Why This May Not be China’s Century

Shanghai Skyline

The Shanghai Skyline, by dawvon (Pudong) via Wikimedia Commons.

Over the past few centuries, China has suffered its fair share of embarrassments.  From the Opium Wars to the Great Leap Forward, its hailed position as the middle kingdom has been eroded time and again.  Deeply engrained into the psyche of China’s populous is the belief that China must reclaim its position as a world power.  This stark contrast between China’s idealized status today, and the ruinous state of China a mere half-century ago, resulted in a cognitive dissonance among its populous that has no doubt been a strong catalyst for recent economic reforms.

Gradually implemented reforms such as dual-track pricing, liberalization of socialist policies, and expansion of investment between China and foreign powers has brought about three decades of maintaining nearly 10% growth rates, an extraordinary feat for a nation that was on the verge of collapse fifty years ago.

Its recent ascension as the world’s second largest economy, coupled with potential increases in domestic spending and widespread domestic and foreign investments, have led many to call this century “China’s century.” Yet this optimistic forecast quickly sours when one considers the slew of imminent crises confronting China over the coming decades.

Implemented to curb China’s booming population growth rate, the one-child policy is sowing the seeds of China’s demographic and economic crises.  With the vast majority of families proscribed from having more than one child, China enjoyed an enormous demographic dividend – defined as the economic benefit a country experiences when it has a low ratio of dependent to independent workers – over the past three decades.

This dividend is already starting to expire.  By 2050, 25% of China’s populous will be above the age of 65.  Attempts to solve the demographic crunch by relaxing the one-child policy will prove futile, as any increase in China’s birth rate will only reap modest effects some two decades from now.  Furthermore, as a consequence of this policy, China’s gender distribution has already taken a heavy toll.  A well-established trend in China is the preference of male rather than female children, which has resulted in scores of sex-selective abortions. With an estimated 30-40 million more boys than girls in China, millions of young bachelors will now be unable to find wives.  Add sexual frustration to their already bleak economic prospects, and millions of disgruntled male migrant workers will be even more inclined to take to the streets in the name of political protest.

In addition to economic stagnation and political upheaval is a housing bubble throughout the PRC.  Fueled by greed and overly optimistic homeowners, price to rent ratios across China have skyrocketed past stable levels.  Flawed social expectations have only exacerbated this impending bubble.  Across China owning a home is a prerequisite for finding a wife.  With millions of only children, bachelors are in a position to seek financial assistance from both parents and grandparents, and pay grossly inflated prices for real estate acquisition.  It is unclear how the Politburo plans to address the housing market’s impending crisis.  What is clear is that whether the housing market encounters gradual deflation or a bubble burst, China’s economic prospects will suffer as a result.

Government action to address widespread pollution will bring about similar economic decline.  Two winters ago, China’s AQI (air quality index) broke records when it surpassed 800. Prior to this incident, measures of AQI had never exceeded 500.  Across China, pollution’s wrath has affected the health and economic livelihood of its population.  In Beijing it is now common for parents to select their children’s schools based upon the quality of their air filtration systems.  One particularly noxious chemical, PM 2.5, is found in hazardous doses across Mainland China.  Until China adequately addresses this affront to its citizens’ health and well-being, it will continue to pay increasing social and economic costs.

In spite of China’s woes, there remains a chance at redemption.  This may not be China’s century in terms of economic and geopolitical supremacy, but it may be their century to pave the way for environmental protection, sustainable development, and economic and political reform.  In the words of Churchill, “Failure is never fatal, success is never permanent.  The only thing that really matters is never giving up.”  This of course assumes that China’s population of 150 million migrant workers doesn’t take to the streets, overthrow the Communist Party, and support a military coup.  That could just be the straw that breaks the camels back.

Hooray for Hollywood? – Where Hollywood Meets the PRC

Grauman's Chinese Theater Panorama

Grauman’s Chinese Theater. Samantha Decker (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

As more people move into the middle class in China, disposable income spent on goods and services will only increase. But disposable income extends far beyond goods and services, and to date some 300 million more people in the world are ready to start spending money on entertainment. In a 2013 study by Ernst & Young, the firm noted “spending on entertainment and recreation [in China] jumped from $350 billion in 2010 to $547 billion last year.” Because American content – whether television, film, or music – is universally revered, huge opportunities await US Media and Entertainment (M&E) companies in a region capable of hauling in more than $10 billion in value by 2017. Hollywood’s most successful films are reliably hitting the $100 million revenue mark at the Chinese box offices.

Well aware of these opportunities, American film studios have made China a top priority marking a dramatic shift in perceived foreign markets only a few years ago. Notably, Bank of America-Merrill Lynch Global Research released a study this year detailing these opportunities and reaffirmed that “from 2007-12, China’s box office has improved at a compound annual rate of 47% to $2.7 billion […] fueled by a 30% CAGR in screens […] The top 10 Hollywood films in China generated a steady 30% share of the 2012 box office.” Breaking down these statistics, 26% of the China box office goes to local films – roughly 560 Chinese domestic films get made every year – and 150 of those are released theatrically with only 70 becoming notable box office contributors. These statistics not only reflect the expanding local production industry in China, but also their preferential regulatory treatments standing as a major entry barrier for US film studios.

Along with preferential treatments, an import quota on Hollywood films makes for fierce competition among US studios. Before 2012, China capped the number of US films to be released in mainland cinemas at 20; only last year was President Obama able to get China to increase their quota to 34.

Looking to 2030, however, it is unlikely that China’s film quotas will disappear all together. With the Hollywood quota already maxed out for 2013, China’s domestic films have been able to flourish. As of November 25, 2013, Chinese films hit the $3 billion revenue mark with prospects of another late boost as cinemas rush for a photo year end finish marking a remarkable shift from a considerably more lackluster balance sheet just over a decade ago with FY2002 revenues below $164 million.

While still a burgeoning industry in China – America’s $385B industry dwarf’s the PRC’s $73.2b – Ernst & Young predicts Chinese M&E will grow 17% annually for the next five years. En masse injections of private capital have been the major driver, truly enabling the industry to soar. In 2013 alone, China built over 4,500 new movie theaters (over 10 per day) increasing their countrywide total to over 17,600.

A major bankroller in the industry has been Wang Jianlin who is Chairman of property giant Dalian Wanda Group Corp. along with being China’s richest man. Earlier this year he bought America’s second largest movie theater chain, AMC, for $2.4 billion. Following that, in November Wanda announced their plans to build China’s own version of Hollywood with a $4.9 billion to $8.2 billion investment in a mega-entertainment center. The Qingdao Oriental Movie Metropolis, or “Chollywood” as it is being called, will include 20 massive studio lots and is being supported by A-list stars such as John Travolta, Catherine Zeta-Jones, Nicole Kidman and Leonardo DiCaprio. With signing agreements with four top global talent agencies, by 2030 we could see a substantial “brain drain” from Hollywood into China. Because the US is unquestionable global hegemon in the entertainment world, the demand for American expertise in content, storytelling, marketing and distribution is very high in China. Yet, there is a great deal of doubt surrounding Wanda’s project.

China’s politicians have made clear that conceptual films portraying China in a negative light will have no market on the mainland, as highlighted in World War Z’s recent debacle with the PRC. In one of the first cuts of Brad Pitt’s zombie movie, there was a scene where his character concluded the zombie apocalypse originated in China. Fearing governmental backlash, Paramount producers changed the origin to South Korea. In sum, China wants non-controversial films that pay tribute to Chinese life and culture. However, even if Wanda’s “Chollywood” project is completed, and in 2030 China’s film industry becomes large enough that China no longer needs import quotas to achieve their growth objectives, the government’s intense and seemingly unrelenting relationship with censorship will become an impediment to future growth.

As stated above, out of the 560 films made per year in China, only 70 make it to the box office. Much of this is due to strict government examination. All 34 Hollywood films allowed in China also go through close inspections to ensure alignment with government principles. To mitigate potential issues with their films, US studios are increasingly re-editing content, and with some going so far as to shoot entirely different versions for a PRC release.

A recent example is Relativity Media’s 21 & Over, a story about a Chinese-American medical student besieged by parental-induced anxiety who chooses to alleviate exam stress by partying at a fraternity house. Before production began, Relativity Media told producers there would be two movies made, one for an American audience and one for a Chinese audience. With a vastly different storyline from the original plot, the movie’s director Jon Lucas said in an interview: “21 & Over, in China, is sort of a story about a boy who leaves China, gets corrupted by our wayward, Western partying ways, and goes back to China a better person […]” Hollywood is an industry where the realm of creative possibilities is endless. Studios have always strived to balance creativity with profits; movies like Gravity prove that you can have both, no matter how expensive. However, this question of balance is taken to new heights when looking ahead to 2030 and the inevitable interconnectedness that will define the China-Hollywood relationship.

At what point is the creative process impacted by geopolitical constraints that define China’s film market? The multi-billion dollar question facing Hollywood today is whether film studios can fully tap into the China market without marginalizing the creative process that should, and hopefully will continue to, define the industry.

The Bear and the Dragon

An hour outside of Mandalay in upper Burma (Myanmar), construction of the Sino-Burma pipeline tears through the thick jungle. The pipeline is a joint venture between China National Petroleum Corporation (CNPC) and Myanmar Oil and Gas Enterprises (MOGE) and is designed to ease China’s dependence on oil/gas transfers through the Strait of Malacca. (Photo Credit: Reid Lidow, All Rights Reserved 2012).

An hour outside of Mandalay in upper Burma (Myanmar), construction of the Sino-Burma pipeline tears through the thick jungle. The pipeline is a joint venture between China National Petroleum Corporation (CNPC) and Myanmar Oil and Gas Enterprises (MOGE) and is designed to ease China’s dependence on oil/gas transfers through the Strait of Malacca. (Photo Credit: Reid Lidow, All Rights Reserved 2012).

In recent months, international news has focused intensely on ominous developments in the East and South China Seas, along with the bloody sectarian dramas engulfing the Middle East. Conflicts across Africa, from Somalia to Nigeria to the Central African Republic, have also captured attention, though they remain largely under-reported in the Western press. Major political shifts between Iran, its neighbors, and the West, along with the confusion and unrest in the Ukraine as it seeks to define its relationship with its Eastern (i.e. Russia) and Western neighbors, rightly command the bulk of our attention as of late.

But in the midst of all this, beneath the eyes of a world preoccupied with clashes worthy of box office films, far subtler power plays are at work that will likely matter far more to the course of history than the flashpoints in Syria, Egypt, Somalia, and Ukraine. Consider foreign policy developments in Moscow and Beijing – though both states are plagued by internal unrest and beset by international humanitarian pressure, both states are clearly ascendant in their respective, and overlapping, neighborhoods. Their maneuvers in Asia will increasingly bring them into tension, and perhaps conflict, in the years to come. This is a development Americans should watch closely.

The tense relationship between the Bear and the Dragon in Russia’s Far East and China’s Northeast is legendary, from the days when exhausted Cossacks dealt with (and stole from) the Qing Dynasty. The Soviet Union propped up Communist states in Xinjiang and Mongolia while warlords, Nationalists, and Communists all squabbled over the ruins of China. When a Communist victory became apparent, the Soviets sought to make Red China essentially an arm of their global strategy, a relationship which Mao and his followers deeply resented. As the People’s Republic came into its own, it grew increasingly autonomous vis-à-vis patrons in Moscow, which would precipitate a series of violent border clashes in the late 1960s. Nixon and Kissinger’s skillful manipulation of this rivalry has been recorded in the history books. So fraught has been the relationship between the authoritarian giants that they only resolved their border disputes along the Ussuri River in late 2008.

The start of the 21st Century has seen a cooler, and on the surface more cooperative, Sino-Russian relationship. While the United States was distracted in Iraq and Afghanistan prior to 2011, both Beijing and Moscow began asserting themselves in their historic borderlands and defending each other’s positions. Their mutual condemnation of international interference in internal affairs, as seen with respect to Syria and Iran, seems to have pushed them closer together. Additionally, their alignment in the Shanghai Cooperation Association grants them at least hollow Eurasian authoritarian solidarity. Xi Jinping’s first foreign trip as President of the PRC was to Moscow; the diplomatic import of this visit should not be lost on us.

But the story does not end there. Important fractures continue to underlie the relationship, though they are far less tense in their present iteration. Russia and China remain powerful states with rising ambitions. Chinese-born workers and contractors take up a large share of the labor market within the Russian Far East province, and analysts estimate that the population of China’s border provinces is at least four or five times that of Russia’s border provinces. The immense resources of Russian territory are assuredly a powerful strategic draw for Chinese planners, and wary Russian policymakers strive to develop these resources without surrendering a total monopoly to the Chinese. What happens in this strategically critical region matters to Beijing and Moscow’s relationship.

Looking further afield, the Chinese and Russians are looking to balance their resources in the region to offset the other’s gains, though not explicitly. Russia has been working to improve its relations with South Korea, signing arms deals and free trade agreements far more generous than those it shares with its client states in Eurasia. To the South, Russia extended an invitation Vietnam, an old Soviet ally, to join its Eurasian Customs Union. To sweeten the pot, Russia has sold Vietnam refitted Soviet submarines. Looking West from Vietnam, the Kremlin is increasingly engaging with India, continuing to supply much of its military hardware while simultaneously negotiating bilateral energy deals. It is important to note that each of these three countries fought savage wars with China in the 21st Century and continue to engage in strategic competition with the dragon.

Russia’s grand strategy looks like a classic case of power politics. The ancient Indian strategist Kautilya argued that border states would always be enemies, and therefore states separated by a buffer would be natural allies. A brief glance at the map shows that China separates Vietnam and India from Russia, while South Korea borders China through North Korea, long China’s client state. Russia’s strategy is not necessarily bellicose, however as prudent statesmen have long recognized, when the time comes to exert pressure on another nation, it helps to have friends on that nation’s borders who fear and envy it.

Meanwhile, China continues its economic expansion and integration of the Asian continent. As has been widely reported, it initiated oil drilling in Afghanistan last year, making it the first energy investor in the war-torn state. Its pipelines crisscross Russia’s sphere of influence in Central Asia, traversing Kazakhstan, Uzbekistan, and Turkmenistan. China’s pipeline and highway projects in Myanmar stand poised to modernize that nation, while connecting the Indian Ocean’s trade directly to the Chinese heartland. Beijing also continues to provide security assistance to a Pakistan increasingly distrustful of the United States, and Pakistan hosts a Chinese port at Gwadar.

It is clear that the Chinese are concerned with boosting international economic development; foreign trade, especially in energy sectors, will be essential in sustaining China’s remarkable economic growth story as it seeks to pivot away from unhealthy domestic infrastructure spending sprees that have defined the last decade. But aside from being a mere cash cow, these foreign assets provide China with leverage in the host countries. That’s the power of the purse.

The new great game in Asia is not a particularly violent one, but it is an important one. As Russia and China rise and balance against each other, not unlike two scorpions in a jar, their interests are bound to clash. Policymakers in the US should continue to monitor these developments carefully as such problems will surely present challenges and opportunities. It is not hard to imagine American policymakers working with their Russian counterparts to contain a rising China while simultaneously working against an advancing Russia in contested regions such as Eastern Europe and the Middle East. American policymakers may even find themselves working more closely alongside their Chinese colleagues if the Xi Jinping era presents such an opportunity. The shifting geopolitical fortunes of Russia and China demand our statesmens’ most vigilant attention.

Xiaomi’s Expansion and the Test of Chinese Soft Power

Xiaomi is outselling Apple in the Chinese smartphone market, and recently announced its plans to expand globally. You may be asking: “Xiao-who?” Well, here is an introduction to the hottest tech company in China, their blueprint for expansion, and what this means for China’s growing “soft power” – a construct that emphasizes a state’s economic and cultural influence.

Xiaomi Founder at the Fortune Global Forum 2013. (via flickr: Fortune Live Media/ Creative Commons some rights reserved)

Xiaomi Founder at the Fortune Global Forum 2013. (via flickr: Fortune Live Media/ Creative Commons some rights reserved)

Ascent to Stardom

Xiaomi Inc. is an Internet service and consumer electronics company founded in April 2010 by Steve Job’s Asian twin, Lei Jun (see photo). Selling high-end smartphones at near production costs, Xiaomi has challenged Asia’s top smartphone providers in the Chinese, Taiwanese, and Hong Kong markets. In the second quarter of 2013, Xiaomi became the fifth-largest supplier of handsets in Mainland China. In August, Lei poached top Google executive Hugo Barra to orchestrate Xiaomi’s global expansion. And shortly thereafter, a “flash sale” of 100,000 Hongmi-model smartphones ($135 compared to the $750+ iPhone) sold out in 90 seconds. In October, Xiaomi sold 100,000 of the luxury Mi3-model smartphones ($327 for 16GB or $410 for 32GB) in 83 seconds. Less than four years after incorporation, Xiaomi has gained Apple-like popularity and a market valuation at $10 billion (equal to Lenovo or double that of Blackberry). Xiaomi executives project smartphone sales in the neighborhood of 20 million units by year’s end.

International Expansion

But they aren’t satisfied. At a recent media event in Taiwan, Lei and Barra announced their expansion into the Southeast Asian market, specifically Singapore and Malaysia. Why? Singapore and Malaysia have the necessary technological (network coverage) and regulatory (welcoming governmental and legal institutions) infrastructure for Xiaomi’s entry. Further, the people of Singapore and Malaysia are smartphone fanatics. Smartphone penetration in Singapore and Malaysia is at 87% and 80% respectively. Comparatively, the United States is at 60%.

Xiaomi may succeed in its initial expansion—despite entering a saturated market—for four reasons:

  1. Fandom: “Flash sales,” and the social media blitzkrieg surrounding these events, have generated frenzy among middle-class shoppers eager for the newest smartphone. Further, Xiaomi allows its customers to actively shape its software platform. Miui, a spinoff of Google Android software, is updated nearly every week based on the suggestions of its 5.1 million members. Client-customer collaboration has boosted Xiaomi’s popularity in China and promises to do the same in Southeast Asia.
  2. Increased competition: Samsung has run a near monopoly in the Southeast Asian smartphone market. But three Asian companies, Huawei, Lenovo and LG, are challenging its dominance and eating away at its market share each successive quarter. Xiaomi could benefit from an increasingly diverse market.
  3. Subsidies: Singaporean and Malaysian telecom operators offer smartphone subsidies. Thus, Xiaomi phones could be free with the purchase of a contract—an enticing offer for those who disheartened by the larger sticker price of a Samsung or Apple handset.
  4.  Apps: Singaporeans and Malaysians love apps. In fact, they score highly (Singapore at number one) in the World Mobile Readiness Index, a metric that calculates a population’s willingness to pay for mobile apps. Singaporeans’ and Malaysians’ willingness to pay for apps perfectly accommodates Xiaomi’s business model. Xiaomi has razor-thin profits on smartphones (compared to a company like Apple that has a 55% profit margin on the iPhone) and therefore relies on apps and accessories to generate profit.

Litmus Test

Xiaomi’s success in Singapore and Malaysia will be indicative of its potential success outside the Chinese mainland. Xiaomi has thrived in the Chinese market where Apple holds less than 5% market share and Google Play (Google’s “App Store”) is not officially available. How Xiaomi competes in areas where Apple and Google have a stronger grip will be telling. If unsuccessful, Xiaomi will likely retreat to China. If successful, look for Lei and Barra to deepen expansion in Southeast Asia, particularly in the Philippines—a country with a higher Mobile Readiness score than Malaysia and Hong Kong yet with only 15% smartphone penetration. The Filipino market would be wide open to an injection of Xiaomi products.

China’s difficulty in accumulating soft power has been well documented. However, much to the chagrin of some Americans, China’s soft power, particularly its global economic influence, is on the rise. A burgeoning tech market has begun to stimulate international growth for a number of Chinese companies (think Lenovo, Baidu, and Haier). Xiaomi’s success in Southeast Asia could demonstrate or precipitate greater success of Chinese companies in foreign markets. As a result, Chinese communication technology may attain the “cool factor” of Apple or Samsung products—which are widely regarded as fashionable and reliable. In short, Xiaomi may trigger consumers of Chinese tech products around the world to begin prizing the “Made in China” tag rather than associating it with mediocrity. And such a rise in economic influence is a necessary characteristic of any great power.

Deciphering The Third Plenum Report

The Key to Addressing Reforms When You Have No Intention of Implementation

18th National Congress of the Communist Party of China

18th National Congress of the Communist Party of China. By 东方 [Public domain], via Wikimedia Commons

The hardest thing about running an authoritarian regime is assuaging the population’s desire for reform without actually doing so. It’s a tricky tightrope act that only the most agile of leaders can master. China’s recent Third Plenum of the 18th Party Congress captured this balancing act in action. Unlike the Third Plenum of the 11th Congress in which Deng Xiaoping clearly articulated a set of free-market, economic reforms, this most recent meeting was a charade. The document released after their three-day meeting, known as the Plenum Communiqué, contained some legitimate calls for change. The only problem was that even in its original language the document is incomprehensible; it lacks coherent solutions and legitimate policy reforms. A drug addict with a monkey stenographer might have been able to pound out a piece of similar – or perhaps greater – substance.

To be fair, identifying necessary reforms in a country plagued by environmental issues, social and economic inequality, and political malfeasance is no easy feat. If Xi Jinping, Li Keqiang and their band of merry men released a statement with too many calls for reform and policy changes, the bar would be set unreasonably high. At the same time, if in the Third Plenum they called for insufficient changes there would be tremendous public outrage that might precipitate political activism.

In this case, being vague is the best approach. If China’s leaders prescribed legitimate reforms for their economy and political systems, just think of the instability it might prompt. The millions of migrant workers who are denied health insurance, educational opportunities, and economic freedom would get overexcited. Calls to curtail environmental pollution would give the millions of Chinese who live in cities with toxic PM 2.5 levels such a sense of relief that they might pass out on the streets during rush hour, dying of asphyxiation from exhaust fumes. Discussing democratization or even more transparency in government might distract Foxconn workers from assembling iPads. It is clear that rushing into reforms without proper thought and consideration is a bad decision for a country still in the early phases of development.

Engaging In Premature Reform is Dangerous

For now the safest way to engage in reform is by avoiding said reform at all costs. They say the longer you wait for policy changes the better they feel. The right time for reform implementation, however, remains unclear. One can’t simply engage in pre-hegemonic reform. At the moment, the party is simply waiting for that special generation to come along. The wait of course will be worth it.
China’s 18th Party Congress can’t be upfront about the fact that reforms may be only attainable in the far-away future. China’s 1.3 billion people are bursting with all kinds of desires to experiment politically, economically and socially. If China was too upfront about its intention to postpone reform, there might be a nasty schism and nationwide protests. And it isn’t that the Communist Party doesn’t want to reform with its people. It just doesn’t feel ready.

How to Lead on Your Population in the Most Effective Way

Sure you can’t engage in it, but you definitely can talk about it. Even just saying the word over and over can excite your countrymen enough without succumbing to their desires. It’s for this reason that in the Plenum Communiqué there was a lot of mention of reform and other words that are sure to excite its disgruntled, frustrated citizens. According to a press release by the Beijing News, no prior Third Plenum report had as many uses of the word ‘reform’.

The Plenum stressed that to comprehensively deepen reform, we must hold high the magnificent banner of Socialism with Chinese characteristics, take Marxism-Leninism, Mao Zedong Thought, Deng Xiaoping Theory, the important ‘Three Represents’ thought and the scientific development view as guidance, persist in beliefs, concentrate a consensus, comprehensively plan matters, move forward in a coordinated manner, persist in the reform orientation of the Socialism market economy, make stimulating social fairness and justice, and enhancing the people’s welfare into starting points and stopover points, further liberate thoughts, liberate and develop social productive forces, liberate and strengthen social vitality, firmly do away with systemic and mechanistic abuses in all areas, and strive to open up an even broader prospect for the undertaking of Socialism with Chinese characteristics.

Chinese readers must have gotten excited just reading this. “Persist…”, “concentrate…”, “stimulate…” This proactive language would leave any reform-deprived person brimming with optimism, if only for a while. One Chinese blogger wrote, “In the end it’s not important whether the document is consistent from beginning to end, because everyone can find what they need in it.” So long as Chinese citizens are satisfied with their government toying with reform, the Communist Party may be able to kick the can down the road and refrain from true policy changes for some time. Sure, citizens’ reform frustrations will continue, but at least everyone can be assured that no one is rushing into any big decisions.

China’s “Floating Population”

China is faced with an internal migration crisis, the scale of which cannot be ignored. In 2012, China’s internal migratory population (both inter- and intra-provincial) exceeded 250 million people. Within that population, those without household registration—effectively illegal aliens within their own nation—known as China’s “floating population” (流动人口), exceed 160 million. Predominantly rural-to-urban migrants moving to the industrial centers of China’s eastern seaboard, this “floating population” is the disadvantaged lifeblood of the Chinese economy.

Since the explosion of internal migration in the 1980s, China’s economy has triumphed (albeit at the expense of the environment), enjoying GDP growth in excess of 10% a year. The government too has implemented sweeping economic reforms to allow for greater growth of both state and private industries. The rich have gotten richer (China is second only to the US in the number of billionaires), and a substantial middle class has emerged (roughly 300 millions citizens). , Yet little has been done for a migratory population larger than the populations of Germany, UK, France, and Italy – combined! They suffer the highest rates of HIV, illiteracy, and crime in China. Their estimated 37 million children are severely undereducated.

Migrant workers assemble computer hard drives at the Seagate factory in Wuxi, China, November 6, 2008. In the last thirty years, tens of millions of rural citizens have immigrated to manufacturing centers in eastern China in the hope of earning higher salaries. (Wikimedia Commons/Robert Scoble)

The government’s current system is clearly broken, but why? And why isn’t the government helping?

The migration crisis is exacerbated by an outdated household registration policy, known in Mandarin as hukou (户口). Promulgated in 1958 by Chairman Mao, hukou operated as a method of controlling the labor force of China. Further, like the Soviet propiska system, hukou served as an internal passport, categorizing citizens as ‘rural’ or ‘urban’, ‘farmer’ or ‘intelligentsia’. Mao was keen on tracking potential dissidents, but moreover preventing mass migration of the peasantry to the industrializing cities. Rural citizens who moved and worked in urban neighborhoods were deemed illegal aliens and denied any welfare privileges associated with citizenship.

A household registration identification card, August 2, 2006. The hukou system is effective in establishing a social apartheid between the 90 million migrants who have proper paperwork, and the 160 million who do not. (Creative Commons/Micah Sittig)

Since the era of Deng Xiaoping, the pace of economic liberalization has been brisk, yet liberalization of labor policy has lagged behind. The Politburo rightly feared that if the poor migrated to the cities in droves, civic institutions would be placed under tremendous financial stress—stress to provide adequate health care, education, water, etc. to an increasingly congested urban environment. Several reforms notwithstanding, (such as allowing inheritance of hukou to pass from father and/or mother, as opposed to solely the father, and temporary urban residency permits for migrants), migration policy is remarkably similar to what it was in 1958. The results are catastrophic for the more than 160 million “floating” workers in the urban areas of China. They live without any civil protection from the state, while employers and the state profit from their “illegal” labor.

Why has the government failed to act on the cries of their main labor force? The answer can be divided into two parts.

The first, and most blunt point, is that the People’s Republic of China is an oppressive state. The government frequently incurs human rights violations, including denying migrants health insurance, jailing dissidents, censoring the Internet, and preventing religious freedom. Although the economy has liberalized significantly, much of China’s rule of law remains backward.

The second reason is that the government still shares Mao’s fears from 1958: the abolishment of the hukou system could lead to mass migration from rural areas and strain on urban areas. The sheer cost of providing social services to an additional 160 million people frightens the government from attempting any serious reform. Urban centers like Beijing, Shanghai, and Shenzhen are already suffering from the side effects of overpopulation. From where would the money and space to educate, treat, and train 160 million people come?

So why doesn’t China’s “floating population” protest and demand an end to internationally recognized human rights abuses? In part, because in many cities, migrants have indeed succeeded in acquiring wage increases and safer working conditions. The government continues to provide sufficient improvements to the workers just to prevent a nationwide revolt (e.g., Chengdu has eliminated urban welfare barriers as of 2012). In addition, the workers are terrified that challenging the state could result in physical or financial harm for them and their loved ones.

In an age where an increasing number of Chinese are connected to social media (and able to bypass government controls), will China experience an “Arab Spring”-esque event? Or will the state continue to restrict the benefits to migrants, leaving INGOs (international non-governmental organizations) to provide essential social services to China’s labor force? Unfortunately for those suffering from this crisis, and the estimated 100 million additional rural-to-urban migrants expected by 2020, there is no clear answer.