A Wall Street Journal article relates out "princeling" sons of the Chinese elite engage in conspicuous consumption such as driving a red Ferrari even as popular resentment rises and this conspicuous consumption and corruption undermines the legitimacy of the Chinese government.
The car, though, was a surprise. The driver's father, Bo Xilai, was in the midst of a controversial campaign to revive the spirit of Mao Zedong through mass renditions of old revolutionary anthems, known as "red singing." He had ordered students and officials to work stints on farms to reconnect with the countryside. His son, meanwhile, was driving a car worth hundreds of thousands of dollars and as red as the Chinese flag, in a country where the average household income last year was about $3,300.
The driver of the Ferrari, Bo Guagua, is the grandson of a guy who fought alongside Mao Zedong to bring the communists to power. If the top leadership of China wanted to reduce public resentment while still remaining corrupt it should force the "princelings" (sons of high government and military officials) to hide their consumption. Houses should look poor on the outside and well hidden. Families of government officials shouldn't be allowed to drive anything more conspicuous than a Buick. No BMWs. No Ferraris or Lamborghinis
How does the Chinese elite maintain their legitimacy? Can they maintain power in spite of unpopularity? China's economic growth is decelerating. Growth by running larger and larger trade surpluses is not a sustainable model. Much of the lower hanging fruit of industrialization has been picked and ROI on incremental capital investment has plummeted.
The international financial crisis threatens to undermine even the weaker rate of growth that China might otherwise be able to maintain.
"The current crisis, to some extent, is more serious and challenging than the international financial crisis following the fall of Lehman Brothers," he said.
China's manufacturing might even be contracting as the effects of Europe's financial crisis cut into demand for Chinese products.
If Chris Martenson is right about resource limitations then economic growth isn't going to be available as a way to generate rising incomes and largesse to buy off populations and factions.
Tens of millions of people from China's interior have moved to the eastern zones to work 14 hour days and live in company dormitories for jobs that pay salaries only once a year. At the end of the year some companies either do not pay or pay less than was promised. If the leaders of China had any sense they'd require that workers be paid more often. The abuses that such a system makes possible are a threat to the political stability of China.
The number of workers living with migrants' permits in the tiger economy zones of the east officially rose this year to 94 million. Millions more are thought to escape the periodic roundings-up of those with no permits at all.
Surveys have found that in some cases a third are still owed money a week before Lunar New Year, when most get their year's pay in a lump sum. Even state media have begun to report their complaints. Some feature gory cases of labourers beaten up by company henchmen for daring to complain.
What is less clear is whether threats to the political stability of China are a good thing or a bad thing. Would political protests just lead to an effective crackdown, to pressures for gradual democratization, or to chaos and civil war? Could political strife in China perhaps lead to an attempt to seize Taiwan as a way to deflect the attention of Chinese people attention elsewhere?
At a minimum corruption and the lack of legal protection for the common worker and for the consumer effectively place outer limits on the ability of China to economically develop. Living standards can still rise quite far from where they are today. But they can not approach first world standards as long as the government doesn't provide a fully developed and uncorrupt legal system that enforces contracts and protects property for all citizens.