2011 report to congress - U.S.-China Economic and Security Review ...

dkrause on DSKHT7XVN1PROD with $$_JOB112After personal encounters with corrupt officials and institutions,Chinese citizens are becoming increasingly discouraged and aggravatedby abuse of power even as the government works to demonstratecompetency in reducing corruption at all levels. Given theregime change of the Arab Spring in the Middle East, the Chinesegovernment is keenly aware of the potential that corruption has inserving as a rallying point of discontent under which dissatisfiedcitizens can gather, Dr. Huang told the Commission: 431Much of this frustration is directed at failings that emanatefrom corruption and inconsistent application of therule of law. Corruption in China is a major concern andsource of potential internal instability. Even the seniorleadership has recognized its seriousness in noting that ifunchecked, it could threaten the credibility of the Party.InflationThe CCP faces the difficult challenge of maintaining a balancebetween growing too fast and overheating the economy, leading toprice increases, or slowing growth to a level at which job creationlags behind the number of young adults entering the workforce.The problem for the party and the government is all the more difficultbecause China’s central bank lacks the autonomy and themonetary tools to wage an all-out battle against inflation. Consumerprices increased by 6.1 percent in September, maintainingthe fastest pace of inflation since the summer of 2008. 432 Particularlyworrisome for Chinese officials was a 13.4 percent increase infood prices.Food inflation also exacerbates the growing rural/urban wealthinequality divide. Food represents a larger percentage of overallconsumption expenditures for rural households in China, 41 percent,than that of urban households, at 37 percent, according to officialChinese statistics. 433 By contrast, food expenditure in Japanaverages 14 percent of household income and in the United Statesjust 7 percent, according to UN statistics. 434Economic issues have been a large driver of protest in China.Sharp price rises were ‘‘perhaps the most pivotal factor’’ in theearly days of the student protests in Tiananmen Square in 1989,Murray Scot Tanner, RAND Corporation senior political scientist,told the Commission. ‘‘If growth rates go below about 8 or 10 percent,[Chinese officials] think they’re in trouble, but if the economystarts growing too fast and inflation starts taking over, that’s beenhistorically another source of unrest[.]’’ 435Nearly 22 years after the 1989 Tiananmen Square massacre,‘‘the most powerful and widespread roots of discontent [are]unaffordable urban real estate followed by inflation—specificallyrising commodity and food prices,’’ noted Elizabeth Economy of theCouncil on Foreign Relations.’’ 436 Several protests have already occurredin China as a result of increasing food and fuel costs. Thegovernment has largely relied on price controls to curb discontent,with mixed results. One demonstration against rising costs in April2011 drew several hundred truck drivers to obstruct access to aPudong district dock in Shanghai, China’s most active port. TheVerDate Nov 24 2008 13:46 Nov 10, 2011 Jkt 067464 PO 00000 Frm 00124 Fmt 6601 Sfmt 6601 G:\GSDD\USCC\2011\067464.XXX 067464