China's rural pressures

A couple weeks ago Stratfor had an insightful analysis pointing out the growing pressures in China's rural regions. Unemployment and economic struggles are putting tensions among China's rural poor on a slow and steady simmer.

But [China's] growth has been anything but even. Urban growth continues to outpace rural growth, despite income increases across the board. In 2005, per capita disposable income reached $1,310 in urban areas, compared to just $405 in rural net income. Income disparity in 1984 was about a 2 to 1 ratio; now it is 3 to 1. Overall, the poorest 10 percent of China's citizens hold only 1 percent of the nation's wealth, and the wealthiest 10 percent claim 50 percent of the money. Even in urban areas, there are massive disparities: The poorest 20 percent of urban-dwellers control just 2.75 percent of private income; the top 20 percent control 60 percent of the total.

The gaps manifest in other ways as well. China's registered urban unemployment stands at 4.2 percent, but rural unemployment -- which isn't measured officially -- is anecdotally much higher, and even Beijing admits that some 200 million rural workers have migrated to cities recently in search of employment. That represents a substantial portion of the total rural population, which numbers 800 million to 900 million. In the cities, these migrants are treated as second-class citizens at best. In the countryside, they fare little better: Measures of education and health care are substantially lower. Moreover, there has been little legal recourse for farmers, who technically don't even own the land they work, when local officials confiscate the land for new industrial and housing projects.

The central government is well aware of these problems and, perhaps ironically, began issuing public cautions about social and economic tensions years before the international business community bothered to notice. Unrestrained economic growth no longer is viewed as a viable or sustainable option, and Beijing has begun to reassert more centralized control over economic development, with a particular emphasis on reducing the rural-urban gap.

Stratfor suggested a not entirely obvious solution.

This means Beijing needs to allow, if not subtly encourage, more localized demonstrations.

And that apparently is where Hu and Wen intend to go. The central government's response to stories of rural unrest has remained rather low-key thus far. In reference to the Dongzhou protests in December 2005, where at least three were killed when local security forces opened fire on the crowd, officials on the sidelines of the NPC session recently made it a point to say the officers in question are under detention and did not follow orders. In other uprisings, there even have been suggestions of sympathy from the center. In the cost-benefit analysis, Beijing apparently has determined that the risks of allowing the current trend of growing regionalized power to continue outweigh the risks of trying to manipulate popular sentiment against local officials.

This, perhaps more than anything, underscores the severity of the economic and governing problems facing China's central leadership.

The strategy of unleashing the rural masses, allowing and even subtly encouraging protests could quickly get out of hand. However, given the wide array of localized concerns, there is a natural disunity that could be expected to constrain protesters -- keeping demonstrations locally significant but nationally isolated. So long as protesters don't join across provinces and regions, so long as no interest is able to link the disparate demonstrations, the central leadership will retain some leeway to implement its policies.

But as history bears witness, any attempt to harness protests and mass movements is a very risky strategy indeed.

In a March 14 WoC article, Joe Katzman linked to an article that described the "rural time bomb":

A peasant "time bomb" threatens to stunt China's rise to global economic superiority unless immediate measures are taken to fix the problem, say experts. The Chinese state has lost much of its legitimacy with the country's rural majority, a turnaround that could have increasingly adverse effects on the long-term socio-economic development of the country, according to Joshua Muldavin, an Asian studies expert at Sarah Lawrence College in New York.

With greater land seizures by the state and reduced levels of rural subsistence, more peasants are having to migrate to urban areas in search of work where disappointment often awaits, making "peasant landlessness ... a time bomb for the state," Muldavin told an audience Thursday at the Carnegie Endowment for International Peace.

"There are two Chinas," he said. One is for investors, and the other is the "rural hinterlands," where official corruption, a growing gap between rich and poor and unemployment led to some 87,000 incidents of unrest in China last year, said Muldavin. It is believed that many more go unreported.

I bring this up because the Financial Times just had an article pointing out a factor that can be overlooked as we ponder China's rise and its implications for our security. China is vulnerable to the high prices of oil on the world market, too, and passing those higher costs on to the rural sectors might increase tensions to a dangerous level.

China on Sunday announced its first rise in domestic oil product prices in eight months, but promised to soften the blow to farmers, fishermen and urban transportation companies with a new system of subsidies.

...The increases are too small to make up for the steep increase in global oil prices during the past year, but will ease the pain imposed by Beijing’s pricing regime on domestic refiners such as Sinopec, the internationally listed market leader. The commission did not give comparative figures for most state-set petrol and diesel prices, but said Sunday’s move raised the ex-refinery cost of oil products for military use by 5.1-6.8 per cent.

China’s refining sector lost a reported Rmb30bn in 2005, and refiners’ lack of enthusiasm for supplying the domestic oil products market led to severe shortages in some parts of the country last summer. In spite of China’s increasing reliance on imported oil, Beijing has been unwilling to pass price increases on to the pump out of concern over the impact on already hard-pressed farmers and vocal urban groups such as taxi drivers.

Analysts say the gap between market and state-set prices had been becoming increasingly unsustainable, with Beijing forced to give Sinopec a windfall payment of Rmb9.42bn at the end of last year to compensate for its refining losses.

It's one reason why China is so reluctant to be a part of UN sanctions against Iran. Not only does China need Iranian oil, but if sanctions or military action against Iran cause a spike in oil prices, China will feel it, and might exacerbate internal problems China doesn't need.