The CCP's Ultimate Dilemma

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China is neither a democracy nor a true “market economy.”  All political and economic power is vested in the leadership of the Chinese Communist Party. The resulting lack of ideological diversity and competition gives it an advantage in terms of rapid execution, but a disadvantage in terms of good decision-making.  And that distinction is crucial as China faces off against entrepreneurial democracies.

Decisions prioritize only the interests of the 90 million members of the party, who make up about 6.5% of the population. The rest of China’s people are a factor only to the extent that they enable or threaten the power of the Chinese Communist Party. Because of rapid economic growth, the party has been able to provide a steadily rising standard of living for most Chinese. Coupled with the “stick” of an ever-present police state, the “carrot” of rising affluence has prevented most Chinese from questioning their lack of freedom. 

However, since the financial crisis a dozen years ago, the deglobalization trend, discussed earlier in this issue, has constrained export growth.  To generate the appearance of affluence, China has substituted a debt-fueled capital spending spree involving the building of “ghost cities,” “railroads to nowhere,” and “excess solar panels,” as well as off-shore mega-projects associated with its Belt and Road Initiative (or BRI). Coupled with uncompetitive State-Own-Enterprises serving the core needs of most domestic consumers and its rapidly plateauing export-driven economy, this “make-work” capital spending keeps most working-age Chinese employed. And while these facts are well-known outside China, the so-called “great firewall” supported by the all-seeing “Social credit system” ensures that few Chinese have access to these or any other insights which have not been filtered by the Chinese Communist Party. 

In a real sense, Xi is a real-live version of “the great and powerful Oz” ruling over an Asian “Emerald City.”  People assume that the oppressive, but the paternalistic system will go on delivering benefits and a better life, indefinitely.  And every expert agrees that the survival of the Chinese Communist Party depends on this fantasy which has been true for at least the past 30 years.  The linchpin of this system is the political patronage and public acquiescence of the elite within the CCP, while the pacification of the general public is crucial to the interest of this elite. 

The crisis in Hong Kong which began to seriously unravel in 2019, shows what happens when those outside the party begin to understand China’s reality...

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