China's Political Culture Is Paralyzing Its Economy

Success in China is about connections. 

To foreigners, mainland China can be an anarchistic and chaotic place where the rules, both social and legal, are treated more-or-less like paternal suggestions rather than codes of conduct. One of the most glaring examples of the complete disregard for rules among the Chinese populace is driving. Despite the Road Traffic Safety Laws of the People’s Republic of China being as robust and comprehensive as any developed country, it is not uncommon to see Chinese drivers blatantly, and sometimes aggressively, violating the spirit and intention of the law. Red lights are constantly ignored and lanes are treated more like suggestions. The probability of being caught breaking the law is so incredibly low that it makes perfect sense to disobey the rules.

Even if an individual is caught, it is not impossible to avoid punishment by simply using someone else’s driver’s license. Unfathomable to most foreigners, it is not uncommon to see people selling the use of their driver’s license outside of local police stations. With such lax enforcement and easy avoidance of penalties, it is easy to see that driving in China is a game of brinkmanship: every car jostling to get ahead of another with accidents always imminent. The reason for such disregard for the law is simple: lack of enforcement.

The anarchy of driving in China resulting from the lax enforcement of codes of conduct is a microcosm of Chinese political, economic and civil society. China’s first constitution was written in 1954, and since then the country has established various ministries and bureaus to create and enforce economic, social and political rules of law. However, despite the monolithic appearance of Beijing, the vast majority of Chinese citizens not only recognize but also embrace organized chaos as the de facto economic and political system.

This anarchistic de facto rule of law breeds not only corruption within government, but distrust within Chinese civil society. Many Chinese trust neither their government nor their fellow citizens. In such an environment, a game of brinkmanship based on guanxi (the cultivation of relationships that result in the exchange of favors that are beneficial for both parties) is created. When a law is vague, it is guanxi that determines its meaning. When a law is violated, it is guanxi that determines the penalty. Fundamentally, this means that the success or failure of many business ventures in China has much more to do with political and social connections than actually following any laws.

This model of doing business is anathema to Westerners, who operate under a system of predictable and consistent codes of conduct and rules of law. The future of China, to put it bluntly, lies in the development of its political and civil society, not in its economics—something that many analysts seem to miss.

 

Economic Reforms and Political Obstructionism

For the past twenty years, the source of the Communist Party of China’s (CPC) political legitimacy has been economic prosperity. The CPC has maintained their grip on power through “performance-based legitimacy,” writes economist Guy de Jonquières in a policy brief for the European Center for International Political Economy.

After years of double-digit growth, a global slowdown in trade and consumption has to begin to erode this core source of legitimacy. For the first time since Deng Xiaoping opened up the mainland to international-capital inflows, China's outbound investment in 2015 surpassed that of inbound investment. The decrease in inbound investments is not unexpected, and in fact highlights what everyone from economists to CPC politicians already know: the current Chinese economic model is outdated and in desperate need of reform. Despite CPC political power brokers knowing what needs to be done, Beijing is facing a nightmare scenario in which President Xi Jinping and Premier Li Keqiang must paradoxically reduce CPC influence over social and political life while simultaneously cultivating respect for the rule of law.

This paradox is rooted in the Chinese proverb: tian gao, huángdì yuan (heaven is high and the emperor is far away). While examples of this proverb can be seen in many elements of Chinese civil society, such as driving, Chinese political leaders and civil servants are especially susceptible to this modus operandi and it is the fundamental reason guanxi is so important.

It is this attitude and code of conduct that is paralyzing China from moving forward with its economic reforms. Instead of promoting healthy competition between different regions, the decentralization of power necessary to many economic reforms going forward may give way to political brinkmanship where politicians tempt fate with how much power and wealth they can amass before they attract the ire of Beijing. A recent example of this political brinkmanship gone awry is the 2013 trial and subsequent conviction of Shandong Province’s rising star, Bo Xilai.

While Xi may be unable to enforce the rule of law on his countrymen for fear of civil unrest, he can certainly enforce codes of conduct on fellow party members. In a January 2015 speech, Xi stated,

Political discipline and rules exist to enable CPC cadres to defend the authority of the CPC Central Committee and cadres must follow those rules, aligning themselves with the committee in deed and thought, at all times and in any situation. Party unity must be ensured.

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