suburbs in 1991; his villa was left empty as the 90s continued roaring. By the time the millennium came, Harbin Pharmaceutical Group had created a replica of Versailles as its corporate headquarters.
In the bad old days before the 1949 Communist Party takeover, China was, in the scripture of Party history, divided up by foreign forces into little warlord kingdoms that were easy to exploit. As Sun Yat-sen said back then, “The Chinese people have only family and clan groups; there is no national spirit. Consequently, in spite of 400 million people gathered together in one China, we are, in fact, but a sheet of loose sand.”
“Chinese people are moving from the invested into the investors, from the subjects of global capitalism to its protagonists.”
The sociologist Fei Xiaotong saw the same China — one in which every village across the vast land, speaking local dialects and enclosed in an economy of subsistence agriculture, was exactly the same as all the others. Grains of sand on an endless beach, ready for somebody to walk all over. When Mao announced the new China, he said: “The Chinese people have stood up!” He was implicitly claiming that all the people living within the borders of his people’s republic shared a common condition and common aspirations and could be unified toward a particular struggle.
In the early decades of Mao’s socialism, the unifying forces of a centrally planned state tried to forcibly weld this diverse continent of people together, sending officials from Manchuria to subtropical Sichuan, creating a common discourse of revolution — a shared heritage of experience that accompanied a mass literacy movement. The capitalist economy that gradually took over, however, insists that individuals compete against other individuals. It corrodes collectives by its very nature.
The reforms in the 1980s and 1990s to property ownership, taxes, state-owned enterprises and other legal matters that led to China’s entrance into the WTO caused the sociologist Qin Hui to write about the process of “dividing up the big family’s assets.” Once, the nation clustered around a shared hearth; now, the process of capitalist accumulation sent the population skittering around new sorts of circuits. Communities, pieces of land and even the hours of the day splintered and created a huge amount of measurable economic activity. But it also destroyed the organic Chinese village community that many considered the eternal form of Chinese life.
The desire for control is in opposition to the adventurous and fateful nature of growth. In those years, the brave and reckless emerged from the old decaying neighborhoods, searched for their fate as individuals, started companies, went to work for the state — or maybe, like Qiao Si, they became mafia folk heroes. The endless new housing estates built once Qiao and his counterparts finished their work tied hundreds of millions of Chinese stakeholders into the system; as the machine kept pumping, prices kept rising, and the tide lifted all boats (although those without boats were left underwater). And here we are today: with new cities and a society that has been shifting like quicksand for as long as anybody can remember, as north and south’s endless argument over control and movement reverberates on a global scale.
As Xi often notes in speeches on the collapse of the U.S.S.R., what the government fears most is socialism dissolving into oligarchy, national wealth expatriated, bitter wars with people who were once brothers in a socialist project. In the Chongqing of Bo’s time, mafias — with their patriarchal structure, their reliance on implicit communal bonds of trust, their antipathy towards the formal economy — were the natural byproduct of a city that was populated by villagers.
For the CCP, unifying China is a Sisyphean goal: The place constantly crumbles into squabbles and local interest groups. But forcing everybody — the orphans and the workers of places like Harbin, the new rich of places like Chongqing — to unify around shared objectives is necessary. If not, Chinese government officials and economic elites will start fleeing to U.S. consulates to spill the dirt, and the Chinese population will be defenseless against the scary world — as they were in the 1930s before the self-appointed heroes of the CCP saved the day.
When one amateur literary critic considered Kong Ergou’s novel, he wrote:
If many years later, the historian of eternal life wrote a tribute to [the CCP], the 1980s and 1990s would be an era that cannot be ignored. … The ideal of revolution was dead. Matter was being enriched, and everything had just begun. … In this turbulent stability, we began to grow up. What is stable is law and order, and what is turbulent is people’s hearts.
Breathe in. Breathe out. For the past 10 years, China has been breathing in. It feels like it’s about to start sneezing, scattering capital, infrastructure projects and people around the world. Or it might inhale the world into China, importing an unprecedented amount of goods and services and realigning the orbit of the global economy in the process. There’s nothing to say that both can’t happen at the same time.
– FOUR –
“One cannot live outside the machine for more perhaps than half an hour.”
— Virginia Woolf
By 2022, the growth mechanism of the Chinese economy — real estate — had come to assume a life of its own. But it was becoming incompatible with new commitments to carbon neutrality and was relentlessly absorbing the population’s wealth, like a steroidal body whose muscles could no longer be controlled by a brain’s commands.
And so, they shut the engine shut off. While it was not operating, they fundamentally modified it, removing the prerogative for endless growth. Observers noted hopefully that cement and steel production might fall and gigatons of CO2 emissions might disappear.
China in 2023 is predicted to reclaim its pre-COVID share of global growth, dwarfing figures from the U.S. and EU put together. But this time, the economy will be driven by consumers of services, not constructors of houses — by the middle class, not the working class.
The $21 billion of foreign capital put into Chinese stocks in the first 40 days of 2023 amounts to a bet that this restructuring will succeed. If China’s government really can successfully shift gears from construction to consumption, it will have implications for virtually everything. Multinational companies might be able to move supply chains for manufacturing out of China. But a company that doesn’t operate in China won’t be able to access Chinese consumers. A China that is the marketplace of the world would be even harder to replace than the China that is the factory floor of the world.
In particular, the Chinese household wealth that today is overwhelmingly clotted in the real estate sector could be harnessed by Western capitalists in collaboration with Chinese SOEs, as in Goldman Sachs’ crossover with the Industrial and Commercial Bank of China to pour capital into Chinese state-led technological research and development for firms that are technically private, even if their CEOs pledge allegiance to China Inc., like BYD, Huawei and ByteDance. Instead of a huge cash pile buried under the literal floorboards of China, it could be deployed to drive technological upgrades — and, if the economics textbooks are correct, productivity growth.
“China is no longer a factory that produces products for cheap: It is a source of technology, of middle-class consumers and of investment capital.”
Hence China’s new number two, Li Qiang, was deputized to create new stock markets explicitly intended to funnel Chinese household savings into Chinese tech companies, like the Shanghai STAR market (officially: the Science and Technology Innovation Board). Hence Stephen Schwarzman of Blackstone showing up to the 2023 China Development Forum in Beijing alongside Tim Cook of Apple and CEOs from German car companies.
China is on the brink of a financial big bang, whereby American finance gurus are tapped to help deploy Chinese household wealth, helping to replace the foreign direct investment that used to come in from overseas. Chinese people are moving from the invested into the investors, from the subjects of global capitalism to its protagonists.
As time goes on, Chinese companies, particularly those in tech and infrastructure, have oriented themselves away from trade with the developed world toward their peers in the developing world. Southeast Asia in particular has become the frontier of the Chinese economy. For hotel operators in Bangkok, utopian urbanists in Borneo and many others, China is no longer a factory that produces products for cheap: It is a source of technology, of middle-class consumers and of investment capital.
The Chinese government describes this as an effort to dispel the myth that “modernization is equal to Westernization,” that it “presents another picture of modernization, expands the channels for developing countries to achieve modernization and provides a Chinese solution to aid the exploration of a better social system for humanity.”
The theory sounds great, but the truth is that China’s economy is in a moment of transition, not yet on the other shore. What China needs to do is not complicated, but it’s as hard as building housing in California — elites will lose out when benefits are shared more broadly, even if that’s vital to build China’s future. Only time will tell if it all works.
As Xi’s third term commenced, the skies of Beijing turned black with a sudden sandstorm. Nature is rarely compliant with human desires. The fusion of market and state, of control and chaos, is as old as China itself, and it hasn’t stabilized yet. Maybe this time will be different.
