Posted By Ian Bremmer Share

By Jiakun Jack Zhang

In an attempt to reorient its economy toward consumption and allow its masses to share more of its record growth, China is quietly undertaking the largest social welfare project in human history.

Decades of rapid economic growth have created vast inequalities, and populism is consequently on the rise. China's 99 percent feel left out of their country's rapid development and are increasingly lodging their complaints online. A recent study of Chinese internet trends in 2011 reveals a shift away from nationalism toward issues of public welfare. The government is paying greater attention to social media and taking notice of this trend. In 2011, mentions of Weibo (Chinese twitter) in The People's Daily (the Party mouthpiece newspaper) increased by an astonishing 83,900 percent.

In its battle to retain political legitimacy, the Chinese Communist Party has announced that it will sacrifice growth for development quality. It realizes that raising the GDP growth bar is no longer adequate and has launched its own version of the New Deal by introducing ambitious reforms and hiking spending on affordable housing, social security, healthcare, and education. If China's leaders bungle this massive undertaking, it will spell trouble for the country's state capitalist system.

If they get it right, the next five years, covered by the 12th Five Year Plan (FYP), could prove to be the most transformative in modern Chinese history. As Beijing attempts to extend the social safety net to cover all of its 1.3 billion people, it could reshape China's economic landscape by furthering urbanization, bolstering domestic consumption, creating a better-educated workforce, and improving social stability. There are two simultaneous goals: preserve the legitimacy of the political system and contribute to the country's economic re-balancing.

For a nominally communist country, China's lack of a social safety net is somewhat ironic. When Beijing dismantled the country's communes and privatized state-owned enterprises in the 1980s and 1990s, China's ‘iron rice bowl' welfare system collapsed. The national savings rate rose during the 2000s as Chinese households struggled to pay for increasingly expensive housing, healthcare, and education while putting away enough for retirement. Ordinary citizens had little choice but to deposit their savings into state-owned banks, earning negative real returns. The savings glut fueled the country's export- and investment-driven model, but household consumption lagged.

This model seemed to work until the global financial crisis shook Beijing out of its complacency. After several abortive attempts at reform over the past decade, China's leaders finally seem committed to mending the country's broken social safety net. The government plans to construct seven million affordable housing units in 2012 alone-the project is estimated to cost 1.3 trillion yuan ($198 billion) and aims to make 20 percent of the housing market "affordable" by 2015. Last year it implemented regulations that will provide basic pension and insurance coverage for all citizens and ramp up spending by 21.9 percent to 575 billion yuan ($91 billion). A new set of health care reform goals were set in the 12th FYP: universal health care, drug pricing reform, and public hospital reform. The 2012 appropriation for healthcare is 203 billion yuan ($32 billion), an increase of 16.4 percent from 2011. Education spending is slated to expand by 16.4 percent to 378 billion yuan ($60 billion). For more details, refer to the Ministry of Finance Budget Report for 2012.

Yet pushing through reforms will prove a significant challenge for China's fifth generation of leaders. The window for reform is rapidly closing and implementation will be hindered by entrenched interests and bureaucratic inefficiencies at the local level. China's economic growth is slowing and its demographic advantage is fading. The government acknowledges that while its revenues are projected to shrink, its expenditures will expand in order to finance these new entitlement projects. The Communist Party risks losing political legitimacy and will confront growing social unrest if these efforts stall or fail. Political reforms may be the only way to create a civil service capable of administering these programs effectively (and without corruption). Having recognized that headline-grabbing GDP growth isn't enough, China's political system will have little to fall back on if it can't make this New Deal work.

Jiakun Jack Zhang is a researcher in Eurasia Group’s Asia practice.

PETER PARKS/AFP/Getty Images

 

BOBBY KIA

5:35 PM ET

March 25, 2012

Certainly the CCP's Budget

Certainly the CCP's Budget reflects an urgent need to secure political legitimacy by addressing socioeconomic inequalities. It would be interesting to expand on the tradeoff described in this article between pursuing this new deal and the state capitalist system. What are the implications for the system and for entrepreneurship more broadly should this new deal be implemented? Then, what are the implications for inward foreign investment?

 

REHABPROGRAMS

7:16 AM ET

April 1, 2012

The oracle bone script

Chinese tradition names the first dynasty Xia, but it was considered mythical until scientific excavations found early Bronze Age sites at Erlitou in Henan Province in 1959.[42] Archaeologists have since uncovered urban sites, bronze implements, and tombs in locations cited as Xia's in ancient historical texts, but it is impossible to verify that these remains are of the Xia without written records from the period.
Some of the thousands of life-size Terracotta Warriors of the Qin Dynasty, ca. 210 BC.
The Great Wall of China was built by several dynasties over two thousand years to protect the sedentary agricultural regions of the Chinese interior from incursions by nomadic pastoralism of the northern steppes.

The first Chinese dynasty that left historical records, the loosely feudal Sang (Yin), settled along the Yellow River in eastern China from the 17th to the 11th century BC. drug rehab center The oracle bone script of the Sang Dynasty represent the oldest forms of Chinese writing found and the direct ancestor of modern Chinese characters used throughout East Asia. The Sang were invaded from the west by the Zhou, who ruled from the 12th to the 5th century BC, until their centralized authority was slowly eroded by feudal warlords. Many independent states eventually emerged out of the weakened Zhou state, and continually waged war with each other in the Spring and Autumn Period, only occasionally deferring to the Zhou king. By the time of the Warring States Period, there were seven powerful sovereign states, each with its own king, ministry and army.

 

REHABPROGRAMS

7:17 AM ET

April 1, 2012

Drug rehab center

Chinese tradition names the first dynasty Xia, but it was considered mythical until scientific excavations found early Bronze Age sites at Erlitou in Henan Province in 1959.[42] Archaeologists have since uncovered urban sites, bronze implements, and tombs in locations cited as Xia's in ancient historical texts, but it is impossible to verify that these remains are of the Xia without written records from the period.
Some of the thousands of life-size Terracotta Warriors of the Qin Dynasty, ca. 210 BC.
The Great Wall of China was built by several dynasties over two thousand years to protect the sedentary agricultural regions of the Chinese interior from incursions by nomadic pastoralists of the northern steppes.

The first Chinese dynasty that left historical records, the loosely feudal Shang (Yin), settled along the Yellow River in eastern China from the 17th to the 11th century BC. drug rehab center The oracle bone script of the Shang Dynasty represent the oldest forms of Chinese writing found and the direct ancestor of modern Chinese characters used throughout East Asia. The Shang were invaded from the west by the Zhou, who ruled from the 12th to the 5th century BC, until their centralized authority was slowly eroded by feudal warlords. Many independent states eventually emerged out of the weakened Zhou state, and continually waged war with each other in the Spring and Autumn Period, only occasionally deferring to the Zhou king. By the time of the Warring States Period, there were seven powerful sovereign states, each with its own king, ministry and army.

 

JOHNSEEMER

8:51 AM ET

April 1, 2012

Addiction treatment center

What laws are there on insider trading on mercantile exchanges such as XYMENES or ICE. For example, let's say I'm a corrupt officer at a large oil company, and I force refineries/pipelines down simultaneously to give the impression of major disruption. Beforehand though I purchase many contracts, before then selling as the price spikes. Would this be illegal? The Insider trading article seems to suggest laws are only applied to securities such as stocks and bonds. Jim.

I'm not 100% familiar with American securities law, but I do know quite a bit about Canadian law on the matter. Yet from what I understand, securities law between our two countries tends to follow a pretty much identical set of principles. Also note that up here, securities law is a provincial jurisdiction, while the drug rehab center is a federal body, yet each province's legislation tends to follow the same basic set of principles. With that in mind, I'm pretty certain that what I'm about to say would be the law in the US, but I can't guarantee it with 100% confidence.

That said, your question seems to have two components. First off, the particular exchange you're dealing with is irrelevant. Insider trading rules apply to all exchanges. It's not, for example, the NYSE that makes up the rules on insider trading, but rather the SEC, which would have jurisdiction over every possible exchange.

Second, the definition of a "security" in securities law is very broad. It covers not only stocks and bonds, but a long list of pretty much anything that can even loosely be described as a "security", which would include such things as options, futures (which are essentially contracts) as well as the type of contract you describe.

So basically, my answer would be that, barring any substantial difference in our two countries securities laws, yes, what you're describing would definitely be just as illegal as insider trading of stocks and bonds.

If you want to be absolutely certain, though, I suggest you find the relevant legislation, go directly to the "definitions" section, find the word "security" and you'd almost undoubtedly find an extremely long list of everything and anything that would be considered a security.

 

The Call, from Ian Bremmer, uses cutting-edge political science to predict the political future -- and how it will shape the global economy.

Read More