In addition to stealing technology from the West, the Chinese economy rested on three pillars. First, a stable social order even though it was maintained through intense surveillance and propaganda. Since the turbulence of Tiananmen Square massacre, China was able to convince its young people that the students demanding democracy were enemies of society and CCP is the only agent of economic prosperity with social stability. The second pillar was its technological innovation, though it was at least two to three stages below the cutting edge in the developed world but was still good enough when assisted by hidden and not so hidden state subsidies. It kept the production cost of consumption and white goods so low as to cause closure of competing factories worldwide. Innovations led to the creation of info giants whose apps enslaved the youth the world over and helped the Party harvest data from every country even as wealth flowed into China. The third pillar was the construction industry. As a wide-eyed world watched, ultra-modern cities popped up on the rural landscape, complete with high-speed transport, glitzy shopping malls, education and research institutions and of course, residential towers. Ownership of a territory is an instinctive need of all animals and humans are no exception. Indian architect Laurie Baker had, more than four decades ago, described the three basic human needs as status, territory and sex. Yet, in China, the ownership of a residential house has a special meaning; it is a precondition for a man looking to get married in an increasingly difficult marriage market and “no house, no marriage” is almost axiomatic. Xi Jinping, whose thoughts are now embedded in the constitution and hence a crime if questioned, has gone hammer and tongs, though not always by design, on these pillars and the superstructure is today more unstable than it was at any time since Tiananmen Square.
The impetus for the Chinese state to take measures that hurt these pillars is the constant belief that any entity that becomes too powerful is a threat to the CCP. This was the sole reason for the crackdown on Falun Gong, a peaceful spiritual group on July 20, 1999. At a national membership of 100 million, this group was perceived as a direct threat to the claim of the party to be the sole repository of people’s loyalty. The crackdown was unprecedented with tens of thousands of arrests and sufficient evidence of thousands of these prisoners murdered cruelly by extracting their organs while they were still alive. It is this aversion for any power centre other than the CCP that made China crack down on the super rich owners of tech giants who had thought that sheltered behind their wealth they were immune from the control of the party. The behemoth state soon made an example of these tycoons beginning with Jack Ma, the owner of Alibaba.
By the time a subdued Jack Ma returned from his three month long disappearance and paid his $2.8 billion fine, Xi’s new mantra of “common prosperity” was in place. This policy argues that since these companies had made huge profits, they must make “voluntary” contributions to the state for common prosperity. Increased inspections and audits of these companies contributed to the “willingness” of these companies to be philanthropic towards the society. An unusual coercive method was forcing China’s ride-hailing giant Didi Chuxing to delist from the NY stock exchange just five months after its $4.4 billion IPO there. These steps resulted in the shares of these companies plummeting and the total loss in market capitalization of tech companies is of the order of $1 trillion. These companies became unattractive to foreign investors with Financial Times reporting on November 3, 2021 that FDI to China had dropped to its lowest since 2003.
The collapse of the real estate market could be attributed in part to oversupply and the fact that companies like Evergrande diverted money to expand in diverse fields where they had no experience. Yet, it was the state intervention that turned out to be the proverbial last nail in the coffin. In August 2020, the state issued “Three red lines” for the real estate companies severely restricting their capability to raise loans and choking their credit lines. Almost all these companies were borrowing to repay their previous loans as the market had cooled down because of the pandemic-related contraction in household income. The state policy coming at such a difficult time quickly brought giants like Evergrande to the default zone. Then the arm-twisting by the state compelled Hui Ka Yan, the owner of Evergrande to liquidate his personal assets to the tune of $1.1 billion to repay some of the loans, a new way of contributing to “common prosperity”. It was a case of too little, too late when these restrictions were relaxed in January 2022 and real estate companies are nowhere near recovering from the shock. These companies along with downstream industries including cement, steel and other materials contribute 29% of China’s GDP and all these industries have gone down. In the boom market, many Chinese had bought a second home in the hope of speculative gains and the crash has put the burden on the household incomes to repay the loans.
The third pillar of social stability through prosperity had been used by Deng Xiaoping to make the younger generation put the memory of Tiananmen Square behind them. This too has been weakened by Xi Jinping’s obstinate idea of zero Covid. While the rest of the world has decided to live with Covid continuing at a moderate level, Xi’s hubris of having kept the infection and death rates low through repeated testing of entire populations, prolonged quarantines and hard lockdowns has prevented the Chinese masses from developing immunity levels seen in other countries. Infections keep appearing in one city after another leading to lockdown, economic contraction, social discontent, and worst of all hunger, even in prosperous metropolises like Shanghai. A university professor in that city, that used to be the pride of China, admitted to reporters, “Every morning when I wake up, what I worry about is no longer work, it’s what we are going to eat today”. A vivid account of what Shanghai went through during 65 days of enforced confinement was published by CNN on June 18, 2022. To escape the Covid-ravaged Hong Kong, video reporter Serenitie Wang moved to Shanghai, unwittingly “swapping the world’s biggest outbreak for the world’s strictest lockdown”. She described her quarantine in the 50,000-bed centre where lights were never switched off and where constant moans of the patients filled the air 24 hours. She described “long snaking queues of people with tissue paper wrapped around their hands, all gingerly inspecting cabin after cabin in doomed attempts to find one toilet that might be hygienically acceptable.” It happened in the richest city in China! No wonder that people, including students in university hostels, demonstrated, shouted slogans and pushed policemen, shaking the third pillar of social stability. The BBC on July 8, 2022 in an article “Zero Covid holds danger for China’s Xi” said, “It is not hard to imagine riots in Shanghai if residents were to be confined to their homes again.”
Humans are mortal and so are human leaders; all that they leave behind is a legacy. Xi’s legacy will be that he inherited a China on the path to becoming prosperous and happy and on the way to integration with the rest of the world but he destroyed vital bridges on those roads.