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Minxin Pei - Contradictory Trends and Confusing Signals - Journal of Democracy 14:1 Journal of Democracy 14.1 (2003) 73-81

Contradictory Trends and Confusing Signals

Minxin Pei

Assessing China's adoption of capitalism and predicting its future have become enormously daunting. On one hand, rapid economic growth, massive social transformations, and relative political stability in the past two decades provide grounds for optimism. On the other, the growing gap between the country's increasingly open and market-oriented economy and its closed political system, along with the increasing strains generated by an unprecedented pace of socioeconomic change, raise concerns about the sustainability of Chinese policy. The country's transition from communism poses an especially tough intellectual challenge because this transition has at once closely followed and starkly defied world economic and political trends.

Economically, the ruling Chinese Communist Party (CCP) was the first major communist regime to embrace radical reform despite a lack of experience, knowledge, or internal ideological consensus. Its learning-by-doing approach yielded quick economic rewards, while avoiding the short-term disruptions that more drastic reform measures would have caused (as they did in the former Soviet bloc in the early 1990s). Over time, economic reforms have allowed for China's integration into the world's trade and financial systems. Rapid economic growth generated by liberalization not only propelled Chinese development at an unprecedented pace; it also catapulted China to the top ranks of trading nations. China's 2001 entry into the World Trade Organization (WTO) is the most convincing illustration of the Chinese leadership's commitment to [End Page 73] economic globalization. But unlike the majority of developing countries that appear to have reaped only meager benefits from globalization while paying a steep price (Argentina being the best example), China (along with India) seems to have avoided globalization's main pitfalls: For one, China has taken advantage of trends in free trade and capital flow to develop competitive manufacturing capabilities aimed at world markets, and has leveraged its pro-investor policies and market size to attract heavy foreign direct investment (FDI). Moreover, the Chinese leadership has retained its ability to intervene in the marketplace and, consequently, avoided the catastrophic mistakes made by developing countries that have fully embraced neoliberalism. 1

Politically, China's experience over the last two decades also stands out. Its transition from orthodox (Chinese) communism began roughly at the same time as the early phase of the "third wave" of democratization in the developing world. The leadership's commitment to one-party rule and its antipathy toward democracy has meanwhile been notable for its explicitness, but also for its ferocity. Unlike most third-wave countries that pursued economic reform in order to consolidate democratic rule, the CCP did not attempt to conceal its intention of using economic reform in order to strengthen and perpetuate its own political monopoly. To be sure, the Party has embraced several leading global political trends, such as legal reform and the decentralization of power. But these institutional reforms have not substantively altered the defining characteristics of the CCP or led to any real democratic changes.

The resilience of the regime was demonstrated repeatedly as the Party weathered a series of internal and external challenges to its survival. Its near-death experience at Tiananmen Square in the spring of 1989 and its shock at the fall of communist regimes in the former Soviet block shortly afterward appear to have spurred the regime to undertake bold new economic reforms in the 1990s—enabling it quickly to regain its footing and reassert political control. The Party's new survival strategy, maintaining one-party rule through accelerated market reforms, appears to have worked. China has sustained high rates of economic growth and political stability. Nothing, meanwhile, has forced the CCP to loosen its grip on political power and adopt democratic reforms—whether the deterioration of its external strategic environment following the end of the Cold War, the third wave of democratization, or increasing uncertainties in Sino-U.S. relations. Instead, Chinese leaders seem only to have grown more sophisticated in coping with an international community dominated by Western democracies, leveraging its new economic power and strategic influence to divide the international coalition of democracies and ward off external pressures on China's human rights practices.

Despite its economic achievements in the 1990s, the country's economic, social, and political trends indicate intensifying internal strains and raise questions about the sustainability of the status quo. In the economic [End Page 74] realm, even China's impressive macroeconomic performance (high growth, low inflation, and solid external balances) cannot disguise several key structural weaknesses. First, the country's financial system remains fragile, weighed down by a mountain of bad debts in state-owned banks (commonly estimated at between 25 and 50 percent of GDP). Second, China's long-term fiscal health is a cause for worry on account of rapid increases in public debt, huge contingent liabilities (such as unfunded pensions and assumed state guarantees for bad loans in state-owned banks), and low levels of tax revenue relative to GDP (about 17 percent in 2001). 2 Third, the unemployment situation is grim, with 30 million workers in bankrupt state-owned enterprises (SOEs) having lost their jobs since 1998 (see Dali Yang's article on pp. 43-50) and 20 million urban new job-seekers looking to enter the labor market each year. China's WTO accession may bring long-term benefits, but is widely expected to exacerbate short-term strains, especially job losses in the areas of industrial imports and agriculture which threaten to leave millions of workers in SOEs and farmers unemployed. The fourth economic problem is, though less well-known in the West, perhaps the most difficult for China to deal with: stagnant rural income. Chinese farmers were among the first to benefit from economic reform. The dismantling of collective agriculture in 1979-82 was an institutional revolution that led immediately to a large, one-off increase in agricultural productivity—and subsequently, a rural industrial drive coming from township and village enterprises—that drove up rural income levels. But starting in the mid-1990s, rural income began to stagnate as rural industrialization started to run out of steam.

Socially, the Chinese government also faces a number of new challenges. Foremost among them is a marked increase in income inequality (see An Chen's article on pp. 51-59). Although estimates vary, there is little disagreement that income inequality in China has reached an unprecedented level. In the case of other highly unequal societies, rising inequality tends to contribute to social tensions and political instability (although the political mechanisms through which such problems are created remain poorly understood).Should the trend of rising inequality continue, China is likely to experience similar tensions and instability. Furthermore, as a rapidly modernizing society in which traditional ties are fraying and state control is declining, China is experiencing new social strains generated by rising crime rates, massive internal migration, and the erosion of family-based ties (see Shaoguang Wang's essay on pp. 36-42).

Is the CCP's strategy of maintaining one-party rule through market reform tenable in the long term? As the articles in this edition of the Journal of Democracy demonstrate, there are sharp divergences in opinion among leading analysts of China over the Party's ability to maintain its control through reform or adaptation. Of course, such divergences are inevitable given China's size, diversity, and divergent political and [End Page 75] economic trends. But the most contentious issue among these analysts is whether the Chinese political system is undergoing a process of renewal or one of decay. Andrew Nathan, Dali Yang, and Gongqin Xiao present evidence of important institutional and ideological renewal and adaptation, and argue that such developments bode well for the sustainability of the regime's neoauthoritarian strategy.

Arrayed against the school of "political renewal" are analysts who see abundant signs of political decay. Bruce Dickson, Shaoguang Wang, and Bruce Gilley point to signs of deterioration in China's party-state, warning of systemic weaknesses inside the regime. An Chen singles out the erosion of the CCP's social base as an especially serious threat to the ruling party's long-term prospects. Qinglian He, a former Chinese journalist, describes the status quo as one of "volcanic stability," hinting at a high probability of regime collapse.

Political Renewal:
The Case for Optimism

Since China inaugurated its economic reforms in the late 1970s, the CCP has allowed limited institutional reforms to ease market transactions, rationalize decision making, and increase internal stability. Broadly speaking, these reforms have had four purposes: strengthening the legislative branch, building a modern legal system, instituting village elections, and loosening control over nongovernmental organizations. Although the pace of these reforms has been uneven (faster, for example, in the 1980s than in the 1990s), and although their progress has varied across institutional arenas and geographical locations, they have nevertheless led to important changes in the Chinese political system—changes that have made the regime more flexible and responsive, and arguably, in the long term, stronger.

In Nathan's judgment, there are four aspects of institution-building that the post-1979 CCP has undertaken with considerable success: 1) the fostering of new elite norms governing succession politics; 2) the promotion of elites based on meritocracy rather than factional affiliations; 3) the differentiation of institutional functions at the top; and 4) the establishment of new participatory institutions at the grassroots level. While these efforts have fallen far short of democratic reform, they have contributed to elite unity, government effectiveness, and regime legitimacy. Of particular significance is the "normalization" of succession politics, given that the lack of norms governing political succession has been widely accepted as the Achilles' heel of authoritarian regimes. The decisive test case is, without doubt, the transition from Jiang Zemin to Hu Jintao currently underway in Beijing. Whereas Western media reports are full of stories of political intrigue and uncertainties that surround the succession, Nathan sees "the most orderly, peaceful, deliberate, and rule-bound succession in the history of modern China." [End Page 76]

Two other aspects of institution-building that govern elite politics inspire optimism. One is the principle of meritocracy in the appointment of senior leaders. In examining the career achievements of incumbents and their prospective successors, Nathan finds that these leaders have risen largely through demonstrated administrative competence rather than factional affiliations. The other is the specialization of policy portfolios at the top. Contemporary differentiations of function among specialists represent a huge step forward from the Maoist era, when decision making was not only extremely centralized but also controlled by senior officials who lacked expertise in their policy areas.

Moreover, in the implementation of legal reforms and village elections, the CCP has developed "input institutions," political mechanisms that help the regime respond to public needs more quickly and effectively. Citing recent public opinion data, Nathan argues that the current regime enjoys a high level of popular support, disputing the widely held notion that the CCP has lost its political legitimacy.

Whereas Nathan's work focuses mainly on institution-building within the ruling party, Yang examines China's recent efforts to strengthen its state and concludes that they have yielded genuine progress. Yang's argument is especially noteworthy because state capacity is a central factor in any attempt to evaluate the sustainability of China's neoauthoritarian strategy.

Yang bases his proposition that the Chinese state is growing stronger on his prior assessment of Beijing's recent efforts at rebuilding the state's governing institutions. These efforts have, he thinks, borne significant results, even though they have largely escaped notice in the West. As a result of these reforms, China's state capacity has been enhanced in three particular areas: First, since the mid-1990s, the government has reasserted central control over the national fiscal system by reversing the dramatic decline in tax revenues over the last two decades. Second, Beijing has successfully implemented a series of administrative reforms that has led to a higher degree of rationalization and specialization within the bureaucracy. Third, through the establishment of a set of new regulatory agencies, the Chinese state has improved its regulatory capacity, particularly where it comes to maintaining order in market activities and financial stability.

The contribution by Gongqin Xiao, one of China's leading conditional proponents of neoauthoritarianism, deserves special attention. Whereas Nathan and Yang see institutional renewal as the principal source of stability and progress, Xiao identifies ideological depolarization and the emergence of a new political center as the two underlying factors that can sustain the CCP's neoauthoritarian strategy. In Xiao's view, the ideological political clashes of the 1980s, which culminated in the Tiananmen Square crackdown in 1989, were caused by two polarizing ideologies: Western-style "reformism" and orthodox communist [End Page 77] "leftism." A series of events—ranging from the late Deng Xiaoping's call for radical economic reform in 1992 to the exit of the conservative old guard from the political scene, and further to the collapse of communism in the former Soviet bloc and resultant political and economic traumas—gradually undermined support for both "reformists" and "leftists" and discredited the values espoused by each.

Another development, parallel with ideological depolarization, was a realignment of interests in China that led to the emergence of a solid political center. Composed of moderate technocrats, this new center comes principally from an emerging middle-class—specifically, from the ranks of private entrepreneurs, white-collar workers inside foreign-owned companies, and college professors. Xiao argues that China's new middle-class is not a challenger to the neoauthoritarian regime but actually its new social base. This unexpected realignment between a neoauthoritarian political elite and a new social elite is based on the overlapping interests of each in maintaining the status quo and on their shared fears of the dangers posed by radical "reformism" and extreme "leftism."

Should this new political center hold, China's neoauthoritarian model will remain viable. In the policy realm, China's technocratic elite is expected to continue with its pragmatic approach to economic reform, while the moderate core of the country's emerging social elite will deprive radical anti-regime forces of political leadership and material support. Ironically, Xiao sees bright prospects for democratic evolution under this mature neoauthoritarian regime. Social pluralism, political moderation, and order under strong state authority are the three factors that he expects will contribute to a gradual democratic transition in China.

Political Decay: The Case for Pessimism

Gilley and Dickson doubt whether the CCP has reached as high a level of institutionalization as Nathan has argued. Gilley believes that there is not enough evidence to suggest that the CCP has made any significant progress in the way of institutionalization. Because the CCP has fundamentally failed to address the problem of its hyper-concentration of power, Gilley forecasts a continuing erosion of institutional norms within the CCP, even after the CCP's Sixteenth Congress of November 2002. The symptoms of hyper-concentrated power are reflected in the constant violation of norms and rules governing elite promotions and the assignment of policy portfolios, as the more powerful members of the ruling elite (including nominally retired elders) dominate decision making and appoint loyalists regardless of their abilities. Gilley also challenges Nathan's assertion that the CCP has built effective input institutions in, for example, village elections, local legislatures, or petitions, noting that the performance of these institutions is at best uneven, and so that their role in making the regime more responsive is at least questionable. [End Page 78]

Looking at the same issue of institution-building by the CCP, Dickson makes a careful distinction between the processes of institutionalization and adaptation. The focus of his analysis is the CCP's efforts to shore up its social base through the cooptation of new elites (such as private entrepreneurs). These efforts have been made necessary by the erosion of the CCP's traditional base of support within Chinese society (among workers and peasants), as social change and economic reform have eroded the socioeconomic infrastructure that undergirded the Party in the Mao era. Cooptation—the political inclusion of new social elites—is merely a survival strategy taken up by the ruling party to adapt to a new social reality. As in the case of other institutional reforms initiated by the CCP, the goal of cooptation is to ensure the Party's political monopoly, not to promote democratization. Indeed, in Dickson's view, the successful cooptation of emerging social elites by the CCP will only obstruct any democratic transition. Dickson's is an explicit criticism of the "modernization" school that emphasizes the role of new social elites in the emergence of democracies generally. If China's authoritarian regime can include these elites in its patronage system, economic change alone is unlikely to generate the political forces necessary for regime change. Dickson's view echoes Xiao's argument about the emergence of a new political center. But whereas Xiao thinks that this inclusion will make Chinese politics more pluralistic and prepare it for an eventual transition to democracy, Dickson believes that the new center will only help the Party defend its authoritarian rule—leading him to conclude that genuine democratization in China will not occur under the continued political dominance of the CCP.

Shaoguang Wang, whose work on declining state capacity influenced China's policy-makers in the mid-1990s, again calls our attention to the weakness of the Chinese state. The evidence presented by Wang contradicts Yang's assertion that the CCP has succeeded in reinvigorating its governing institutions in recent years. Citing a long list of symptoms of declining state capacity (such as rising crime rates, falling tax revenues, the erosion of core national values, ineffective regulation, the fragmentation of political authority, and rising inequality), Wang tries to demonstrate that the Chinese state, as measured by his criteria of effectiveness, is ailing (if not failing outright), causing a "governance crisis" that could pose a fatal threat to national unity and political stability in the event of a transition to democracy. But Wang's prescription for treating the ailments of the Chinese state seems to imply two conclusions that are not easy to reconcile. On one hand, he places top priorities on strengthening China's state-capacity (without offering specific suggestions) and warns that democratic reforms aimed at restraining state power could make the Chinese state even weaker and eventually doom the prospects of a successful democratic transition. On the other, he advocates a strategy of "democratic state-building," a two-pronged process [End Page 79] of strengthening state capacity and institutionalizing "inclusive participation" and "public contestation" (which appear to resemble the type of democratic reforms he is worried about).

An Chen's contribution casts doubt on the durability of the new political center that Xiao characterizes as the bedrock of China's stability. To some degree, Chen shares Dickson's view that the cooptation of new social elites is the CCP's most effective strategy for maintaining its support within Chinese society. He also agrees with Dickson that China's nascent social elites are unlikely to champion the cause of democracy. But Chen believes that the formation of a coalition between the CCP and new social elites alone does not solve the problems created by emerging social cleavages in China, since rising inequality has made the two largest social groups—workers and peasants—relatively worse-off. More importantly, these two mass groups could be radicalized by their exclusion from the benefits dished out by the authoritarian regime, by rampant official corruption, and by increasing economic polarization, leading to widespread social instability. According to Chen, the CCP faces an impossible dilemma: It cannot win back the masses through wealth redistribution without alienating the newly rich groups it has coopted in recent years. Socioeconomic polarization will thus continue and could lead to a vicious cycle of regime repression and mass revolt.

Qinglian He's prognostication is even bleaker than Chen's. In He's judgment, the CCP is morally and politically bankrupt, and has maintained its rule primarily through coercion and cynical political manipulation. Besides its violation of human rights, the CCP has also ruined China's environment, caused the country's moral decay, and adopted policies that have led to an unprecedented rise in inequality. In particular, He appears to be disillusioned with China's intelligentsia, most of whom appear to have been bought-off by the regime, while those few who have remained independent have been effectively silenced by the secret police. She is equally disheartened by the ineffectiveness of grassroots resistance, as workers and peasants have managed only to organize localized protests that the government has been able easily to crush. In the meantime, massive corruption—especially in the financial sector—is fatally undermining the Chinese regime's economic foundations. Accordingly, He provocatively characterizes current conditions in China as resembling "volcanic stability," intimating a high probability of regime collapse.

Peering into China's Uncertain Future

Over all, these differing, if not contradictory, assessments of China's political trends raise more questions than they answer. But it is clear that political renewal is still a work in progress while political decay has yet to reach a terminal stage. It is also possible that one will parallel [End Page 80] the other—that the Chinese regime will experience both renewal and decay, albeit in different sectors and geographical locations. The most important question, then, is: Which process will ultimately overtake the other? There are, in particular, three critical tests that await the Party in its race against time.

The first is whether it can fully consolidate new elite norms and expand its social base. Alas, it appears to have failed this test already. Its Sixteenth Congress did not result in a clean transition of power. Jiang Zemin, the former general secretary of the CCP, not only retains his position as the chairman of the Central Military Commission, but also has placed six of his loyalists on the Politburo Standing Committee, the CCP's top decision-making organ. The outcome of the Sixteenth Congress has dramatically increased the level of political uncertainty for the next three to five years. And such uncertainty is apt to prevent reforms aimed at making intra-CCP politics both more competitive and more rule-based. The likely political paralysis at the top may also hamper the ruling party in its efforts to rebuild its social base.

The second test is whether the CCP can strengthen the Chinese state (which, as a monopolistic party, it alone is in a position to do). By this test, the mere establishment of new functionary state institutions may not be sufficient. The most difficult—and, skeptics would say, impossible—task is for the Chinese state to become "normal," rather than a "party-state," by overseeing the Party's withdrawal from the state apparatus. For it is unlikely that state institutions, such as the courts, the military, and tax agencies, will gain true autonomy as long as they remain subservient to the CCP.

The final test is whether the CCP can expand its efforts to develop what Nathan terms "input institutions" so that it can respond more effectively to the needs of China's increasingly dynamic and diverse society. Specific measures would include allowing more press freedom, improving village elections, expanding elections to township levels, and making local legislative elections more competitive.

Under current circumstances, the CCP is unlikely to take these steps since they would require the Party to exercise its power in untried ways, even to risk giving up some power (albeit in the name of governing more effectively). As things stand, those predicting the regime's political renewal may have the harder case to make.


Minxin Pei, senior associate and co-director of the China Program at the Carnegie Endowment for International Peace, is the author of From Reform to Revolution: The Demise of Communism in China and the Soviet Union (1994). He is completing a book entitled China's Trapped Transition: The Limits of Developmental Autocracy. His articles on China have appeared in Foreign Affairs, Foreign Policy, China Quarterly, Modern China, and the Journal of Democracy.


1. Among these mistakes have been premature mass privatizations that have led to the transfer of assets to insiders, and excessively tight monetary policies that have resulted in large output losses and high unemployment. See Joseph Stiglitz, Globalization and Its Discontents (New York: Norton, 2002).

2. See Financial Times, 29 October 2002.

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