Xi must smash vested interest of China's elite
7 March 2013
China's National People's Congress, the country's so-called annual parliament, meets this week in Beijing to formalise the government positions following on from the Communist Party changes last year in Beijing. This is the final piece of the new leadership jigsaw. From the end of this meeting, we will be firmly in the era of the "fifth generation" leadership.
Now that we are past most of the uncertainty which prevailed before the all-important party changes last year, what have we ended up with? The known knowns are now a bit more than they were before. We have a reduced number sitting on the all-important standing committee, shrinking from nine down to seven. This "elite of the elites" consists of five members who will all be over the informal retirement age of 68 the next time there is a congress in five years. They will therefore be one-termers. The two who will stay are the highest ranking - party boss Xi Jinping and Premier Li Keqiang.
We also now know that not only was Xi Jinping given the leadership of the party last year, but also made head of the body that directs the army - the Central Military Commission. This second position was a big surprise. Many thought that his predecessor, Hu Jintao, would continue in this role for a year or two. There was certainly no ironclad rule that meant Hu had to relinquish this slot.
There are, however, still plenty of known unknowns. We assume, but don't know, that this line-up was a victory for China's leader in the 1990s, now supposedly deep in retirement - Jiang Zemin. Those who are considered closest to Hu were not promoted. We don't really know how powerful Xi Jinping is, nor in what ways the new leaders have real latitude to make significant policy changes. Nor do we really know much about how they were selected and why the numbers were reduced.
Despite all this, I think we can say some things about how this leadership is shaping up. First, this leadership transition was about the assertion of raw political power. It was achieved by a surprisingly small decision-making group, with party elders in the end having the "casting vote." They have decided to put even greater powers in the hands of even fewer people, rather than spreading power among a wider group. This is supposedly to help get decisions out of a system which in the past few years has been unable to address massive systemic issues simply because of lack of agreement right at the top.
Now they have this tightened central leadership, what precisely do the rulers we have now in China want to achieve? We know that in the last five years of Hu's period in power, the state-owned enterprises grew wealthier and more politically important. Part of this was due to the calamity that struck the financial sector in the West from 2008. Chinese conservatives looked at this and felt reassured that the state's role in their economy was critical, and had to be protected. Non-state companies over the past five years have been growing, but have seen no significant space open up for them. In terms of access to capital, loans, and the other goodies that the state enterprises get, they still live as poor relatives. That makes their achievements over this period in terms of employment and contribution to GDP all the more remarkable.
Jiang Zemin is associated during his time as party head up to 2002 with a period of real SOE reform and with enfranchising the non-state sector by allowing entrepreneurs to join the Communist Party. This question of whether you see the future as being state- or non-state-led in terms of economic development is the great divider of modern Chinese politics. Just like in the rest of the world, the position of the state is argued over fiercely. To understand this new leadership we have to work out where they stand on this position. In their future policy, are they going to give non-state companies greater powers, or are they going to stand by the state-owned enterprises? Mao Zedong famously said that the key question of revolution was who were your enemies and who your friends. In 21st century China, we can state this as how do you see the role of SOEs: as friends, or foes? The way you answer that tells us where you stand.
Because of SOEs, the Communist Party of China has become one of the most extraordinary money-making machines the world has ever seen. But the future story will be about efficiency. There are many ways in which SOEs' days of churning out profits are going to trickle to an end. Somehow, Xi and his colleagues have to prepare for this. They have to smash some of the vested interest and the money-making elites around them, and start to reassert broader values above the vast riches that many of the ruling class in China are making. They have to attack corruption not for moral reasons, but because of the inefficiency it brings.
In that sense, this new leadership line-up is a "war cabinet". It needs to be smaller and more focused simply because pushing through systemic reforms of the SOEs is going to be a tough battle, and hit the direct business interests of many of the people around them. The one thing Xi Jinping has consistently said in the past few months since becoming party boss is that the rulers need to close the gap between them and the ruled. To shift this from nice rhetoric to real policy, some of the wealthy and powerful in China are going to have to start making sacrifices. And that is a battle Xi not only has to wage, but cannot afford to lose. He has the apparatus for this struggle around him. Now he needs to start using it.
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