Wednesday, 14 November 2012

Chinese leadership transition faces systemic economic and social friction

The 18th National Congress of the Communist Party of China concluded November 14. The party officially elected a new Central Committee and a new Central Commission for Discipline Inspection.

Departing Chinese President Hu Jintao and Prime Minister Wen Jiabao transferred control of the Communist Party of China this November to Xi Jinping, Li Keqiang and eight other members of the arriving Fifth Generation of leaders. It will not be until March, however, that the Xi Jinping will officially assume the Presidency.

Chinese leaders are groomed years in advance. This new leadership has experience in provincial government and are more highly educated than their predecessors. Just like their contemporaries in other governments, some in the new succession hold doctorates in economics and engineering.
President Hu Jintao’s successor, Xi Jinping, plans to continue China’s military build-up and press Beijing’s territorial claims. The incoming leader was told in no uncertain terms there will be no big changes, he must stick to the playbook of uncovering corruption and maintain the economy.

Due to China’s deep social divisions and high potential for instability it is unlikely drastic reformation will occur as the status quo looks set to remain for the next ten-year cycle. But social pressure will continue to threaten stability for the foreseeable future.

The political transition has been wracked somewhat by the scandal involving the former Chongqing Party Secretary Bo Xilai and his family. Mr Bo is under investigation for complicity in his wife’s allegedly murderous actions that threatened to derail the entire power transfer earlier this year.

The Communist Party of China (CCP) has reiterated that the scandal will not obstruct consensus and unity within the Party. Yet the scandal shows how chaos can occur even within a strictly choreographed leadership transition, and threaten the crucial party unity Beijing has sought to nurture over the years.

Mr Bo’s rise to eminence via his neo-Maoist policies were sufficient reason to press ahead with the investigation. The political model his faction represented, whether or not Mr Bo completely believed it himself, was not the direction Beijing planned

It is very difficult for Chinese elites to change because giving up even limited control weakens the entire structure. And now, as the world heaves with economic strife, the party cannot afford disruption in political direction in this vulnerable time.

This is not to say there will be nothing new to expect from the fifth generation’s politics. The new team is comparatively young and Xi Jinping is the first leader of the party not to be appointed by either Mao Zedong or Deng Xiaoping, effectively marking the end of the Deng dynasty. Power transitions in China’s one party state usually excite the world’s foreign relations and humanitarian watchdogs. With new leaders comes the potential for changes in Chinese politics, the economy, and society.

Former U.S. Secretary of State Henry Kissinger is at the forefront of high-profile Western figures expecting change to accompany China’s new leaders. Yet the new leaders will be more like stewards than sweeping policy giants. Any deviations will be a result of policies set in motion years ago and will be pressured by China’s rapidly evolving economy and, especially, the social sphere.

China’s last ten year leadership cycle started promisingly for free media. President Hu Jintao and Prime Minister Wen Jiabao ran a relatively open government tackling their tenure’s first major crisis, the outbreak of sever acute respiratory syndrome (SARS).

Since then, even with the advent of China’s social media website weibo.com, civil rights and free press has been widely repressed and heavily controlled by Beijing.

These days, dozens of isolated demonstrations spring up throughout the country, particularly inland amongst the less wealthy rural population. Tingling nerves around changes to the central party’s political direction are generally met with strict discipline, as in the Bo Xilai scandal. Demonstrations among the populace are treated no differently.

Beijing keeps a tight lid on those protests with a very visible police and state presence, but it is clear social upheaval is lying dormant just below the surface in China. The Chinese leadership bases its legitimacy on the success of their economic model. That success is now eroding and no amount of propaganda will keep the Chinese people from noticing the widening gap between themselves and the party.

This is largely because of the systemic economic issues China faces. Beijing’s economic model relies heavily on a strong manufacturing and export base to both soak up its billion-person population of workers and keep the government coffers floating.

An on-going economic crisis in Europe has seen plummeting demand for Chinese goods on the continent. The double-digit growth rates China enjoyed since the early 2000s cannot be maintained indefinitely, especially as the United States and Europe look more seriously to cheaper manufacturing options in Mexico, the Philippines, and South East Asia.

Also, China is reaching the end of their current economic cycle, something they may have been able to continue if the crisis of 2008-09 had not occurred. Transiting to a different model will not be easy.

Another problem is China’s vast population. Over 40 percent of China live in sub-Saharan poverty and cannot be expected to buy the goods Chinese factories produce. China has always struggled to establish a strong indigenous consumer base. Much of the goods China produces are exported because the cash-rich Chinese middle-class is still too small to consume requisite amounts.

Developing the vast Chinese interior may alleviate some pressures in the future, but that will require additional infrastructure spending Beijing simply may not possess if demand for goods falters. Infrastructure is not cheap either. China has to import most raw resources, leaving Beijing reliant on expensive and diversifying resource imports.

Simply put, Beijing’s diminishing ability to sell goods might not cover the costs of importing the needed raw materials. This could become a quickly spiralling social problem as jobs are lost and government spending decreases.

Beijing and the outgoing leaders understand how the Chinese population sees the party. Many demonstrations are against the rampant corruption at all levels of the government structure, exemplified best by the Bo Xilai scandal. Announcing a clamp down on corruption and promising reform have been good smokescreens so far but it is unclear how long this tactic will last.

In maintaining the status quo Beijing will look to focus on urbanisation and increase taxes to redistribute income. Of course, wealth redistribution to address the needs of the rural and interior population means taking away from the wealthier citizens.

This path is becoming risky because those wealthy Chinese are going to be very important for Beijing in the coming decades if trends continue. Outgoing Chinese President Hu Jintao is under no illusion that corruption is alienating the Chinese populace from the party, especially the rural poor.

As his successors begin to arrive at their desks, retaining party unity will be high on the agenda but closing the ideological gap between the people and Beijing is just as important. Drastic changes are unlikely with the new leadership, but China’s systemic problems will seriously test the direction the party is travelling.

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