By Rana Mitter.

When they gathered for the Twelfth National People’s Congress on 5 March, the delegates will have had to reflect on an exciting, but worrying fact: the next decade could be the most important in all of China’s modern history. Although 2012 marked the second passing of the leadership from one generation to the next, an ostensibly smooth transition conceals the pressure that comes from the urgent need to deal with the most pressing of problems: whether the social contract that that Party has imposed on its people can endure for another decade and more.  In an era when China is for the first time becoming more urban than rural, this is an even greater challenge.

China’s economic growth has begun to slow. The government has a strategy: that domestic consumer growth should take up the slack that is left by the reduction of exports. Yet this transition will be far from easy to make. The emergent urban middle class may be 300 million strong and growing, but much of that income is taken up by paying for property, not least since the government insists on a large deposit to try and dampen the property price boom. At the other end of the scale, the migrant labour population is now some 200 million people who do not even have the right of legal residence in the cities where they are building the skyscrapers that have created the metropolises of glass cliffs that amaze visiting dignitaries. The state runs hot and cold on their status. Prime minister Wen Jiabao spoke up publicly for them in 2010, saying that they would have to be put into a more regular position in society. Yet even this last summer, private schools to educate the children of migrant labourers were being shut down. If these aspirant buyers can’t be brought into the system, another huge slice of society is taken out of the government’s economic model.

The massive cost of healthcare, perhaps the single biggest expense after housing, is yet another curb on discretionary spending on travel, clothes, or entertainment. All across China, one finds people whose savings are vulnerable because of sudden, unexpected illness. Hospitals often prescribe too many expensive drugs, since by doing so, they can bring in greater income, but that system has proved less effective either for patients or for the healthcare system as a whole. In that sense, China is much more like the United States than like western Europe: in America, it is still more common for catastrophic illness to bankrupt a family. If domestic consumer growth is really to take off, there will need to be a much greater concentration on health and social provision as the central point of government strategy.

If urbanization is to make sense, then the phased ending of the hukou (residence permit) system will surely be necessary. Also essential will be real reforms to the system of social welfare. After a period when the “iron rice bowl” of Mao’s day was ended, too many people are left in poverty even while incomes rise. If China is to avoid the slum culture of India or Brazil, it will have to stress equality as well as growth.

It’s no coincidence that China’s successive leaders in the 1990s and 2000s have mostly been engineers. The ability to engineer wide-scale social change has coincided with rapid economic growth. But the messy reality of China often defies the engineers’ blueprint. And leaders who are dependent on technocracy may well have to think in a more creative way to work out what happens if things start to go wrong.

History is an important lesson here, and one that is too often forgotten. There is nothing new in attempts by Chinese governments to find a satisfactory way to provide for the social welfare needs of its people. So throughout the imperial period, there were attempts to provide ways for refugees, flood and famine victims, and the impoverished to gain relief from their troubles. The source of relief varied: sometimes it was the government and sometimes the local elites. This tradition was adapted strongly in the twentieth century. The Nationalist (Guomindang) government of Chiang Kai-shek did not undertake extensive welfare measures when it first reached power in 1928.  However the situation changed during the war against Japan from 1937 to 1945. The immense demands made on wider society by the strains of the war also stimulated the government of Chiang to create new ideas on healthcare, pensions, and education, as well as improving public hygiene. Of course, the horrific circumstances of the war meant that few of these plans were ever implemented. Yet it is important to remember that for the Guomindang, war and national social welfare came together in terms of planning. Of course, it was their rivals, the Chinese Communist Party under Mao Zedong, who eventually managed to win control of China. With their “iron rice bowl,” they created a much more comprehensive social welfare system. The changes since the 1980s have meant that the old “iron rice bowl” may no longer be sustainable as it was in Mao’s time. Yet the need for the state to provide for its most vulnerable citizens – the old, the poor, the sick – remains very strong.

It’s not all gloomy. China has plenty of inherent advantages. It has a high literacy rate (95 per cent, over India’s 75 per cent), which is essential for a society that is urbanizing rapidly and moving up the value chain economically. Also, while its people’s aspirations have greatly expanded in the past decade, they still don’t match the fuel and resource hungry standards of the west. But there is no doubt that the delegates of the NPC will be faced with a huge series of challenges that will take immense creativity to solve. If China does solve them, then its position in the new world order will be much more secure. If it does not, it could unleash an immense social crisis. This is a large problem and will require creative and innovative solutions.

Rana Mitter is professor of the history and politics of modern China at Oxford University.