China, 2008 – Annus Mirabilis et Horribilis

Adam Williams, a resident of Beijing, reflects on the events, good and bad, which have occurred in China this year to draw some conclusions on how they might have affected the thinking and policies of the Chinese leadership and prepared them psychologically for the present world crisis.

China, 2008 – Annus Mirabilis et Horribilis

The new Government that presided over China’s National People’s Congress when met it last March was an untested one. The President, Hu Jintao, had shuffled his Cabinet the previous autumn and the bulk of the Politburo were new appointees, who were taking up their positions in the State Council and other organs of State for the first time.

It was certainly recognised that it would be a difficult year ahead. The credit crunch was already happening in America, and Prime Minister Wen Jiabao anticipated in his public speeches hard economic times in the future. There were the usual enormous problems to deal with: a stock market that overnight had gone from bull to bear, climate change and the environment, wealth discrepancies between the cities and the countryside, inflation and all the other issues that were already facing China’s overheated economy.

The overriding priority, however, was to get through and past the Olympic Games without mishap. China had long ago determined that these Olympics were to be its ‘stepping out’ onto the world stage, a showcase of everything good that China had to offer. Nothing – nothing – was to be allowed to stand in the way of its success.

China’s leaders did not know that the full forces of world opprobrium and even of Nature itself would be ranged against them.

They’d already survived one natural disaster, a snowstorm that had covered the south of the country during the Chinese New Year holiday. The national emergency affected 21 provinces, most of which had never suffered a serious fall of snow before. Two million hectares of crops were destroyed, 129 people died, four disappeared and two million people were caught in the emergency.

That said the government congratulated themselves that they had come out of it with flying colours. There were serious issues identified in the country’s existing infrastructure as power cables were cut and trains halted, but for once everybody had reacted quickly. Wen Jiabao’s immediate presence in the south was contrasted favourably against that of George Bush after Hurricane Katrina. Local governments and army mobilised on an emergency basis and this was appreciated by the people affected. Nobody had any idea that this would turn out to be a trial run for even greater disasters that would take place later in the year. Before the NPC had finished, another calamity was on their hands, one with further reaching and unimagined consequences.

I’m told that the Central Government had warning from its intelligence sources that trouble was brewing in faraway Tibet. Hu Jintao’s reaction was to tell the security forces for God’s sake not to do anything precipitate that might tarnish the image of China abroad. Treat the Tibetans with kid gloves. This is Olympic year.

When mobs of Tibetans came onto the streets and the central district of Lhasa was in flames, Hu might have regretted those instructions.

The Economist correspondent James Miles, the only foreign reporter who happened to be in Tibet, told me that for more than twelve hours the mob rampaged through the Chinese quarter, burning Chinese shops and sometimes their occupants alive – and not a soldier was to be seen on the street. Fourteen or more Chinese died.

When belatedly the army reacted they compounded their initial indecision with the worst form of military clampdown. Not in Lhasa but in other parts of Greater Tibet police did fire on crowds – and there was a news blackout that played into the hands of the Dalai Lama’s extremists in Dharamsala and the worldwide pro-Tibetan lobby.

The way the news spread abroad, China, instead of being the injured party, was portrayed as the abuser of human rights. In a year in which all it wanted to do was to appear to the world as a mature, civilised nation, the gracious host to a peaceful, international event, Mia Farrow coined the term “Genocide Olympics.” It stuck. All over the world protesters went onto the streets urging their governments to organise a boycott.

China suddenly had the mother of a PR issue on its hands, and it rapidly emerged that it had absolutely no idea how to handle it.

And because of the timing, the battleground on which this drama was played out was the path of the Olympic torch through Europe. In London, Paris and many other cities, violence accompanied its passage. Even one of China’s paraplegic contestants was attacked by a Free Tibet protestor in Paris. There were many other incidents just as ugly. The Chinese, outraged by the unfairness of it all, sent Special Forces disguised as civilians to protect the torch, and answered the anti-Chinese propaganda with virulent propaganda of their own. Again, it was lousy PR. The effect was to add oil to the flames, confirming to those who wanted to believe it that China was just the monstrous totalitarian state they had imagined.

The torch eventually made its way to China, by way of an ascent of Everest, a truly wonderful achievement that was rather lost in the prevailing atmosphere of anger. When it arrived in Guangzhou crowds of happy, proud – and now rather nationalist-minded – citizens mobbed the torchbearers.

But the damage had been done.

Chinese protestors, incensed by what they had seen on the internet more than the official Chinese press, began to take their resentment out on Western, particularly French business interests in China.

The spontaneous protest was as alarming in its way for the Chinese Government as the international condemnation over Tibet. The Party has always been careful through its censored media to try and control public opinion. Now the internet was forming opinion quicker than they could. The spectre of undirected nationalism was as unwelcome for the Central Government as it was for the foreign media, and it raised questions about the extent of its own power. Domestic opinion was suddenly something it had to take note of.

The situation worsened, domestically and internationally, and people wondered what sort of Games these would be later in the year. Would it be the Moscow Olympics all over again with mass boycotts?

What saved China’s tattered reputation was a tragedy of epic and tragic proportions.

At 14:28 Beijing time on Monday, 12 May, a major earthquake measuring 7.8 on the Richter scale struck a remote region in Sichuan. It was felt throughout China – my flat rocked in faraway Peking – and it was even sensed in Taiwan.

In those devastating six minutes and during the aftershocks during the weeks that followed, 870 thousand people died. Its direct economic cost to the country has been calculated at being in excess of 855 billion RMB.

Millions were made homeless. The quake devastated the epicentre, Wenqian, and shattered buildings in large and medium cities like Chengdu and Mianyang. Because it happened during the daytime many children throughout Sichuan were at their studies in shoddily built schools. Most perished.

The earlier snow disaster and perhaps the issue of inflamed domestic opinion over the Tibetan furore had sensitised the government to the feelings of the nation. The People’s Dictatorship suddenly became populist. It saw the need for transparency. The earthquake was given 24 hour press coverage on every television channel. The army was immediately mobilized. Wen Jiabao, the Prime Minister, was in the earthquake affected areas within hours, and his humanity and compassion touched the nation. The President, Hu Jintao, rather woodenly followed his lead, and the nation as a whole applauded. It was propaganda or PR of sorts, but of the right kind at last and what was needed. The nation unified behind the rescue efforts with pride as well as sorrow. Nations abroad, in view of China’s decisive action, (especially as it contrasted with the way Burma at the same time was not dealing with its tsunami) agreed to put their criticism over Tibet behind them. When the actress Sharon Stone remarked that this was bad Karma after what China had done to Tibet, she was pilloried in her own country. Overnight the international mood had changed.

After a decent interval, three days of mourning were declared across the country. It was noted that this was two days longer than had been declared on the death of Mao. In Tiananmen Square, a moved crowd shouted “Jia You, Sichuan”. The vocabulary of dangerous nationalism was now being co-opted to express a people’s fortitude in the wake of their tragedy. Later the same “Jia Yous” would be used to encourage the country’s athletes during the Games. “Jia You, Zhongguo.” And that of course was the ulterior purpose of the public mourning. It was cathartic and allowed China to move on. No one doubted now the Games had been rescued.

But the Annus Horribilis was not yet over. Before China had recovered from its shock, there were to be several more disasters taking place in different cities – terrible train cashes and explosions on buses. The death toll mounted. Some of these incidents were the result of terrorism, culminating in the murder of six policemen by a deranged fanatic in Shanghai on 1st July, and a car bomb that killed another sixteen policemen in Kashgar on 4th August. A breakway Uighur terrorist group called Eastern Turkistan claimed responsibility.

Instead of subsiding, tension rose again as the clock ticked towards the Olympics.

It was not particularly surprising, perhaps. Now the Games had been salvaged, the Government was taking no chances when it came to security measures. The atmosphere in Beijing during the weeks before the Games had an element of paranoia about it. In my own company’s offices next to the China World Hotel, where so many dignitaries would be staying, our staff got used to daily visits by sniffer dogs. The foreign press, who had been promised uncontrolled coverage, were more restricted than before. Surface to air missiles surrounded the Birds Nest and the Water Cube, and draconian measures were taken to reduce traffic to ensure clean air, while popular rumour had it that the artillery were taking it upon themselves to control the weather, firing chemicals into the skies.

And as usually happens in a society where junior officials err on the side of caution, there were ridiculous excesses by the police at local levels – a night long incarceration of Western teenagers in gaol cells when they were caught in the bar area without passports, and also in Sanlitun, a decision by the local police station that from now on no black men were to be allowed in bars – this to make sure that African drug rings would not be operating during the Olympics. One can imagine the sigh of despair in the Zhongnanhai and Ministry of Foreign Affairs when that piece of officious regulation was discovered. It was of course immediately rescinded. But it was in keeping with the tension that made life for a while very, very surreal…

Well, it need not be said, the Olympics when they happened were everything China dreamed they would be. From the moment Zhang Yimo’s extravaganza in the Bird’s Nest began to amaze everybody in the crowded auditorium and on television screens around the world, it was clear that these Games would better anything that had ever gone before. Western journalists tried very hard to find anything to criticise, but the only thing they came up with was that a pretty child singing during the performance was actually being dubbed because the real singer had buck teeth. Small beer really. For the next four weeks it seemed China had been forgiven everything. The world saw them as they wanted to be seen.

More than 10,000 athletes from 204 countries took part. Records were broken in every sport. China had the satisfaction of winning more gold medals than any other country. Everybody who participated was as impressed by the professionalism of the organisation as they were by the magnificent sports arenas in which the events were taking place. Everybody enjoyed it. There was a surge of interest around the world for everything Chinese. China had stood up as it wanted on the world stage and excelled itself. The US$ 44 billion it had spent on it seemed worth every penny.

It had been a rocky start to the year, but President Hu and Prime Minister Wen must have been congratulating themselves that everything was looking all right again.

They even had another spectacular achievement to look forward to – China’s first space walk that took place successfully at the end of September. China had won the Games. It would soon be on the way to winning the Space Race. Jia You Zhongguo!

Sadly the hubris was not justified. The Olympics were over and the Paralympics had just started when there was devastating news from Shanxi. Nature had not been content with a snow storm and an earthquake. It threw in a landslide in a mining town. Another 265 died. A large proportion were schoolchildren again. Uncle Wen hurried down from Zhongnanhai to commiserate. He was well practised by now. The country grieved again. It took its vengeance out on the Governor of Shanxi, Meng Xuenong. He’d already been fired once in his career as a scapegoat for SARS back in 2003. Now he had to pack his bags again. Some people aren’t lucky. Nor was China, for it was about to be hit by something even worse – and this time the government had no excuse and not even its hard learned ability at PR to protect it, for this new disaster struck to the heart of its system of governance.

As far back as July the board of China’s largest dairy manufacturer, Sanlu, in Shijiazhuang had known that babies throughout the country were contracting kidney problems because Sanlu’s milk had been laced with melanine. Dilatorily they reported the matter to the Ministry of Health, who sat on the information while tests were done. It is not yet known who in Central Government was aware of it – but there was a cover up (you couldn’t have a scandal during the Olympics!) and babies began to die. It took Sanlu’s partner, the New Zealand company Fonterra, after a wasted month banging their heads against local Hebei bureaucracy, to report the matter to their own government and it was only by the intervention of Prime Minister Helen Clark, who phoned Wen Jiabao, that the matter came to light. That was in September and by then 12, 892 babies were in hospital, 104 on the critical list. Official reports say only one baby died, but it could have been more. Another 40,000 had been treated and recovered.

Belatedly the Central Government stepped into action. Toxic milk powder was recalled. Shijiazhuang officials were fired. The Director of the General Administration of Quality, Supervision, Inspection and Quarantine was dismissed from his post at national level.

But it was too little too late, and an angry population had already seen the results of the inefficiency, cover up and corruption that is endemic in China’s bureaucratic system.

And abroad China’s reputation was in shreds again.

Meanwhile the scandal was escalating. It emerged that it was not only Sanlu’s milk that had been laced with melanine. Seven other major milk producers in different parts of the country were doing the same. The news caused panic throughout China only slightly less in scale than SARS five years ago. This time a visit by kindly Uncle Wen to infected infants did not have the propaganda effect it used to. It’s not over yet as more ramifications of spreading shame and negligence are being discovered, and more food categories become suspect. It was a body blow to this Administration as ordinary people began to lose confidence in it.

No doubt not a few senior Chinese officials were grateful when the media’s attention was diverted to the greater cataclysm that has had financial markets reeling around the globe, and were comforted, as Wall Street crashed, by headlines in the international press saying, “China Takes its Position as a World Power.”

But of course China was not unaffected. As foreign markets shrank their demand, it became clear that there would be bleak prospects for those Chinese factories manufacturing for export. Guangdong and other coastal provinces began to hurt badly. While figures are hard to get at, The Times estimated 67,000 companies closed, 20 million manufacturing jobs lost, a real estate slump and a slow down of construction. GDP for the last quarter dropped to 9.0% – the lowest in 5 years, and there were some doomsayers, including even respected economists in the State Council, who prophesied that GDP might fall as low as 6% next year.

Nevertheless, it was generally accepted that China’s economy might not be as exposed to the collapse of the world financial systems as countries in the West are, and China saw the propaganda value of this. Its trade officials concentrated on being good international citizens, assuring the US that unlike Russia they would not sell their treasury bonds, and unlike the Japanese their banks and sovereign funds would resist the temptation to buy up cheap financial assets. Wen Jiabao promised Gordon Brown over the phone that China would support the international rescue attempt. In November there was the truly ironic spectacle of leaders of the Western world like Sarkozy and Merkel trooping hat in hand to the Communist Great Hall of the People to ask China’s aid to save Capitalism.

Meanwhile the Government made dramatic efforts to put its own house in order. Reversing the economic levers it had taken earlier in the year to stifle inflation – stifling much industry in the process with its high interest rates – it adopted fiscal and monetary policies to encourage consumer spending and growth. Over six weeks the country saw four drops in interest rates on an unprecedented scale. At the same time the Government announced a 4 trillion RMB stimulus package to finance infrastructure spending. Comparisons are being made with the New Deal in the USA of the Thirties and Eisenhower’s road building schemes in the Fifties.

And hidden among these macroeconomic measures was the announcement of a reform, first mentioned at the Party Congress in October, and deceptively couched in terms of a response to falling exports by creating an internal consumer market, that would have country-shaking social and political significance beyond the sheer economics.

Hu Jintao unveiled a scheme that over the long term would make farmers rich.

The actual texts of the various communiqués describing this were vague, although there had been a symbolic visit down to Xiaoguan in Anhui beforehand recalling Party History when a visit there by Deng Xiaoping presaged the dismantling of the communes. During the Congress, Hu’s vocabulary was full of “braves” and “boldlys” and “new ways of thinking” and “breakthroughs” when describing his “revolutionary” new policy (which he didn’t quite do in terms that were clear).

Clearly the wording had to be cautious because internal opposition still exists within the Party. Probably it won’t be until the NPC next year that we’ll see the full plan.

But word allowed to slip out from the Party School and elsewhere that Hu’s goal – to double per capita income for farmers by 2020 – will be achieved by no less than the total dismantling of the household contract system that has been the pillar of socialist control for thirty years. Farmers will be given usage rights to their land which they can buy or sell. These commentators wax lyrically on how this will encourage migrants to come back from cities because farming will be profitable again as they become free to link with other farmers in modern agri-businesses or invest the proceeds of land transfers in new businesses (no longer will corrupt officials be able to throw them off their land without compensation). The advent of scientific farming as small holders sell off their plots to major agro concerns will eliminate other abuses (think San Lu, the melanine got into the milk between the milking by small holders and delivery to the dairy; if it had been a single controlled herd it would not have happened). It will also be a spur to urbanification – it won’t be unemployed migrants looking for labour any more but families setting up businesses with money in their pocket…

If this is only half right, it will be as big a transformation of the country as anything achieved by Deng or Mao. It will have far reaching effects on the economy over the next decades. In ideological terms, it spells the end of socialism in the countryside.

Throughout China’s reforms, despite all the economic pressure to do so, the Party had previously stopped at one major point of ideology because it would be a crossing of the Rubicon in Marxist terms, undoing the major principal of the revolution whereby the means of production belonged to the state. They gave way on industry, then the financial services, last year city dwellers were given freedom to buy and sell their flats but privatization of farm land had always been a bridge too far.

Until now. Clearly the idea has been studied in Party think tanks for some time and probably a fully formed policy exists that can be presented to the NPC next year, but so far what has always been lacking has been the political will to do it. The milk crisis and the global crisis have created imperatives that have finally made the unthinkable possible.

For call it what you like, 50 year leases that can be bought and sold is ownership by any other name. The land may still nominally belong to the state, but the system operating there will no longer have a vestige of socialism. It’ll be capitalist.

An interesting question mark has now emerged about what sort of country China will be in the future. By giving away its control over the land, the Party is relinquishing a major part of its power.

The two men who will be leading China into a different future will be President Hu Jintao and Premier Wen Jiabao.

2008 has been a landmark year for them. Indications are they have learned from the experience and undergone much development in their thinking.

For one thing, the Chinese Government knows now it can never, as it has in the past, pursue its policies in an isolated vacuum. Almost every one of the crises that Hu and Wen had to deal with had ramifications at home and abroad. The Olympic Games was not the easy triumph they expected. The Tibetan crisis, the milk scandal and now the financial crisis showed them how vulnerable they are to global forces and opinion. As critically, they have had brought home to them the fact that they are dependant on the good will of their own people. The milk scandal shook their authority as much as, for a while, their decisive response to the earthquake strengthened it.

But their new outlook, forged in crisis, looks positive. Their management of perceptions has improved as much as their crisis management. PR’s still not great but it’s getting there. Both men now understand the truth that these days communist rule requires sensitivity to aspirations and needs, and they have learned that they have to be bold – not a word anybody has ever associated with the cautious Hu and Wen before.

Their reaction to the financial crisis shows their sense of responsibility. The decision to privatise land shows they have the strength to make difficult decisions. That bodes well, especially if it also urges them to take on reform of their now visibly corrupt and inefficient system of governance down the line. Earlier this year, their much declaimed intention to reform ministries ended in a squib. Instead of 27 ministries being reduced to less than 20, 27 were reduced to 26. It will be interesting to see whether they now indeed do have the will to do more in this and many other areas.

Both men started their first term of office on a crisis, SARS. This year, the start of their second term, has been equally traumatic. If the lessons they learned really have empowered them to stand up against conservatism and vested interests and tackle administrative reform of the corrupt civil service, then it might indeed be Jia You, Zhongguo.