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What China's Leaders Need to Learn from Egypt’s Turmoil

Shaun Rein, CNBC Contributor|Founder HKSCKPVIamp; Managing Director, China Market Research Group
Tuesday, 8 Feb 2011 | 2:57 AM ET

The protests in Egypt are unsettling regimes around the world as thousands of everyday Egyptians rise and declare that they want an end to President Hosni Mubarak’s 30-year rule. Time will tell if Mubarak’s regime really will collapse or be forced to undertake major reforms, but what is true is there are lessons for China's leaders as well as those through the Middle East.

Egyptian demonstrators protest in central Cairo amidst tear gas fire by Egyptian police to demand the ouster of President Hosni Mubarak and calling for reforms.
Mohammed Abed | APF | Getty Images
Egyptian demonstrators protest in central Cairo amidst tear gas fire by Egyptian police to demand the ouster of President Hosni Mubarak and calling for reforms.

The turmoil along the Nile is being led by disenfranchised middle class who feel they have no future because of overwhelming corruption and limited job opportunities. The situation isn't too different from China, with many commentators pointing to the growing income gap between the rich and the poor as a potential source of instability.

However, while China’s government does need to care for its poor, peasants are unlikely to cause systemic instability. While there are riots in many of China’s smaller cities and counties, they are often short-lived focused on local problems involving corruption, not national ones. Even if discontent were to turn toward the central government, peasants do not have the financial resources to sustain long-term protests – they literally have to work to eat – and they lack the means to rally large-scale support.

If countrywide protests do occur in China, the far more likely source will be university graduates who feel marginalized and unable to find good jobs.

While it seems unlikely a revolt could happen anytime soon – most Chinese still firmly support the direction the government is taking the country – the reality is that university graduates could pose a problem in the coming decades if they feel their future options are being limited by corruption or a weak educational system that does not train them properly for the global job market.

What China can take from Egypt’s situation is that it needs to stamp out corruption quicker than it is now. Even when government officials are not corrupt, many assume they are. That helps explain the outcry after the Li Gang case, when the drunken son of a local official hit two people in a car accident and shouted to onlookers that his father was Li Gang and therefore he was untouchable. Everyday Chinese were not only furious at his arrogant attitude but feared that officialdom would let him off easily (in the end, he was sentenced to 6 years in jail and ordered to pay restitution).

How to solve corruption? It definitely won’t be easy as there are systemic and cultural issues giving rise to it. More can be done by reducing the latitude local officials have to enforce and implement laws and policies. Many laws are issued with guidelines but in the small print officials are given the power to decide how to interpret them. This creates a big difference between big cities like Shanghai, which are extremely well run by even the highest international standards, and villages in far off provinces that are essentially run by thugs.

Second, while corruption in Egypt is a problem, it is nothing new. It has been an issue since Mubarak rose to power. What is new now is the depths of the financial crisis facing Egypt which is leaving limited employment options for the middle class. That has further stoked Egyptians’ anger at what they see as privilege and corruption among the elites.

To ensure enough good jobs, China needs to reform its education system to prepare its students for a global business world that is fast moving, not just how to take standardized tests.

In reality, white collar job creation is not the problem: Citigroup has announced that it will triple its headcount in China to 10,000 within three years and companies from Google to Apple to Starbucks are actively recruiting there. The main problem is that the education system does not do an adequate job of preparing its graduates to operate in a global business world and create their own opportunities if the economy becomes bumpy.

While Chinese students ace subjects like reading, math, and science, they fall behind in analytical ability, creativity and innovation, which have been shown to be important to employers. According to research conducted by my firm, the number one impedement for growth, based on the 100 big multinational firms we interviewed is in recruiting talent. A human resource official of a financial services firm told us, “Recent graduates of even the top universities just cannot perform to the levels we expect so we have to spend lots of resources to teach them basic skills to get up to speed.” Companies are especially not satisfied with the critical reasoning skills of many of their local hires and many prefer to hire those who have been educated abroad in America or Europe.

Finally, aside from finding employment, Egyptians were getting frustrated at rising costs and what they view as a diminishing way of life. To combat this, the Chinese government absolutely needs to push real estate developers to build more affordable housing that even modestly wealthy folks can be proud of calling their home. It is beginning to do so by levying luxury apartment taxes but more needs to be done.

Upheaval in any country around the world – especially an authoritarian one – is sure to catch the immediate attention of policymakers in Beijing. China’s leaders have always been careful to try to learn from other countries’ crises, but they must take away the right lessons. China must deal with corruption, problems in the educational system, and rising prices if it wants to avoid a similar situation.

Shaun Rein is the founder and managing director of the China Market Research Group (www.cmrconsulting.com.cn) a strategic market intelligence firm, and is based in Hong Kong. Follow him on Twitter at @shaunrein. He does not own stock in any of the companies mentioned.

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