Seeking Balance

Seeking Balance China strives to adapt social protection to the needs of a market economy

Ken Wills

There was bound to come a time in China’s modern development—starting in 1949 with the founding of the cradle-to-grave welfare state—when the demands of the people for a better life outgrew the ability of the People’s Republic to deliver.

That time could be now.

China thrived during decades of near double-digit growth since Deng Xiaoping first experimented with local markets and untethered parts of the economy from state control in the 1980s and 1990s. The country’s rapid advance from developing nation to claim the No. 2 spot among the world’s largest economies spawned a massive middle class and hundreds of billionaires.

But growth was uneven, leaving yawning gaps between rich and poor, between prosperous coastal cities and neglected, largely rural, inland regions. Along the way, China sought, with mixed results, to adapt services such as pensions and health care to the demands of an increasingly market-driven economy. Today, as the government of Xi Jinping struggles to reconcile the aspirations of the rising middle class with the needs of the millions who remain in poverty, it must also contend with the challenges of slowing growth.

In an October 2017 address at the Communist Party’s National Congress ahead of his second five-year term, Xi acknowledged that the government had essentially fallen short of people’s expectations. He set out to redefine how the Communist Party would provide for its citizens for decades to come.

"As socialism with Chinese characteristics has entered a new era, the principal contradiction facing Chinese society has evolved," Xi told thousands of party delegates gathered in the Great Hall of the People in Beijing, while hundreds of millions watched the national broadcast on television. "What we now face is the contradiction between unbalanced and inadequate development and the people’s ever-growing needs for a better life."

These needs, he said, "are increasingly broad."

Cataloging his government’s achievements, Xi boasted that China had lifted some 60 million people out of poverty in the previous five years, but he also noted that more needed to be done. He called for an end to rural poverty by 2020, a herculean task for sure, by "drawing on the joint efforts of government, society, and the market."

Whereas other presidents who followed Deng sought to unleash the power of market forces to fuel growth and reduce poverty, Xi is reversing the trend and reasserting the role of the party and the state, some academics and political observers say.

"He is favoring the public sphere—and extending its social, political and economic reach," China scholar Evan Feigenbaum wrote in a November 2017 paper for the Carnegie Endowment for International Peace in Washington. "The party has, quite simply, not adapted well in recent decades to the changed conditions of an aging society and growing economic inequality."

When stock markets plunged in 2015, the government reimposed a rash of controls on capital movement out of the country and on free market trading. Xi has also increased the role of party members on private as well as public company boards.

At the same time, his government has reopened credit taps for state-owned enterprises—favoring them over the burgeoning private sector—to spur economic...