The Shanwei Shootings and China’s Situation – George Friedman

From Stratfor (by subscription only, 7 day free pass available):

Last week, a group of Chinese villagers staged a demonstration against a wind-power project near Shanwei, a town in Guangdong province about 100 miles from Hong Kong. In the first incident, protesters blocked access to the site of the wind-power generation project. The next day, Dec. 6, demonstrators returned. According to Chinese official reports, they were led by three men — Huang Xijun, Lin Hanru and Huang Xirang — and were armed with knives, steel spears, sticks, dynamite and Molotov cocktails. Members of the local People’s Armed Police fired tear gas at the crowd, hoping to break things up, but the three leaders rallied the crowd to continue what, depending on who was telling the story, was either a protest or attack. According to the description of events given by the Chinese government, the demonstrators started to throw explosives at the police as night fell. The police opened fire. Official reports said that three people were killed, eight wounded.

The protests in Shanwei had gone on for quite a while before coming to a head last week. The land for the power project was confiscated a few years ago. The farmers who worked the land were never compensated for their dislocation. They formally petitioned for their money in 2004 but were ignored. Public demonstrations began in August 2005, continuing intermittently. With no compensation forthcoming, the protests escalated and then exploded, with last week’s incident marking the first reported shootings of demonstrators in China by official security forces since Tiananmen Square in 1989.

The shooting is new. The pattern is not. There has been intensifying unrest in China over the past year — frequently, as in this case, over issues that have been simmering for years. This has been particularly true for peasants who have seen their land confiscated by the government for industrial projects. Money is issued to local officials by state-owned enterprises and other investment groups to cover the cost of the land. That money passes through the regional and local bureaucracies. By the time it should reach the owners, there often is nothing left; it has been stolen by officials at various levels. No one denies the farmers’ claims to the land, but no one acts to compensate them. The laborers go from being small farmers to being destitute…

This is a critical process at the heart of Chinese industrialization. The purchase of land, including forced sale, is considered necessary for Chinese economic development. However, Chinese economic development is driven as much by corruption as by land. The government in Beijing has no particular desire to see the farmers dispossessed; on the contrary, the money is made available for delivery to the farmers. But the diversion of funds is hard-wired into the process. It is one of the primary means for capital formation in China…

Beneath the surface, a number of things are taking place. The Chinese economy has been growing at a frantic pace. This is not necessarily because the economy is so healthy, nor because many of these industrial projects make economic sense. In fact, the government in Beijing has been very clear that the new projects frequently don’t make a great deal of economic sense, and has been trying to curb them (though it does not necessarily command obedience in every case from provincial or local governments). On the other hand, China needs to run very hard to stay in place. Within what we will call the entrepreneurial bureaucracy — with pyramiding, undercapitalized, highly leveraged projects being piled one on top of the other — new investment projects are needed in order to generate cash that stabilizes older, failing projects. Slowing down and consolidating is not easy when there are bank loans coming due and when money has to be spread around in order to maintain one’s position in the system.

That means that aggressive economic growth is needed. It also means that massive social dislocation — including theft of land — is embedded in the Chinese system. The flashpoint is the interface between the rapidly spreading industrial plants and the farmers who own the land. The bureaucratic entrepreneurs need not only the land, but also the money that legally is due to the farmers.

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