Will the Chinese Communist Party Survive the Crisis?

How Beijing's Shrinking Economy May Threaten One-Party Rule

Courtesy Reuters

Until recently, most leading China watchers thought the Chinese Communist Party (CCP) had become remarkably resilient. Through learning and adaptation, it seemed, the world's largest and most powerful one-party regime had become politically nimble and skillful enough to overcome difficulties that would have overwhelmed lesser autocratic rulers. For two decades, the party has compiled an impressive list of achievements: at home it has kept the economy growing at a gravity-defying double-digit rate, while abroad it has pursued a pragmatic foreign policy, avoiding confrontation with the United States and methodically gaining prestige and influence.

Because of the global economic crisis, however, Beijing is in trouble. The problems are numerous: China's exports are plummeting, tens of millions of migrant laborers have lost their jobs, millions of college graduates cannot find employment, industrial overcapacity is threatening deflation, and the once red-hot real estate sector has nose-dived. The country's faltering growth is posing the hardest test yet to the CCP's resilience.

To be sure, the Chinese economy has fared less badly than many others. The country's insulated banking sector remains largely unscathed. Indeed, the government's fiscal balance sheet is strong enough to fund a $580 billion stimulus package (although only about a quarter represents genuinely new fiscal spending). China's colossal $1.9 trillion in foreign exchange reserves provide a comfortable insurance policy against global financial turmoil, and the country should be able to avoid an outright recession. 

But a reduced annual growth rate -- now down to about seven percent from over 11 percent a couple of years ago -- will bring enough trouble. Every year, the Chinese labor market grows by more than ten million workers, the bulk of whom are leaving the countryside for urban areas in search of employment. Each percentage point of GDP growth translates into roughly one million new jobs a year, which means that China needs GDP to rise at least ten percent every year in order to absorb the influx of laborers.

With no end to the global crisis in sight, many

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