Transcript: The Protests in China and Why They Happened Now

December 1, 2022, 5:42 PM GMT+3You’re reading Bw Daily.You’re reading Bw Daily.You’re reading Bw Daily.Get Businessweek’s newsletter, delivered every weekday.Get Businessweek’s newsletter, delivered every weekday.Get Businessweek’s newsletter, delivered every weekday.

The country's Covid Zero policies have been the focus of protests all around the country. Why did they happen now? What is the reason for the demonstrations? The government allowed them to go on. Victor Shih, a professor at the School of Global Policy & Strategy at UC San Diego and author of the new book, "Coalitions of the Weak: Elite Politics in China from Mao's Stratagem to the Rise of Xi," spoke with us. The transcript has been edited to make it clearer.

There have been recent protests in a historical context.

The impact of Covid Zero on the economy.

There are no comments at this time.

The man is Joe

This is the second episode of the Odd LotsPodcast. My name is Joe Weisenthal.

Tracy spoke.

And I'm Tracy Alloway.

The man is Joe

So, Tracy, obviously a lot of the images and videos that we've seen out of China over the last week, I mean, I think it's safe to say they're pretty extraordinary.

Tracy spoke.

It's absolutely amazing. Someone posted a sign in Beijing that was critical of the party leadership and the Covid restrictions. There was just reams of ink spilled over the sign that was put up in Beijing. In a number of Chinese cities, people are marching in the streets in protest. The people are holding up signs. This has been allowed to happen.

Joe: 01:06.

Allowed to happen. And also the people in many of these cases are almost certainly taking huge personal risks. There have been some videos that people are calling for you know, Xin Jinping to resign. And my understanding of China is that that is the type of public comment that could get one in very serious legal jeapoardy.

Tracy spoke.

Absolutely. So this is a fascinating moment in Chinese history. It's a fascinating moment from an economic perspective as well, because of course, China is the world's second biggest economy. It has had a number of quite stringent Covid-related restrictions over the past three years or so. And unlike other countries, it hasn't really eased up all that much. And so we're seeing this groundswell of populist anger and a lot of criticism over the way the party, and specifically Xin Jinping has actually handled this whole situation.

The man is Joe

Right. I mean, we're coming on, you know, almost three years now of Covid Zero. I first heard of Covid in, you know, it was December, 2019. Here we are, we're recording this episode November 28th. So it's coming up to December, 2022. And you know, this is an extraordinarily long time to have life disrupted in a very extreme way. Of course the tightness of the lockdowns has sort of waxed and waned at times, but it's pretty extreme. In many cases, the efforts to contain Covid have been quite draconian. And as you say, the economic situation was already not that great. Growth is poor. Earlier this year we talked about a lot of the problems facing the real estate industry. We also, of course, recently had the Party Congress, so an extraordinary moment for China in general right now.

Tracy said that it was 2:55.

Yeah. And since you mentioned the Party Congress, you know, I think there was an expectation that maybe after this big political event was out of the way, after all the attention that had been turned on Xi Jinping basically securing leadership for life, that after that had passed, maybe some things would start to change. Maybe some of the restrictions would be eased up a bit. That doesn't seem to have happened. And so, well, there have been some other things that have happened in the interim, including a fire in Urumqi, where people have criticized the government as having, you know, because of the Covid restrictions on this building, people were unable to escape. And I think 10 people were reported to have died in that fire. That's the thing that sort of sparked all of this, but it is, as you say, the results of three years of major, major disruptions to people's lives.

Joe: (03:44).

It's right. Some people might have thought that the government could ease up on Covid restrictions after the party congress. There is still a lot of brutal math for China of limited healthcare capacity, limited hospital beds, and limited success in mass vaccinations. More people will die as a result of opening up. The government doesn't want to make a choice about the success it has had in containing Covid.

Tracy said that it was 4:25.

Well, I mean, the term painting yourself into a corner kind of springs to mind. And of course, the big question is what can China do now? It's tied a lot of its political legitimacy to keeping people alive, which means you have to have these Covid restrictions. So what can it do in the face of mass unrest? So we really do have the perfect guest to talk about this today.

Joe: 0:46.

Absolutely. We are going to be speaking with Victor Shih. He is a professor at the School of Global Policy and Strategy at UC San Diego, and he is also the author of the new book “Coalitions of the Weak.” Victor, thank you so much for coming on.

Victor: 07:30.

Thank you for having me, Joe and Tracy.

Joe said, "05:02."

Well, why don't we just start with the sort of big picture question, which is how extraordinary from your perspective are the protests that we've seen across the country?

Victor: 0:51.

This has been very, very extraordinary in that these are in person, on the street protests across multiple major cities of China, and this is really something that we have not seen since 1989. So this is very, very striking indeed.

Tracy talked about it.

So this is actually one thing I wanted to ask you, which is, there is a perception that, you know, China doesn't tolerate any dissent. But historically, over vast periods of time, we have had certain protest movements, you know, student unrest or maybe laborers or farmers. Can you sort of put what we're seeing now in a historical context, what does this actually remind you of? Or are there historical analogies or parallels that you can reach to explain this?

Victor: (06:2).

It's true. Even though the major cities of China have not seen a lot of major protests for quite a number of years, there are still protests, sit-ins, and riots every now and then. Most of the protests have taken place in rural areas and smaller cities. Land seizures, benefits that people are not receiving, and a local abuse of power by the police forces are some of the grievances that they tend to focus on.

Today we are seeing multi-city protests in some of the largest and politically most important cities in China, like Beijing, and the slogans at least of the protesters are not very specific. They call for reform of the constitution, for democracy, for freedom and for the downfall of the Chinese leadership. That is very striking and something we haven't seen in a long time.

Joe: 07:30.

So I mentioned in the intro that my perception is that anyone engaging in these protests is potentially taking big personal legal risk. What is the law? What does it say about whether you can go out and protest or call for Xi Jinping to step down? Is it against the law to do this?

Victor spoke.

So, of course, constitutionally Chinese citizens have the freedom of speech and the freedom of assembly. However, both in the constitution and also in the number of regulations and laws, any subversion of the Chinese Communist Party is considered illegal. And of course, calling for the downfall of the, you know, leadership of the Chinese Communist Party would fall afoul of these regulations and laws.

Tracy said that it was 08:20.

And everything is always open to significant interpretation, or at least, you know, that seems to have been the case in Hong Kong with the National Security Law. It's vague enough that if you do something that upsets the Party or the leadership that they can crack down on you. But this leads into another question, which is why are these protests being tolerated right now? Because, as you point out, these are pretty big demonstrations with what would be very inflammatory slogans and language for the Communist Party, things that are very critical of Xin Jinping calling for democracy and human rights and freedom. Why are these being allowed to happen?

The man is Victor: (08: 53).

My read of it, is very tactical so far. And in fact, today we've seen a lot of tightening up. You have to remember that since 1989, the Chinese government, of course, has not been standing still. They've been doing an incredible amount of research, looking at experiences overseas, looking at domestic cases of disturbances, and really trying to engineer the best response to protest movements over time. And I think one of the lessons that they've learned is that if, you know, there really is a high level of dissatisfaction, which is, you know, which is the case here in China, after three years of lockdown, there is indeed a very high level of dissatisfaction among the people, at the first sign of trouble, you crack down using very brutal forces that could invite backlash protests. And I think they tactically allow, you know, at least for one- or two-day period for people around China to protest, to even post things online.I mean, one of the puzzles is, you know, why are they able to post things online and even, you know retweet them and so on and so forth. Part of it could be tactical. Today, we have certainly seen a lot more tightening, a lot greater police forces. It does take time for the police to deploy, get organized to figure out a coherent response. I think kind of the extent and the scale of the protests also has been very surprising even to the authorities. Today we're seeing a more coherent response.

Joe: 10:39.

So I guess another question is, why now? Why in November/December, 2022, obviously the Covid Zero lockdowns have been, you know, happening for almost three years uninterrupted, but why now?

Victor: 10:44.

One of the potential causes of the fire in Urumqi is the fact that the neighborhood committees have barred people in their homes and not allowed them to leave. Part of the relaxation was to switch from a seven-day offsite quark in one of the giant warehouses to five days of mandatory in- home quark.

For the local authorities who already have a lot of resources, they took the easy way out. He wanted to know how we could make sure people didn't leave their homes when they were supposed to. They put electronic monitors outside of people's doors to make sure they open. It is a bit more humane. Some of the poor localities have had to resort to crude measures. It definitely has pushed people's level of frustration and anger over the edge. I think it was triggered by the relaxation of Covid policies after the 20th party congress. Foreigners don't have to stay in China for as long as a week. They don't have to do a lot of testing.

Tracy talked about it.

So just on this note, I mean, historically when there have been protests in China, one of the playbooks that gets trotted out very, very quickly by the ruling party is blame foreign influence and blame local officials for bungling, you know, Beijing's grand plan, the plan was fine, but the local officials just implemented it poorly and it's all their fault. A) is that the kind of thing we're going to see here? Is that the playbook that we're going to see? And then B), do local officials deserve some of the blame here?

Victor: 12:14.

We are seeing commentaries not from official Chinese government websites yet, but unofficially, they are saying that foreign hostile forces are behind the protests. There aren't any foreigners left in China. The number of foreigners in China has been cut in half after three years. Foreign hostile forces can't do anything, even if they wanted to.

Some very crude measures have been implemented by the local officials and they bear some of the responsibility. At the grassroots level of the Chinese government, there are residential committees, but they are not paid for by the Chinese government. Retirees get a small stipend, a few hundred dollars a month, but they don't get the full benefits of Chinese government officials. For the past three years, there has been a main force implementing public policies in China, which has included the lockdown, testing, and delivery of food to distressed households.

They are on the verge. The Chinese government transferred some resources to local levels. Community workers get free food. There is bonus pay sometimes. Local governments don't have a lot of money and that's one of the factors. Civil service pay is being cut and revenue is down at the local level. They're stretched beyond their initial capacity because they have to track at the household level, and that's why they ask a lot of them.

Tracy said that it was 15:40.

I love this conversation because it's one of those where you answer something and then I have a bunch of other questions, but just on this note, I think people outside of China don't appreciate how much.

It takes a lot of manpower to police these kinds of protests. I'm seeing pictures of police officers taking protesters phones individually and removing photos from them of the demonstrations that are similar to what we saw in Hong Kong. Is there a chance that eventually, you know, the people who are enforcing a lot of these rules are going to say, you know what, you need an army of workers to do this?

Victor: 17:57.

Local fiscal stress can cause problems down the road. I don't think we're there yet but, you know, basically grassroots level community workers and police forces who are official civil servants are very limited in numbers and it's not enough to carry out all the tasks that the government asked them to do. The Chinese government has had to rely on informal workers at the community level in order to enforceQuarantine.

There is a base of manpower who are quasi-formal enforcers for the Chinese government, they get hired sometimes even on the spot. The Chinese government just gathers a bunch of guys off the street, pay them and say, 'okay, you all get 300 renminbi a day,' and they become enforcers for the Chinese government. In tier three, tier four cities in China, not every local government is able to come up with the money at the drop of a hat. The collapse of land sales has been a major source of discretionary spending at the local level. If there is a big protest in a second tier or third tier city, they have to send a note to the central government. We need some money to quell the protests. That may take a bit more time. Things could get out of control. There is a lot of money for the Chinese government in places like Beijing. The police force in Beijing is large. In the immediate vicinity of the city there are tens of thousands of different kinds of police forces.

Joe: 19:44.

You know, you sort of anticipated my next question, but can you talk more about the nexus of local government economic stress and the decline in real estate? Because I think, we've talked about it in a few different episodes in the past, how important real estate sales or land sales specifically are to local finances. But can you explain that mechanism? What is the role that local land sales play, and then how much stress have the local governments come under thanks to the well-known property bust that's going on?

Victor: 20 minutes.

Yeah, so there's an intimate link. I mean, the first thing to realize about China is that despite the fact that we talk about, you know, Chinese industrial policies and all these great tech companies in China, these tech and industrial companies, they only benefit a small handful of cities in China. So a lot of the industrial activities concentrated in cities in Guangdong, in Zhejiang Province, in Shanghai, obviously. And then of course, you have political financial activities in Beijing. Outside of these key cities -- you know, remember China has like 400 cities, right? So for the vast majority of cities in China, there's really not much going on in some of these cities in western China, northeastern China, and some parts of the southwest. And so for those governments, in order to generate GDP growth, what they need to do is to sell land to property developers.Property developers build the land, and then also for the government, they use the current revenue stream from selling land, as well as the prospect of land value in the future, as collateral to get loans from the banks to build infrastructure. So using current and future land sales as way to finance infrastructure building is the main economic model for the majority of cities in China. The problem, of course, recently is because of deleveraging policies and Covid lockdown property sales have, you know, been negative for quite a few months now, and then that means land sales have completely dropped off, you know, down 26%, 27% year to date. And so then for the local governments, their ability to build infrastructure also has diminished quite substantially. And this has caused economic slowdown across many localities in China.

The man is Joe

One other dynamic I'm curious about, and maybe it's totally off the mark here, but I seem to recall that at the recent People's Congress, one of the, and I can't remember his name, but one of the Chinese communist party officials that was elevated was perceived as having been rewarded for successfully implementing a hard lockdown in, I think it was Shanghai. And I'm curious whether regional chiefs, others sort of see this dynamic and sort of, when you're thinking about the sort of draconian approach to containing Covid, whether there's sort of an interregional competition among local officials who perceive this as a moment to elevate their standing within the National Communist Party?

Victor: 22 minutes.

I believe you're referring to Yin Li, a public health expert who was made the party secretary of Beijing. Part of a party chief's job is to deal with instability, so this will be a big test for him. I think there are cases like that where people are promoted because of their very restrictive policies. If you look at the new regulations issued on November 11th, the 20 measures, even though it signals some kind of relaxation at the same time, it also requires local officials to remain very vigilant about the spread of Covid.

It's going to happen with any degree of relaxation. The rapid spread of Covid will inevitably happen. Local officials are worried that they will be held responsible for the rapid spread of Covid under their jurisdiction. They have still ordered their underlings to be very vigilant against the spread of Covid, which has led to a lot of these crude measures that people are protesting about.

The central government needs to send a clear signal that they are not going to hold anyone responsible for the rapid spread of Covid. I don't see that happening in the immediate future because it would go back against the strict Covid policies that have been in place for three years. I don't think it would be normal to go against that.

Tracy spoke.

I want to dig more into what sort of happens from here, but before we do, just going back to the question of why are these protests being allowed to happen now? I mean, one of the theories, and again, it's something that tends to pop up when there are signs of dissent. One of the theories is that, well, maybe there are various factions of political elites who are actually allowing these to happen and maybe signaling that they are unhappy with Xi Jinping’s leadership or something like that. This is basically your expertise, China's elite, so do you buy that viewpoint? Is that a possibility here?

Victor said, "25:21."

I don't think they're right. There are people in the Chinese government who are dissatisfied, but they are not in charge. People who are not in the group of people led by the leader of the Chinese government have been forced to retire. The new leadership, which took power after the 20th Party Congress, is almost all loyal to the leader of the party. I think it's a matter of the authorities being surprised, but also tactically not using the most brutal tools immediately for fear of protests.

I think it's odd that people are able to post footage of protests on online platforms. Those are supposed to be kept out of people's sight. It has not been very strict when it comes to censoring this content. Maybe that is going to get tighter. We've had a lot of unhappiness from the tech industry in China, and I wonder if that's related to it.

Joe: 27:39

Going back to, you know, we started this discussion, putting these protests in historical context, do protests make changes happen? And how does the government respond? Because obviously there's no,electoral democracy, so you can't easily switch out the government, but there's some feedback mechanism. How historically has the Chinese government adjusted policies in response to protests? And what could it look like here given the self-imposed Covid Zero constraints?

Victor: 27:30.

Some of the protests that are narrow in focus have had some success. In China, if you don't protest, you won't get a result. A small protest will result in a small result. Major results can be obtained if you organize a protest. This is definitely a case of large protests. Some of the concessions can go away after a few days at the local level. There has been some relaxation in Covid policies at some universities. People are able to move a bit more freely now that the dorms are open.

It is possible to take all that away. People are taking down the barricades in their neighborhoods. They're not really being stopped by anyone. Even if the central policies don't change, I think there will be gradual relaxation of Covid policies as people take matters in their own hands. The government doesn't try to re-institute very restrictive policies. That depends on the trajectory of Covid. China's capacity to treat serious Covid cases is very limited if Covid becomes out of hand and we have a large number of serious cases. That could cause the authorities to return. The authorities are going to take very careful records of the protest leaders, and unfortunately that will happen. There will be a lot of arrests in the coming days because they know who they are.

Tracy spoke.

So one of the criticisms that is sort of bubbling to the surface right now, given the fact that Covid Zero restrictions have gone on for something like three years now and given this outbreak of dissent, one of the criticisms is that China's government basically squandered three years of preparation time to get its house in order and maybe start thinking about what an exit from Covid Zero actually looks like. And that it doesn't seem like they had a viable exit plan in place. Maybe they were too focused on the National Party Congress and things going on with Xi Jinping and things like that. But why does it seem like there hasn't been much thought given to how to actually start to wind down some of these restrictions? We saw a little bit of movement after the Party Congress, as you pointed out, but it doesn't seem like Xi Jinping or anyone from the party has ever gone out and said ‘here are our steps to reopening.’

Victor: 30 minutes ago.

That is a big puzzle, especially on the vaccine front. The vast majority of people in China have been vaccined, but the booster rates for the elderly population remain low. The Chinese government has not done a lot on that front since 2020. There was a round of vaccinations.

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China runs a massive trade surplus, but at the same time it refuses to approve any of the Western vaccines, the mRNA vaccines, and instead focuses on industrial policies to develop China's own vaccines. I'm pretty sure within a couple more years, China will have developed a pretty effective vaccine of its own, even if China imports it for a few years. The Chinese government has refused to do so many times. There are a few thousand foreigners in China who can get the vaccine, but no one else can. That is really, really strange. The Chinese government makes policies according to its own logic and not according to the needs of its population all the time.

Tracy said that it was 33 minutes.

So my impression is, you know, if you get three doses of the Sinovac vaccine, it's actually reasonably effective compared to mRNA. So in some respects, the focus on foreign vaccines is kind of a red herring. But it does beg the question why China hasn't, you know, we talk a lot about the benefits of a centralized economy and a centralized society in many ways, but why didn't China just, you know, tell people go out and get vaccinated, and if you get vaccinated, maybe some of these restrictions start to ease off a bit? It doesn't seem like a carrot was ever offered, and it frankly doesn't seem like there was much of a stick to force people to get vaccinated either.

Victor: 32:57.

Yeah, well, so there were some carrots being offered in late 2020, early 2021 when Sinovac first rolled out. And so that wave of vaccination had pretty high success rates even among the elderly population. But, you know, as you pointed out for Sinovac to work reasonably well, although I have to say there isn't like a ton of data on that.

Tracy talked about it.

That's fair.

Victor: 33 minutes.

You know, I forgot whether people have to be triple boosted or, you know, get four shots or three shots, and there has not been a concerted effort to get the elderly population to get those booster shots. And that is indeed puzzling, especially puzzling, you know, that actually even would've made sense in the run-up to the 20th Party Congress or, you know, certainly immediately afterward it would've made sense to immediately launch a campaign to boost people, especially the elderlies. But we have not seen that. And of course, there's this interesting fact that the elderlies are the most drawn to government propaganda, you know, so if you look at kind of on Weibo, you know, who clicks on Chinese government messaging the most, they tend to be the elderly population who trusts the government the most. And so a concerted government propaganda campaign probably would've had a significant effectiveness. The Chinese government did not do that.

The man said, "34:13."

I want to go back to the economy for a moment. And of course we've talked about the real estate bust and the fiscal impact that that's having. And we've talked about that on past episodes. As you mentioned, one of the things that's been working very well for the Chinese economy is the exports. And it's just running an absolutely enormous current account surplus right now, partly due to exports, but also probably because it's not importing that much oil these days with the lockdowns. But even on the export side, maybe some signs that things are creaking. There was a report that came out, I believe today, again, November 28th, about supply curtailments for Apple, which is almost, you know, back to the future. One of the first topics that we discussed on this show three years ago is what would it mean for Apple's supply chain? But just more broadly, the economy, three years of disruptions, three years of various in-person service, things like restaurants and other services, not taking place as normal. What's this episode going to do to the Chinese economy and the sort of trajectory of where it goes?

Victor: 35: 17.

This is part of the reason why we're seeing so many young people coming out on the streets and protesting because the prospects for many of them are not good. It affects the career trajectory of people when they graduate from college during an economic downturn. They don't get on the career ladder if they don't find that first job. People who don't major in electrical engineering or computer science are being paid less. I think that the EE people can find jobs in defense in the tech industry.

For people who are majoring in social sciences and the humanities, who typically would go into some of these service sector jobs, all of these industries are suffering greatly. The Chinese economy as a whole did okay in 2020 because of the economic stimulation in the west, the US and Europe, which boosted demand in these economies for a period of time. Demand for Chinese goods has fallen in the west as well as in the east. China will face some economic challenges in the near term. The Chinese government is trying to counteract by relaxing property policies, now all these loans go into property developers, that is only helping them complete the projects that have been ongoing. The investment demand for Chinese people has dried up due to the fact that there's more supply than demand and the youth unemployment rate is over 20%. It might be getting worse. Many graduates of social sciences and humanities don't have very good job prospects. They can work for the government, but in some cases the government will send them to the rural areas of western China, where they're not used to, so they can live in the countryside. It is perfectly normal for him to have gone through that. Government-made employment is not very attractive for this generation of Chinese who grew up amidst high economic growth.

Joe said, "38:23)."

She thanked Victor for coming on Odd Lots.

Victor: 33:46.

Thank you for having me.

Tracy said that it was 38:26.

Thank you Victor. It was interesting.

That was great. A lot of things in my head were cleared by talking to Victor. It's not just the sort of three years of Covid Zero on the property, it's a generation of younger Chinese students and graduates.

Tracy:39:21

Absolutely. And I guess, in that respect, it is probably important that a lot of this is taking place in Shanghai, which, you know, traditionally was that sort of hotbed of entrepreneurship and tech billionaires and then China cracked down on it, and now there's a big question mark over whether or not that kind of employment prospect still exists. The other thing that really struck me was just that, you know, the sort of manpower issue, which is it takes a lot of people and a lot of resources and presumably a decent amount of money to actually have these types of restrictions in place. And, you know, restrictions that are naturally crimping some of your economic growth at the same time. And I guess it's interesting to me the question of whether or not they're going to be able to maintain those.

Joe said, "40:11."

Absolutely. And you know, I hadn't really thought about that prior in the context of the real estate collapse that we have talked about multiple times on this show. I knew that, and probably from some of our past conversations, I knew that they were a significant portion of local government revenue, but I hadn't really appreciated the degree to which, okay, if that fell, that really does constrain the state capacity of these local governments. And that, you know, even though it is sort of the Chinese Communist Party, etc., that there are a lot of people, as Victor pointed out, not working for full government salaries, even though they sort of are government officials, and that there really isn't, you know, a national budget the same way, kind of like here in a respect in which, you know, if there's a, you know, during the housing bust of California in 2008, 2009, that of course caused local austerity and layoffs. And so to see that sort of similar structure of government finance there, how it's playing out in the context of Covid is really interesting.

Tracy said, "Forty-one."

Absolutely. It certainly seems like we'll have more to discuss on this topic, but shall we leave it there for now

Joe said, "Forty-one."

Leave it there.

You can follow Victor on the social networking site.

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