China's New/Old Leadership

Jonathan Fenby on the old aims of China's new leaders.
By: /
November 2, 2012
2012_11_Out-with-the-old-in-with-the-old.jpg

The change in China’s political leadership, which starts with the Communist Party Congress opening on Nov. 8, is, at the same time, new and old: It’s new in the sense that most of the membership of the Party Politburo and its Standing Committee will change, with younger figures moving up to run China for the next ten 10 years. It’s old in the sense that the overwhelming aim of the leaders – to the preserve the monopoly power of the Party whose authority runs through all areas of life in China – remains unchanged.

This combination of old and new will shape the framework within which the new Party Secretary, Xi Jinping, and his colleagues deal with the challenges ahead – not only of running the world’s second-largest economy, but also of keeping pace with a rapidly evolving society and major environmental problems, demography, foreign relations, corruption, and public trust. Now that the shooting star of Chinese politics, Bo Xilai, has been brought down by a combination of his ambition and missteps, the prospect is for a smooth transition, though some major questions remain unanswered.

RELATED

The new group of leaders, known as the Fifth Generation, are pragmatists. Xi may make speeches about the need to adhere to ‘Marxist morality,’ but he and those around him have risen to the top by being able to combine mastery of Party politics with involvement in China’s mixture of state controlled-market based economy. They have run big provinces and major cities, and know the importance to the regime of being able to deliver growth in order to stay ahead of popular discontent, a fact of life for an authoritarian regime that gives citizens no direct say in who rules them or what policies are adopted.

The transition will be drawn out over four months, between the Congress and the annual plenary session of the legislature, the National People’s Congress (NPC), with an important economic conference being held in December that will lay out the broad lines of policy for 2013. The process is opaque, but it seems certain that Xi will emerge at the head of the Party and then become State President, a less powerful post, while Li Keqiang, a protégé of outgoing leader Hu Jintao, will take over from Wen Jiabao as prime minister. They are both already members of the Standing Committee. Those likely to join them at the apex of the power structure are Wang Qishan, an experienced economic administrator, Li Yuanchao, who runs the Party’s powerful Organization Department, which handles personnel matters, Zhang Dejiang, a vice premier who was sent in to run the mega-municipality of Chongqing after the fall of Bo Xilai, Yu Zhengsheng, who has been in charge of Shanghai since 2007, and Zhang Gaoli, Party Secretary of the huge port city of Tianjin.

The fate of another leading contender for the Committee, Wang Yang, who is in charge of Guangdong, China’s richest province, and who has made several statements about the need for economic and social reform, will be an indicator as to the readiness of Xi and others to embrace change, which China needs, but which could harm growth and boost inflation.

Two other big questions are unresolved. The first concerns the size of the Standing Committee, which was expanded from seven to nine members in 2002, when Hu became Party Secretary, to accommodate the various factions and interest groups. The need to find compromise between them, allied to Hu’s cautious style, has held back initiatives and reform, especially where powerful interest groups such as the big state-owned enterprises are concerned. Reducing the size to seven again could help promote more decisive policy-making and implementation, but would leave some big players dissatisfied and might harm the Party’s unity, which has been a major priority since the Bo Xilai affair.

The second question is whether Hu Jintao will hang on to the position of Chair of the Central Military Commission, the third big job. There is a precedent: His predecessor, Jiang Zemin, kept the job for two years after stepping down as Party Secretary. Given the importance of the People’s Liberation Army in the power structure, retaining the post would ensure that Hu kept political clout into the Xi Jinping era. But Xi might accept this as the price for unity and the Hu group’s loyalty to his rule.

The new leadership’s readiness to embrace reform is only likely to become clear after the transition period is finished – if then. The new men (they are all male) are, by nature, cautious. They will move according to the circumstances around them, taking decisive action only when, as during the downturn of 2008, the political-economic system is at risk.

They know the risks that necessary economic reform would upset a successful growth engine and raise inflation, which may well be one of the main threats facing China. The entrenched interest groups will fight to keep their privileges. Not having known a recession or austerity this century, the population, especially the urban middle class, will be reluctant to accept harder times.

But China has had 10 years in which Hu and Wen did little to change the system, and will be hard put to continue along the same road. The outgoing leaders have spent much of the last four years fire-fighting the economic downturn of 2008, and then dealing with the unintended consequences of their rescue package in the form of excess liquidity, non-performing loans, misallocation of infrastructure funding, and out-of-control local government spending. While successful in restoring growth, the stimulus program introduced four years ago showed the weakness of the dependence on exports and fixed-asset investment, and of injecting cheap credit into the economy that was four times the value of the infrastructure projects that were undertaken.

More fundamentally, the equation that fuelled China’s growth – low wages, cheap capital from savings, and welcoming export markets – no longer works as well as it once did. Wage costs are being boosted by government policy to increase consumption and reduce dependence on exports and fixed-asset investment. Capital is more expensive. Developed markets are no longer what they were, and the contribution of exports to growth has fallen steadily.

China has been the greatest beneficiary of globalization, and will continue to expand its worldwide presence through investments in energy (including in Canada), the search for markets for its goods, efforts to buy foreign companies with skills and technologies it wants to acquire, and the build-up of manufacturing abroad. But its main concerns are domestic. It needs to modernize agriculture, free up the labour market, liberalize the state’s control of the financial sector, reform the pricing of vital inputs such as electricity and water, and evolve a legal system that is not controlled by the Party and the state. It also has to come to grips with corruption, though foreign investigative reports of the fortunes amassed by the families of Xi and Wen show how high the rot reaches. Corruption is only part of a wider social malaise that leads to a widespread trust deficit stretching from government to food safety. The environmental crisis, too, remains enormous, with bad air killing more than half a million people prematurely each year, poisoned rivers and lakes, and heavy-metal deposits that lead to high lead levels in blood. Low fertility and the one-child policy, combined with greater longevity, also mean that China will lose its demographical dividend of a flood of young workers, and may grow old before it grows rich.  

Abroad, China’s relations with the other major superpower remain delicate, with the two U.S. presidential candidates both castigating it for targeting American jobs and using unfair trade practices. Closer to home, Beijing is at odds with Japan over rocky, uninhabited islands off the Japanese coast, and is engaged in a series of confrontations with nations in Southeast Asia about its claim to sovereignty over the whole of the South China Sea. China’s human-rights policies provoke regular criticism from abroad – Beijing keeps a tight grip on Tibet and the vast western territory of Xinjiang, an area largely populated by Muslim Uyghurs before emigration of Han was stepped up over the past decade.

Those are very big issues to tackle, many of them with significant political implications. The track record of the new leaders suggests that they will be very cautious in doing anything that might shake the existing power structure. The transformation from the adventurism of Mao Zedong to the managerial elite system of the Hu era is healthy in many ways, but it raises the question of whether a leadership that trades on consensus can carry out an array of tough decisions in the face of vested interests that would prefer no change.

The Congress will not give us an answer, but it will show, at least, the composition of the team at the top and the balance between reformers and conservatives. In some ways, that is as important for the world as who ends up taking the White House – but, this being China, the riddles remain wrapped in a set of enigmas with even the new leaders themselves probably uncertain about how far they can go.