The Real “China Shock”: Political Fallout from Slowing Exports in China

As China’s export growth has slowed down over the past five years, workers have responded by taking to the streets with increasing frequency. The Chinese government is paying attention.

 

 

People at Nanjing Road, Shanghai’s main shopping street.

The Trump administration’s “trade wars” signal a willingness to inflict economic pain on other countries as a geopolitical tool, even if these actions might themselves cause pain to American citizens. China is quite obviously among the main targets of this new approach to international affairs. 

 

But what will be the impact of trade-induced economic pain on China’s political landscape? There is good evidence that a weak economy can have significant electoral repercussions in industrialized democracies. Incumbent politicians often fare worse, for example, when the economy is down. However, Chinese citizens do not have the same option of taking out their frustrations at the ballot box. So what do they do?

 

The answer: they take to the streets. Contrary to what one might expect from a tightly-controlled political system such as China’s, it turns out that local protests do occur periodically. Workers whose manufacturing plants have shut down have been known to express their grievances publicly, staging marches to demand, for example, that their wage arrears be paid. This appears to have occurred with increasing frequency over the past five years as Chinese export growth has slowed down. As a result, China’s leaders seem to be keeping a watchful eye on whether an economic slowdown could erode domestic political stability.

 

As we have found in our research, this goes beyond anecdotal perceptions. While (perhaps unsurprisingly) there is no detailed official information about episodes of labor-related unrest, we make use of the recording efforts of a Hong Kong-based NGO called the China Labour Bulletin to show that Chinese prefectures that were more affected by the export slowdown which started around 2012 were more likely to witness such episodes of collective worker action. The proliferation of such actions shows that, in contrast with the stereotype of obedient automatons, Chinese workers will act to protect their rights, even in a context where any room for an activist labor union movement is severely constricted.

 

What has been the Chinese government’s response to that? At the local level, officials respond by worrying about public security. By analyzing the text of official prefecture annual work reports, we find growing concern in the content and tone with “weiwen”—the Communist Party’s abbreviation of choice when discussing how to maintain “social stability.” Most importantly, local officials have acted on those concerns by increasing the volume of fiscal resources devoted to maintaining security. We compile data on fiscal expenditures by prefectures and show that export shocks have led to an increase in all security-related expenditures, including the People’s Armed Police, public security organs, court system, judicial system, and prosecutorial system. To put it simply, in China trade-induced pain translates into an increased willingness to tighten the screws of domestic law and order.

 

Why resort to worker action, one might wonder, if the only outcome is increased repression? We find that along with increasing security budgets, local governments also increase their spending on social protection measures such as public housing and services. That is to say, the Chinese state responds to these protests not just with “sticks,” but also with “carrots.”

 

The central government seems very concerned with the local unrest, as well. We find that local party officials whose prefectures witnessed more unrest were more likely to be removed before their expected term—and not to more prestigious positions. This seems to be done in a fairly sophisticated way: local officials are punished not because of protests per se—after all, they may have just been unlucky to be hit with a particularly bad drop in export demand—but rather because worker actions are in excess of what may have been expected, given the drop they faced.

 

When trade pain befalls, Chinese citizens respond, much like Americans, by expressing their dissatisfaction. In China, of course, this is not processed through elections but generates political instability nonetheless, thereby adding to the risk of rising local tensions as the Chinese economy inevitably slows down.

 

These rumblings in China have already been afoot as world trade slowed down over the past five years. Add to this the onset of Trump’s trade war, and one can expect that the existing strains within Chinese society will only get larger. That’s something that bears close monitoring, for both economic and political observers.

 

Filipe Campante is Bloomberg Distinguished Associate Professor at Johns Hopkins University, and Davin Chor is Associate Professor and Globalization Chair at Dartmouth College.

 

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