Video Transcript

Colin Chapman: Reports of riots in China are not uncommon. There was one this week in Zhejiang when 1,000 workers went on the rampage after a 19-year-old employee was apparently killed by his boss after a dispute over wages. The official Chinese news agency reported the riot ended when the firm involved paid $47,000 to the dead man's family. Unofficial estimates put the number of what the government call mass incidents at 90,000 a year — up 50 percent from the official figure of just six years ago. Could this be a symptom of spreading social unrest?

Welcome to Agenda. I'm Colin Chapman. Last week, I returned from a visit to China. The pace of change is impressive; there are many visible achievements and increased prosperity but also evidence of fast-growing problems. To discuss these, I'm joined by a Stratfor's senior East Asia analyst Rodger Baker. Rodger, when you've not been to a country for a while, you notice the changes — people are much more friendly, there's much more willingness to talk openly, to criticize the government, and more public discussion, fewer police visible. It really does feel different.

Rodger Baker: We've certainly seen a change in the way in which the Chinese media, the Chinese public, through the Internet and through other means has been much more aware and open about discussing the Party, discussing the government. Some of this has come out of the fact that the Chinese government had encouraged a much stronger sense of identity and Chinese nationalism leading up to the Beijing Olympics, for example. And then it continued carrying on beyond that outside of the control of the government. Some of it is though the natural result of the fact that in many ways the economic programs and the social programs in China have evolved quite a bit beyond what the political system has. And that leaves people much more open, much more willing to discuss and more focused on what their country is. A final part I think is that as Beijing has tried to present China as a big international player — a major country now — it has raised that level of confidence in people to feel free to discuss and to be more open about what's going on domestically because it's no longer a need to try to protect and be defensive about everything that's happening in their own country. They see China as playing a stronger role.

Colin: Even outside the major cities, you notice people have an eye on fashion; they dress differently. But then you find huge disparities of living standards, particularly in education. Eight times as much is spent per head on education in the major cities as in the provinces.

Rodger: Yeah I think if you look at this, there's a couple aspects that we see it play here. Number one is really the leftover of the Hukou system, and that was the system of household registration that was set up in Maoist times. And at that point in time the government offered incentives to people to move to cities because there weren't jobs in cities because as they were trying to strengthen and create a stronger China and industrialize, they needed ways to encourage people to move into the cities. Over time, agriculture and the rural areas have been left behind. The cities have surged ahead, but the government has found it very difficult to change this household registration system. It creates these limitations on internal migration. It leaves these city dwellers getting more benefits. The people in the countryside are getting fewer benefits. But nobody quite knows how to pay for the better benefits for the countryside, and nobody really wants to take away the current benefits of those who live in the cities; no one is willing to give those up. So that's a very big challenge for China, and we see that challenge play out a couple of ways: One is in this tension between urban and rural; between the wealthy and the poor; between the industrial and the agriculture. And another way that plays out really is in the inability of China to move its migrant labor in an efficient manner. So you see migrant labor concentrated in certain areas that may have a surplus of labor now and other parts of the country that probably could use some of this semi skilled migrant labor, that have a dearth of labor and a dearth of workers because there's no real way to maneuver those populations around within the country. On the education front, this is another one of those leftovers from this household registration system. Again, it was one of the benefits in the urban areas and now that has been compounded as the urban elite become more wealthy; they pay more for extra classes, extra programs for their children and their children are able to go into the better universities.

Colin: At present one in eight people are over 60; by 2050, that'll rise to one in three. And the World Bank told me the aging problem is much worse in the provinces, where at present there are eight workers to support each pensioner. By 2030, that'll be down to three.

Rodger: Yeah I think the issue of the one child policy in some ways on a larger scale was successful in limiting the excessive growth of the Chinese population, and you're going to have fewer children to support the older population as you noted. You also have a problem in that the reform in the economics has gotten rid of, in some degrees, the broad-base state pension system — that concept of iron rice bowl that once you've started working somewhere you're always going to be getting your benefits. And that's shifted that burden back to the children, but with a one child policy, you have fewer people to support your aging population. They need to earn more money so you put more money up front into their education to try to get them into a higher position. And this again further benefits those who have the money and further harms those who don't have the money to begin with to try to be able to take advantage of these systems.

Colin: And you can't escape pollution in China, but some cities are much greener than they were. In Nanjing, they claim extensive tree planting and new park land has brought down almost summer temperature. And in rural areas, you find vast tree nurseries growing large trees. To be replanted in cities to absorb the carbon dioxide.

Rodger: The Chinese have recognized the problem of pollution for a while. And in some of the major cities they've been able to take steps to reduce pollution, but in some ways by simply moving the problems elsewhere. They shut down the factories that are close to the cities and then they move them out into the countryside and pollute there. That change in taking the rural areas and turning them into industrial areas has been a source of social instability in China for the past several years. But one of the interesting things as you note about the trees is that the Chinese are very aware of their problems. It is not that the Chinese leadership doesn't understand all of the various elements of problems, all of the various difficulties that they have within the country. They're very aware of them; they're taking many different steps to try to address them. The problem is I think for them is that there are too many of these problems. And they're not sure how to break down some of these social barriers that they've built up, how to better balance out the population, better balance out where it lives, how it gets money. We've seen, for example, in their attempts to urbanize, which is one of the core elements of the process of trying to bring in more domestic consumption, that in many cases the rural populations can't either afford to move into the new urban areas or even if they were able to move into the new urban areas, there's no employment for them or no employment that they are capable of doing. And therefore, they wouldn't be able to become part of this new consumption anyway.

Colin: Finally let's just briefly talk about corruption. While I was in Beijing, the former top tax official there was sentenced to death. But the practice of buying government jobs still seems widespread while individual businessmen who've done well are invited to share their wealth with officials or face prosecution.

Rodger: The closed system of government in China — the one-party system — has really led to the development and entrenchment of a nepotistic system. And it's all about the way in which people can use their relationships with one another in which they can interact with one another and exploit each other's relationships to get into the position. What this means though is that there's certainly rampant corruption. The population is recognizing that rampant corruption particularly at the local levels. And to preserve the sense of integrity of the Party, the Party has to act to make some show trials of high-level officials, crack down on some of the low-level officials, but in any investigation that they do they really can't go too far because in China the relationships are so very close to the web of relationships between various officials is so tight that as soon as you start unraveling one strand, it can very quickly drive all the way up into the state council to the premier to the president himself. And so they have to be very cautious because they want to show that the party is responsive to cracking down on corruption but the more that they crack down on corruption, the more they reveal that corruption is endemic to the party.

Colin: Rodger Baker, thank you. There's much more we could have talked about, but please follow our extensive and continual analysis on China on www.stratfor.com.