Economic Causes and Cures of Social Instability in China

• Published date: 01 March 2014
• Author: John Knight
• DOI: http://doi.org/10.1111/j.1749-124X.2014.12059.x
• Date: 01 March 2014

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China & World Economy / 5–21, Vol. 22, No. 2, 2014

©2014 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Economic Causes and Cures

of Social Instability in China

John Knight*

Abstract

China’s leaders have often expressed concerns about social instability, viewed as a threat

both to the political order and to continued rapid growth. Slower growth might, in turn,

further undermine social stability. Using survey data, the present paper examines the economic

determinants of social instability. Four main determinants are identified: past and expected

growth of income, income inequality, economic insecurity and misgovernance. The paper

then considers possible policies to reduce social instability, examining each of the determinants

in turn.

Key words: China, economic growth, economic policy, governance, inequality, insecurity,

social instability

JEL codes: O15, O20, O43, P26

I. Introduction

Social instability is an unusual topic for an economist. Yet it is surprising that the topic has

not attracted more economic attention. Concern about social instability lurks behind much

economic policy-making, in China and in other countries.

The Chinese leadership views social instability as a threat both to the political order

and to the continued rapid growth of the economy. The leadership has often expressed its

concern about maintaining social stability. According to Shirk (2008, p. 52), the term social

(in)stability had appeared 700–800 times a year in the People’s Daily over the previous

decade. Reports of officially defined “mass incidents” increased from 9000 in 1993 to

*John Knight, Emeritus Professor, Department of Economics, University of Oxford, Oxford, UK;

Visiting Professor, Beijing Normal University, Beijing, China. Email: john.knight@economics.ox.ac.uk.

This paper was prepared for the China Policy Forum held at St Edmund Hall, University of Oxford on

June 7, 2013. I am grateful to the referees for helpful comments.

6John Knight / 5–21, Vol. 22, No. 2, 2014

©2014 Institute of World Economics and Politics, Chinese Academy of Social Sciences

180 000 in 2010 (Minzner, 2005, p. 1).

These concerns may well have molded economic policy-making in the period of reform.

The government’s overriding policy objective has been rapid economic growth. For a

quarter of a century, rapid growth was perceived as the one true path for maintaining social

stability. For instance, according to White (1993, pp. 11–12), “the economic reforms were

an attempt to re-establish the hegemonic authority of the Communist Party” and to “provide

a new form of legitimacy for the regime so as to avoid economic stagnation, social tension

and political decline.” However, the great transformation of China’s economy and society

that economic growth entailed, posed new threats. The subsequent secondary objective of

achieving a “harmonious society” is a response to the perceived need to maintain social

stability in the changing circumstances.

As it is used in China, the term “social instability” connotes, albeit implicitly, a

combination of political protest and societal discontent and disorder. The methodological

difficulties confronting economic research on social instability are to measure this elusive

concept and the effects of its hypothesized economic determinants. Lacking the data to

analyze a direct measure, I adopt an indirect approach by drawing on a survey of the China

Household Income Project (CHIP) that contains information on attitudes and perceptions.

These questions are not ideal for my purposes but they do provide pointers. The section

that follows explains this approach to the analysis of the economic causes of social instability.

The ensuing four sections then examine the four main determinants that are identified:

income and its change, inequality, insecurity and misgovernance. This leads to a

consideration of the ways in which social instability threatens economic growth. The cures

of social instability are then discussed under four headings, using as a framework the

previously examined set of causes. The final section summarizes the arguments of the

paper and the policy implications.

II. The Causes of Social Instability

My approach is to examine the determinants of subjective well-being. The reasoning is that

unhappy people, dissatisfied with life, are more likely to be individually, and in aggregate,

socially discontented than are happy people. The causes of unhappiness might thus provide

pointers to the sources of social instability. I return to the validity of this assumption in the

conclusion, at which point it can be better assessed.

The CHIP survey of 2003 contains questions on subjective well-being, in all three of its

subsamples: rural, urban and rural–urban migrant. This paper has some solid research

foundations: I have published several papers on subjective well-being using the 2003 CHIP