The EU-China Social Relationship

Europe and China do not share the same ideological framework and political systems, but they closely interact through investment, trade and other economic activities. Political discussions, negotiations and even disputes are on-going, although disputes have been kept to a minimum. The relationship between the EU and China can therefore be characterised as a collaboration despite the differences. The key challenge for both parties is whether the current socio-political tensions will reduce future economic benefits to China as well as to Europe. Key dimensions of this challenge can be highlighted as follows:

* State control and grass-roots discontent

Towards the end of the final term of the Hu Jintao-Wen Jiabao leadership, one can sense a high level of discontent across China. One symptom is the rapid increase in the number of public events in which ordinary Chinese are openly in dispute with the authorities.

At the core of such discontent lies the tightening control of the state over Chinese society. The products created by some 30 years of economic reform can no longer satisfy the needs of the majority of Chinese people, while those who have lost out in the economic reforms may not have been sufficiently compensated. At the same time, the current leadership has done very little to deal with government corruption, unequal opportunities under a segmented-market system, stagnation in livelihood improvement and general welfare provisions to all, especially to the vulnerable. China's swift GDP growth is arguably not shared fairly between the Chinese government and society. Social justice has been given way to elitism and privilege.

However, those campaigning for change are divided over the direction China should follow: whether it should follow the left-wing model of Chongqing,   go back to Mao's time, or pursue political reforms welcoming democracy and a true market system. Whether state power should be reduced in order to encourage the development of a private sector or whether state domination should continue - either to promote efficiency within the state sector or to use the state-controlled resources to create welfare programmes benefiting the poor and the vulnerable.

These disagreements, in many ways, open up previously hidden conflicts between China's vested interest groups. Below the surface, there is also disagreement over the speed and abruptness of change: whether China should use moderate reforms for improvement or radical means of revolution. 

* Equal opportunities and income inequality

Income inequality in China has been rising rapidly over the past three decades. Many blame economic policies for the rise and hope that this can be controlled, if not reduced, by the government. The evidence is not sufficient to say whether enlarged inequality has occurred due to government intervention and a state monopoly.

Nevertheless, a broad range of contributing factors can be identified. Relentless pursuit of GDP growth without considering sustainable development and without sufficient handling of the negative consequences is commonly observed as a source of inequality and injustice. Specifically, in order to accumulate state power for promoting growth (but in the name of obtaining economic efficiency), the most profitable industries - telecommunications, transportation, banking and insurance - are largely monopolised by the State. Due to unequal market conditions, the private sector of China struggles to develop or even survive. Its profit margin has been reduced as the costs of factors of production rise. Employees in the State sector thus benefit from much higher wages and welfare support than their counterparts in the private sector.

Rural-urban migrants can now work and stay in Chinese cities, but they are far from settled down. Their resident registration status remains 'rural' and their access to farming land becomes a burden as they are unable to maximise economic gains from their rural land due to the lack of formal ownership rights. Many rural-urban migrants cannot integrate into urban life; they are discontent as they do not share the same rights as their urban counterparts or their state sector colleagues. For example, school enrolment policies are for the children of migrants different from those with urban residentship. In summer 2011, Beijing Municipality government decided to close 'illegal' schools for migrant children on the grounds of 'safety' with only short notice and an insufficient contingency plan. This has eventually attracted public attention and, with long delays, some of the children have been re-allocated and others returned to rural villages. 

* Impacts of economic slowdown on Chinese society

The adverse impacts of the international credit crunch began in September 2008. China has managed to avoid the domestic financial crisis afflicting many developed countries with its rescue package of US$4 trillion that was invested in major infrastructure sectors. However, China's high dependence on exports has meant that the world economic crisis has had severe negative effects on its real economy.

China's exports since July 2009 have suffered a slowdown. The Chinese government initially estimated that 20 million people would lose their jobs due to the economic crisis and there were fears that the rise in unemployment might cause sociopolitical instability. Human Rights Watch recently highlighted the plight of rural-urban migrant workers, the group most at risk of retrenchment due to their casual employment status and institutional discrimination. Towards the end of the US$4 trillion government investment package, some projects (including the high-speed railway) faced huge financial gaps. Coupled with accumulated local government debts, this has caused a great number of migrant workers to lose their jobs. As unemployment rises and wages fall, remittances to rural areas - estimated by the World Bank at $30bn in 2005 - are likely to drop. This will adversely affect rural poverty and the ability of the poor to pay for essential health and education services.

In December 2011, the central government of China lifted the absolute poverty line, increasing the number of people officially counted as living in poverty and allowing more vulnerable residents to claim benefits. A medical insurance scheme designed to assist rural residents (New Rural Medical Cooperation) has claimed that it covers 90 percent of China's rural population. However, the insurance cannot effectively cover serious illness treatment as the funding is far from sufficient. Although health insurance cover has risen, the inequality in health care access has not been properly dealt with. 

* The emerging middle class

China 's economic growth has lifted the mass of its population out of absolute poverty and is arguably creating an increasingly comfortable middle-income group. This process has been accentuated by structural and technological transformation with the rise of employment in the service sector, professional and skilled jobs. This phenomenon is of global significance as half of the rise in the global middle class from 1988 to 2005 occurred in China, according to Martin Ravallion in the World Bank. The trend has been belatedly recognised and encouraged by the Chinese government which in 2002 set the objective of 'enlarging the size of the middle-income group'.

Business interests have also welcomed the development, with China projected to become the world's biggest middle class market by 2020. The middle class may be crucial for driving China's continued economic development as it seeks to move out of low wage manufacturing into higher technology production and services. These economic developments will have implications for Europe and other developed countries - providing a market for exports, but also changing the nature of competition provided by Chinese firms for European businesses.

It is commonly assumed that the middle class will be a force for social stability in China and provide a constituency for continued reforms. However, these two assumptions point to a potential tension: should the middle class demand change that is at odds with the political status quo? Likewise, while it is sometimes assumed that the Chinese middle class will join the global middle class to enjoy rising living standards within the existing international order, it is possible they may instead articulate nationalistic resentment and champion calls for a more assertive role for China on the world stage.

Lina Song, ECRAN Key Expert in Society                                   Feburary 2012