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Cracks in the China Bowl

Oct 05 , 2016

The Iron Rice Bowl has been cracked – if not shattered – in China.

The "iron rice bowl" is a Chinese term used to refer to an occupation with guaranteed job security as well as steady income and other lifetime social welfare benefits.
After Mao stood at the gates of Tiananmen Square on October 1st, 1949 and declared the founding of the People's Republic of China, the Communist Party had been the creator of jobs and benefits from cradle-to-grave for its citizens.
In modern China, however, this promise has unraveled.
In 1986, China took a definitive step toward smashing the ``iron rice bowl'' system of permanent employment for workers at state enterprises, a mainstay of Chinese socialism since 1949, reports The Christian Science Monitor.  As an insult to the anniversary of the founding of the Communist Party, effective on October 1, 1986, new workers for state industries were to be hired on a fixed-term contract basis where new rules on worker discipline would then take effect. 
A Single Spark 
More recently, Chinese social media and even the government news sites, including the People's Daily, are abuzz about a horrible failure in Gansu province in northwestern China. Three officials face possible dismissal and three others have been reprimanded over the case of Yang Gailan, a 28-year-old villager who axed her four young children to death and killed herself because she couldn't feed them. Yang's husband killed himself a week later. 
The Chinese ‘social safety net' is full of gaping holes. The Chinese people are aghast that such a tragedy could happen as "China gets rich."
When the Communist Party came to power, all workers (both industry and agriculture) were put under state control. The work units controlled every aspect of daily life, including the allocation of housing, food and clothing and other social benefits. The Party also controlled all other aspects of the individuals’ lives with the promise the Party would look after their workers for life. 
China's transition over the last 35 years – from a centrally planned economy to a market economy – has smashed the old guarantees along with the "Iron Rice Bowl."
Forbes Magazine put it this way: “Doomsayers reckon that the days of rapid growth are over and that China has to re-balance its economy – more consumption, less state meddling – if it’s to dodge the so-called ‘middle-income trap.’” 
As the World Turns
Along with the ‘Iron Rice Bowl,’ there is another traditional metaphor that impacts the Chinese people: "Mandate from heaven" – an ancient social contract that granted emperors (now the Communist Party) the right to rule based on their ability to govern appropriately and fairly. 
President Xi realizes he needs to find a new social contract with the Chinese People.
Human capital spending is needed to reshape China’s growth engine. It would be wise if China took the massive wealth it has accumulated – and targeted on the country’s infrastructure over the past 40 years – and invested it in its own people. Not only in education, but in a Chinese version of Social Security, Medicaid, Medicare and “Xi-care.”
President Xi Jinping is confident that China will have healthy economic growth and will not fall into a middle-income trap. He told a group of Chinese and foreign business leaders, “We are currently changing our way of development, adjusting our economic structure, accelerating our new style of industrialization, promoting technology, urbanization and agricultural modernization.” The President declared, “The domestic elements supporting China’s economic growth are sufficient.” 
Taking a Closer Look
There can be no doubt in anyone’s mind that China has soared economically when considering the following 21st century Chinese trends: 1.) More than a quarter of the population, 400-500 million people, have moved from abject poverty to the middle class. 2.) The automotive industry in China has become the largest in the world measured by automotive unit production since 2008. Since 2009 annual production of automobiles in China exceeds that of the European Union or that of the United States and Japan combined. 3.) China has become the world’s fastest growing large economy. 4.) Many Chinese students significantly outperform U.S. students on international tests of educational performance, especially in math proficiency. 5.) Among other bankers to the U.S., China, in total is third largest, owning about 10% of U.S. debt, behind only the Social Security Trust Fund's holdings and the Federal Reserve's Treasury investments.
While Chinese challenges abound, no one should denigrate the remarkable progress the country has made in recent history. Failure will not be an option for China. The world needs China’s leaders to work at rebalancing their own economy. This will require building better social safety nets and managing the Chinese people’s expectations, hopes and “Chinese Dreams.”
There has been an unwritten trade-off between the Communist Party and its people, simply, “The people’s lives continue to prosper economically and the Communist Party continues its rule.” As Mao once proclaimed and President Xi knows, “A single spark can start a raging forest fire.”
China and the United States hold the most important bilateral relationship of the 21st century. Few raise these issues to cast aspersion on China or to interfere with their internal affairs. But the progress China has made must be balanced against significant challenges. Increasingly, the world depends on China’s continued success.

Losing Control
Shaken from its historical pedestal as “Middle Kingdom” a half century ago, China has spent the intervening decades regaining its equilibrium.
It has found its lost “fuqiang” (“wealth and power”) and has ascended as an economic and military might once more. 
Chinese rulers’ greatest fear is losing control. Without maintaining a “mandate from heaven,” China could stumble, causing the people to rise into action. The Chinese dragon seeks to maintain its “Mandate from Heaven” — an ancient concept, not unlike the European’s once divine right of kings.
China's leaders can ill afford to have many more human tragedies like the horrible failure in Gansu province where four young children were hacked to death by their mother because she couldn't feed them.  
Sparks fly. Bowls shatter. Heavenly mandates evaporate. The People's Party cannot afford to let down its own people.
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