As China’s Communist Party turns 100, economic challenges loom

As the ruling Communist Party celebrates its 100th anniversary this week, China’s leaders face formidable economic challenges, from falling birth rates and income inequality to rural-urban opportunity gaps.

China’s leaders steer clear of the phrase 'middle-income trap' - a condition where a country fails to reach a higher, more developed status - but that’s where the country could end up if leaders fail to address those fissures [File: Carlos Barria/Reuters]

Shenzhen, China –  Private education companies that provide extracurricular lessons to legions of Chinese children are in the crosshairs of the government, as officials seek to ease pressure on students and the financial burden on families.

Though aimed at private tutoring firms, the crackdown is symptomatic of wider systemic problems facing China as the ruling Communist Party celebrates its 100th anniversary this week.

Falling birth rates and a rapidly ageing population spell trouble for China’s future economic growth.

Income inequality, regional economic divides, and wide gaps in opportunity between rural and urban citizens were issues highlighted by China’s President Xi Jinping in a late January speech as pressing matters the nation must tackle to reach what he called an era of “common prosperity” in the coming years.

China’s leaders steer clear of the phrase “middle-income trap” – a condition where a country fails to reach a higher, more developed status – but that’s where the country could end up if leaders fail to address those fissures.

Xi’s remedies – better income distribution, education, social security, affordable medical care, housing, elderly care, child support, and quality employment; also mentioned in the same speech – are many of the same wants as most working families and youths.

Current structural and political barriers, however, may be too formidable to deliver those policies unless deeper reforms are implemented beyond piecemeal efforts such as lifting restrictions on the number of children families can have or trying to mandate less homework for school-age children.

They will be expensive and will likely need the country’s most wealthy to pay heavier tax rates, either through property taxes or capital gains taxes. But implementing such policies is fraught with peril. Do it too fast and could lead to capital flight, problems in the white-hot property market and financial system disturbances that do more harm than good.

Income inequality, regional economic divides, and wide gaps in opportunity between rural and urban citizens were issues highlighted by China’s President Xi Jinping in a late January speech  [File: Qilai Shen/Bloomberg]

And there are other structural barriers. The country’s hukou system ties social benefits to a family’s rural or urban hometown, and the overemphasis on the gaokao – standardised exams – determine whether students can advance to university and achieve higher rates of economic success.

Growing pressures on parents and students over the past decade have increased the necessity to reform these systems as incomes have stagnated and social mobility has ossified.

That shift has given rise to much-discussed social conditions in recent months: tangping – or lying flat  – an action of making as little effort as possible to get by, and its partner philosophy of “involution” – a feeling of despair or burnout, particularly among those involved in the 996 working culture, working from 9am to 9pm six days a week.

Sun Liping, a professor of sociology at Tsinghua University, recently wrote on his WeChat account that these conditions are affecting mostly younger middle-class and white-collar workers whose hopes have plateaued. Even after all their efforts to study hard and work hard, they feel they’ve reached a point where there’s no possibility to advance higher and more danger of falling back down.

So there’s little desire for more, or even any children, with housing prices so high in many cities, and with parents who are retiring much earlier than most workers around the world to support. Any extra cost has the potential of knocking them off that plateau.

After the government announced that married couples would be allowed to have up to three children, in an effort to boost birth rates, remarks appeared on social media highlighting that the policy shift did nothing to address the soaring costs of raising kids [File: Aly Song/Reuters]

This is a great change from the years following the Cultural Revolution of the 1960s and early 1970s, and China’s reform and opening-up period, when the opportunities for families to change their social status through hard work and education were much greater, primarily since the starting point was so low for nearly everyone.

“Over time, a new elite formed and developed vested interests,” Imogen Page-Jarrett, a research analyst based in Beijing for The Economist Intelligence Unit, told Al Jazeera. “The threshold for people from lower-income backgrounds to move up in society became much higher.”

Liang Jianzhang, chairman and co-founder of the booking site Trip.com, has recently argued that China needs to deeply reform the gaokao system, vastly increase education expenditures and attempt to achieve universal college education for all of its youth to meet the needs of a more complex, innovative economy of the future.

Potential fixes creating more problems

The latest efforts to address some of the pressures facing China’s parents and youth have met with lacklustre response and sometimes satirical backlash.

After the government announced that married couples would be allowed to have up to three children, in an effort to boost birth rates, remarks appeared on social media highlighting that the policy shift did nothing to address the soaring costs of raising kids, or the financial burden of taking care of elderly parents.

Other government policies in the pipeline, like proposals for potentially banning online and offline courses during summer holidays, weekends and other non-school periods in places like Beijing and Shanghai, only set in motion other potential problems.

The idea, in theory, is to release pressure on kids and give them a real break from school so they do not end up burned out by the time they reach adulthood.

“I think one of the interesting things about a lot of these changes at the moment is that every force has an equal and opposite reaction,” said Julian Fisher, co-founder of consultancy Venture Education in Beijing. “When you’re pushing on learning centres, you’re pushing on a multibillion-dollar industry, and that impacts human resources and society in the sense that people are hired [for these tutoring jobs].”

Falling birth rates and a rapidly ageing population spell trouble for China’s future economic growth [File: Yan Cong/Bloomberg]

Fisher noted that this could also leave many families in the lurch, particularly when both parents work and may not have access to childcare other than education centres. “What are they going to do with their kids during the summer?” he asked, questioning what would happen if the government bans online and offline courses.

“Layoffs of tutors and teachers are likely if the new rules prohibit training on weekends and in summer and winter holidays as training institutions could see a significant drop in revenue, so they may lay off staff and teachers to cut costs,” Flora Zhu, director of corporate research at Fitch Ratings in Beijing, told Al Jazeera.  

“In fact, online training institutions, which rely heavily on marketing to attract students, have already [been laying off staff] following the government’s stricter regulations on [allowable advertising for] training institutions.”

As China’s leadership becomes more nationalistic, increased restrictions on foreign involvement, ownership and teaching materials aimed at preschool to secondary school students in the past few months have also had an impact.

“Due to the political importance that Chinese leaders place on education, however, there are risks that these regulations foreshadow further restrictions on foreign participation in China’s education sector,” Alexander Chipman Koty, an analyst for consultancy Dezan Shira & Associates, told Al Jazeera.

Some of this is the opposite of reforms needed in the education sector, and what parents actually desire for children in terms of greater opportunity, which has led many of them to tap into online and offline courses outside of regular class time.

According to Page-Jarrett, China needs more private sector and foreign involvement that would push schools to improve and innovate and provide schooling for the more complex economy of the future, not less.

“Rote learning still features heavily in the education system and that for a time kind of worked when China needed a generation of engineers,” Page-Jarrett said. “Now what China needs is a workforce that can innovate. The education system needs to develop students’ crucial thinking skills.”

No lying flat when you’re already below …

The need for education expenditures and reforms is even more apparent for rural students and parents in China, who are fast falling behind their urban peers who have more opportunities and benefits just because of their urban residency status.

“The gap in the quality of education in rural areas became larger, not necessarily because education became worse in rural areas, but because it became better and more competitive in urban areas,” Page-Jarrett said. “For a low-income family it’s extremely difficult to get into a top-tier university and they might only be able to get into second- or third-tier one.”

For Scott Rozelle, a development economist and a co-director of the Rural Education Action Program at Stanford University, the whole “lying flat” issue is fully an urban problem.

“When you have a rural hukou, nobody ‘lies flat’,” he told Al Jazeera. “It is the exact opposite problem. There is no money for weekend or night classes. No one can afford to take anything for granted. Life and living is day to day. There are no opportunities with such poor schooling and healthcare.”

China has big plans for rural areas with a rural revitalisation programme, but so far this has mainly focused on rural infrastructure and agriculture improvements, and not tackled schools or rural social mobility.

While there has been some relaxation of hukou policies that allow for greater movement between rural and urban areas in some parts of the country, most of these efforts are tied to “talent acquisition” programmes – urban areas that want to attract the best and brightest, leaving the least educated on the outside looking in.

What is at stake in the failure to address these systemic challenges could become China’s Achilles heel. Social immobility and income inequality will increase social frictions, economic stagnation, and an eventual settling into the middle-income trap that China’s leaders would like to avoid, but usually fail to mention in words.

Source: Al Jazeera

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