When leaders begin blaming "international hostile forces" for problems at home, it's a sure sign they've got trouble. That's exactly what Chinese President Hu Jintao did recently in a speech, published by a Communist Party magazine, in which he accused outsiders of plotting to "westernize and divide China."
The hard-line rhetoric is likely aimed at diverting attention from a growing list of internal issues, including income inequality, unemployment and discontent over blatant land and money grabs by self-dealing state officials and developers. In the wake of the Arab Spring, which must have scared the daylights out of Beijing, Hu & co. have been clamping down on free speech and human rights throughout the country. Since early last year, the government has tightened Internet controls and jailed dozens of public intellectuals and human-rights activists, including high-profile figures like artist Ai Weiwei. In the past month, three veteran activists have gone to prison. Ni Yulan, a lawyer who has drawn attention to the plight of people evicted from their homes by property developers, is expected to get a steep jail sentence in the next few weeks. The charges include "picking quarrels." She's already suffered through years of jail and debilitating beatings by authorities.
While China has lifted hundreds of millions of its citizens out of poverty over the past generation, the issue of housing is particularly touchy because it goes to the heart of growing tensions between state and society in a quickly urbanizing country. In China, the government can force farmers to sell their land to developers, often at rock-bottom prices, to fuel a state-run real estate machine that disproportionately enriches the elites. But rural folk, who have rising expectations for a better life, are pushing back, as evidenced by a highly visible battle over a landgrab in the fishing village of Wukan, where a local leader recently died in police custody. This is just one of thousands of protests in China every year--about 60% of them related to land disputes, according to Ran Tao, a senior fellow at the Brookings-Tsinghua Center.
Villagers and human-rights activists aren't the only ones suffering at the hands of the government. Private businesses are too, albeit less noticeably. The post-financial-crisis conventional wisdom credits China's success to better policing of the economy: the ring-fenced, state-controlled banking sector was spared the worst financial-contagion effects. And Beijing was able to prop up growth throughout the global recession with a massive stimulus program focused on infrastructure projects--high-speed rail, new roads and public-facility upgrades.
But at the same time, support for the private sector, which employs 80% of China's workers, has been shrinking. Private businesses now get only about 20% of all Chinese bank loans, according to MIT professor Yasheng Huang, author of Capitalism with Chinese Characteristics, even though they are vastly more productive than the state giants that suck up most of the country's capital.