Stratfor
Lead Analyst: John Minnich
Production Editor: Robin Blackburn
Analysis
AUGUST 31, 2015
Rescuers spray hydrogen peroxide at the site of the Aug. 20 Tianjin warehouse explosion. (ChinaFotoPress/Getty Images)
Forecast
- Following the Tianjin explosions, Chinese authorities will intensify efforts to make local officials comply with environmental and work-safety regulations.
- Slowing economic growth, falling profits, and local officials’ strong incentive to maintain high employment will stymie efforts to enforce regulations that will raise costs.
- In the years to come, China’s leaders will struggle to improve governance while maintaining economic and employment stability.
Analysis
The chemical explosions at a warehouse in Tianjin on Aug. 12, which left well over 100 dead, at least 700 injured and an additional 70 missing, were tragic but not unprecedented. Less than three months ago, 434 people died when a cruise ship capsized on the Yangtze River. In 2011, 40 people died and another 192 were injured when two high-speed trains collided on a bridge near Wenzhou. And these are only two of the more prominent recent incidents. According to official statistics, 931 people died in coal mine accidents in 2014, and each year smaller-scale industrial disasters across China lead to thousands of deaths.
In a country as complex and prone to industrial accidents as China, it is sometimes difficult to grasp the greater significance of events like the Aug. 12 explosions in Tianjin. The explosions were not exceptionally large or deadly. Neither are they likely to upset China’s social and political status quo. Certainly, they alone will not alter China’s economic trajectory. The question is how and to what extent they relate to the broader narrative of China’s geopolitical evolution.
The Struggle for Compliance
To understand the significance of the Tianjin blasts, as well as the numerous large- and small-scale industrial accidents that preceded them, it is helpful to place them in the context of the Chinese government’s struggle to improve local officials’ compliance with and enforcement of laws and regulations. This struggle reaches back deep into Chinese political history. One of the perennial difficulties of Chinese rulers has been to exercise control over regions whose interests often diverge from those of the center and to directly shape the policies of those regions. The country’s inherently fragmented regional geography, culture, politics and economy, in turn, define this divergence. The more the center’s will contrasts with local interests, the more difficult it is to ensure local officials comply with laws.
It is no coincidence that the explosions in Tianjin were caused by undertrained firefighters that were unaware that the warehouse on fire stored hazardous chemicals that react to water. It is no coincidence that the warehouse’s location was in illegal proximity to residential areas, multiplying the damage and casualty count. Nor is it a coincidence that the warehouse had operated for nearly a year without a proper license to house hazardous materials — or that a state-owned enterprise executive and the son of a former police official own the company that controlled the warehouse. Non-compliance with central government regulations, often with help from participating or permissive local officials have caused most of the recent man-made disasters in China. The Yangtze River cruise shipwreck was in many ways the logical outcome of a largely unregulated industry beset by continuous price-cutting pressures, just as shoddy construction of schools and other public buildings (not in compliance with government requirements) dramatically increased the death toll from the 2008 Sichuan earthquake.
In these and many similar cases, failures in enforcing safety, environmental and other regulations had tragic — and potentially socially and politically destabilizing — consequences. In almost all cases, local businesses, supported by local governments, avoided complying with rules to cut costs. For local government officials accustomed to working in an institutional and political structure that rewards economic growth above all else, reluctance to enforce regulations that would raise costs for local businesses and hurt local economies is natural. This is especially the case now, as growth slows and profit margins decline nationwide. The central government may embrace environmental protection and improved work safety as goals, but it is much more difficult for local governments responsible for ensuring economic stability and high employment rates to meet those goals.
Yet it is China’s economic slowdown that makes compliance with environmental, safety and other regulations politically crucial now. This slowdown is a symptom of Beijing’s attempt to move away from an unsustainable economy driven by state-led investment and low-cost exports and toward an economy grounded in strong domestic consumption. As the pace of China’s economic growth begins to slacken, its government will be forced to deliver on the promise of ever-rising material prosperity that has undergirded social stability and political legitimacy in post-Mao China.
In the short term, Beijing can use stopgap measures like the anti-corruption campaign and nationalist or anti-foreign propaganda (not to mention old-fashioned coercion) to mobilize public support and manage large-scale social unrest. But ultimately, to preserve the central government’s security and legitimacy, it must develop new foundations on which to stake that legitimacy.
The Importance of Reform
To promote robust domestic consumption, high value-added manufacturing and high-end services industries, these new foundations will require reforms already standard in most advanced industrial economies: stronger protections for private property; improved social, health and educational services for China’s large and growing urban middle class; and a generally higher quality of life. Cleaner air and water, safer workplaces and higher-quality infrastructure are all important components of a better life. In short, achieving China’s long-term reform goals (and thus long-term political stability) will require better government. China will need more efficient provision of public goods, more effective enforcement of regulations, more transparently fair adjudication of civil disputes and the like.
None of these conflict with Beijing’s pledged reforms and are in fact critical to President Xi Jinping’s agenda. Beijing is aware of the long-term economic, social and political benefits of effective and impersonal administration, as well as the risks that come with poor governance of a distrusting public in a weakening economy. Numerous pledges to improve the rule of law, fight environmental degradation, expand the social safety net and promote private property rights attest to that. But as the Tianjin explosions show, the gap between central government ambitions and actual enforcement in many localities is still wide. And as growth slows and falling profit margins make compliance with costly regulations more difficult for local businesses and officials, that gap will likely grow too.
Xi has called for including environmental protection among the metrics by which local officials are evaluated for promotion — a move that could improve local compliance with environmental laws by incentivizing protection rather than economic growth and employment. But to be effective, the measure probably will need to be combined with other, more difficult reforms, such as changes to the fiscal relationship between local and central governments. Localities rely on land sales to cover their costs, as local governments account for upward of 85 percent of all government expenditures but take home roughly half of all tax receipts. Reforms would relieve this reliance. Measures must also be combined with concerted, systematic efforts to change the culture of China’s civil bureaucratic institutions. The process likely will entail not only increased costs, such as higher salaries for public officials to reduce the need to accept bribes, but also changes to the education system and beyond.
For China’s leaders, the stakes for improving the country’s administrative institutions are high. With growth slowing but public demands for better governance rising, both the need to better enforce new regulations and the difficulty of doing so will rise in the years to come. Simultaneously, economic weakness and rising real unemployment or underemployment will force local and central governments to sustain social and political stability through other means. If the core question for China in the past 20 years was economic, in the next five to 10 years it will be political: whether or not China’s political institutions can adapt to the country’s evolving social and economic situations effectively and efficiently enough to prevent a breakdown in public support for the Communist Party government.
Tianjin, though a relatively minor event in the grand scheme of things, does not bode well for the government’s success. Certainly improvements have been made. Chinese state-run media have covered the Tianjin explosions with a degree of transparency, partly a result of the anti-corruption campaign, not seen in coverage of the 2011 Wenzhou train wreck. But as China’s leaders slowly introduce measures to improve government responsiveness to public needs, local government will resist them to maintain the soundness of the Chinese economy.
Lead Analyst: John Minnich
Production Editor: Robin Blackburn
