Now The Hard Part Begins: The China Challenge

Tyler Durden's picture

Authored by Minxin Pei; originally posted at The Diplomat,

Relativity is the key concept in measuring the success of China’s power transition.  By this standard, one has to grudgingly congratulate the Chinese Communist Party for producing its first-ever, nominally at least, complete transfer of power from one top leader to another last week.  The outgoing party chief, Hu Jintao, retired from both his party post and his position as the commander-in-chief, allowing Xi Jinping, now China’s new leader, to claim full authority in one stroke.  Had Hu followed the precedent set by his predecessors, Deng Xiaoping and Jiang Zemin, and decided to stay on for two extra years as the chairman of the party’s central military affairs committee, this would have been a semi-failed transition.

The good news does not stop there.  As expected, the Politburo Standing Committee, the party’s most powerful decision-making body, has been downsized from nine to seven, thus making it easier for Xi to build a coalition in a body often paralyzed by decision-making through consensus.

Perhaps the best news for Xi is that the bar for his success has been set relatively low by the departing administration’s failure to pursue real reforms during the preceding decade.  So even minor initiatives to tackle some of China’s social and economic problems should make Xi look good by comparison.

Judging by his first, albeit brief, public speech, Xi certainly did not disappoint.  His remarks at the ceremony unveiling the new standing committee on November 15 were direct and notable for the lack of tired official slogans and rhetoric.  His confident demeanor strengthened his public image as well.

Unfortunately, that is where the good news ends.  Compared with Hu’s rise to the top a decade ago, Xi certainly has gained more power.  But it is worth pointing out that he will face enormous constraints, at least in the short term, in gaining decisive influence at the top level of the Chinese power hierarchy.

The most immediate obstacle to any prospects of major policy shifts lies at the very top.  The new standing committee has a strong conservative presence.  The perception of the new team is that it is dominated by relatively mediocre  and risk-averse leaders.  Xi may not find many allies who would support an agenda of bold reforms, assuming that Xi has such an agenda in mind (something we honestly do not know).  The line-up of the new committee confirms that the selection was based partly on seniority (all the two-term Politburo members under 68 were promoted), but mainly on the need to maintain a balance of power among various factions and interests.   Such considerations have produced a team that lacks reform credentials or shared policy preferences.  It would be too optimistic or premature to believe that such a delicately balanced body could address China’s problems quickly and decisively.

Xi must also be concerned with the influence of retired leaders, in particular, Jiang Zemin, 86, and Hu Jintao, 70. Jiang proved his enduring political clout by managing to put two to three of his loyalists on the committee.  Hu was less successful in appointing his supporters to the standing committee, but apparently got a good deal for “retiring naked” (quitting all positions).  Of the 15 new Politburo members, at least half are his protégés, including one 49-year-old rising star who will be well-positioned to contend for a spot on the standing committee in five years’ time.  If anything, Hu’s influence will remain considerable in the coming five years.

Because of these political constraints, Xi will have to balance the imperative for him to establish his image as a decisive and different leader with the political necessity of getting along with his colleagues on the standing committee and the retired leaders. The result of this delicate balancing act is likely a cautious start characterized by the adoption of relatively easy policy measures designed mainly to differentiate the new leadership from its immediate predecessor.

One such measure may be a thorough reform of the hukou system (household registration) that denies rural migrants full citizenship rights.   Allowing them to become full urban residents enjoying all the rights and benefits of city dwellers will be both socially just and economically beneficial.   In the past, opposition from large cities in coastal areas and the public security apparatus has blocked the reform.  But today, since more than 200 million migrants have settled in the cities already over the few decades, and improving their status can unleash enormous economic dynamism as well as create an instant constituency for Xi, it is highly likely that Xi will make this issue a top priority.

Another issue that may further enhance Xi’s political capital is the abolition of the much-hated one-child policy Political opposition to this reform is even weaker – one can think of only one interest group, the family-planning commission, that will try to block such a move.  Obviously, one important political consideration is that this bold move will effectively overturn a policy closely associated with Deng Xiaoping.  But on balance, Xi may conclude that this is a risk worth taking.

On the economic front, however, Xi’s room for maneuver is smaller.  While he may continue to expand some promising experiments on financial liberalization, significant reforms that will hurt the state-owned enterprises, local governments, central bureaucracy and families of the elites are certain to encounter fierce opposition.  Xi may choose not to pick a fight he cannot expect to win easily.

Political reform – at least of the kind that will introduce more democracy and civil liberties – is extremely unlikely.   The risks for Xi are simply too high.  The two Politburo members perceived to be reformers – Li Yuanchao and Wang Yang – failed to make it into the standing committee mainly because they are seen as likely champions of political reform.   Xi is obviously aware of what happened to the two top leaders, Hu Yaobang and Zhao Ziyang, who advocated political reform during the 1980s (Both lost their jobs).

Compared with the constraints he faces on the domestic policy front, foreign policy actually may be an area over which Xi will gain control more quickly and decisively.  Given the urgency of the escalating Sino-Japanese tensions over the Senkaku/Diaoyu Islands, Xi will have to act fast to  avoid a foreign policy crisis.  Of course, Xi’s long-term foreign policy objective is stabilizing Beijing’s relations with Washington since the underlying competitive dynamics are driving the two countries further apart.  But this goal will be elusive unless and until he fixes Sino-Japanese ties.

Whether Xi can pull this off is anybody’s guess.  He will have to invest some political capital and take real risks in moderating China’s positions and stopping the now routine patrols of the waters close to the disputed islands (such patrols are designed to contest Japan’s sovereignty claims, but may trigger a tough response from Tokyo that leads to further escalations).  Japan’s political establishment will also have to cooperate by not taking actions that make it impossible for Xi to make symbolic concessions. 

So the bottom line in evaluating China’s new leadership in general, and Xi in particular:  he and his colleagues will have to walk the walk. His predecessors have done enough talking already.

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NotApplicable's picture

Okay, which Tyler forgot to label this "good news about a peaceful transition" piece as afternoon humor?

TwoShortPlanks's picture

I tried to read it, but fell asleep.

francis_sawyer's picture

Hopefully ~ you'll wake up in time for the Xi Xi Xi movies that come on cable TV at around 2am...

TwoShortPlanks's picture

None of this shit gives me a hard-on anymore. My biggest thrill is when the courier drops off Yellow, and that'll never change.

The sooner they confiscate Gold the sooner I get back my Mojo.

Michaelwiseguy's picture

Holy crap Ben Bernanke just tried to rip away my microphone from my hands video should be out tomorrow on

— Luke Rudkowski (@Lukewearechange) November 20, 2012

TwoShortPlanks's picture

Must be under a bit of of confidence, 100%

Michaelwiseguy's picture

Luke is OK in my book. Perhaps he said something of this effect to the Bernank;

"I will steal the majority of peoples money, wealth, and ability to prosper by owning the money supply and making the monetary rules myself." - Dr. Evil

We should have a ZH contest to figure out what Luke asked him that got Chairsatin so flustered.

Half_A_Billion_Hollow_Points's picture

wheres the vid?  don't link us to some youtube subscription shit

LetThemEatRand's picture

CEO to P:  "Hey, I have an idea.  Let's close our U.S. plants and build everything in China."

P:  "Two problems:  1) China is a quasi-communist country that could take over our plants, 2) if we and every other Western company follows this model, the Western middle class goes away and we have killed the goose that lays the golden egg."

CEO:  "No problem.  1) we'll bonus ourselves hundreds of millions based upon the short-term profits realized by outsourcing, and if China implodes we'll be rich by then and who gives a fuck about the shareholders, 2) see 1."

P:  "done.  How much will that bonus be again?"

Half_A_Billion_Hollow_Points's picture

If we weren't exporting fiat, we wouldn't be exporting jobs.  


Look @Fed not at ceos or investors.  They only respond to incentives.  You and I would probably do the same thing.  We have exported too godamned much fiat for the cheap crap.  

nmewn's picture

"On the economic front, however, Xi’s room for maneuver is smaller. While he may continue to expand some promising experiments on financial liberalization, significant reforms that will hurt the state owned enterprises, local governments, central bureaucracy >>>and families of the elites<<< are certain to encounter fierce opposition. Xi may choose not to pick a fight he cannot expect to win easily."

Whaaa? What is this "absolute power corrupting absolutely" concept? Is that from Confucius or sumpin? ;-)

Getting Old Sucks's picture

SHHHH! LISTEN!  Why are they so quiet lately?

earleflorida's picture

Thankyou for this excellent report :-))

q99x2's picture

Here is what I suggest Xi do. Xi you got to get everyone together and start to build a hollow fifty acre pyramid on the bottom of the South China Sea floor all the way to the surface. Move the dirt from the Himalayas if you have to. But you better start digging and drilling soon no matter what because the Benny Hussein Obama  is cutting deals with your neighbors to lock you and your Chinese people out of the action. You built that big wall didn't you. This should be no problem with all the additional folks you have. Don't want to let Queenie get there first I'm telling ya.

old naughty's picture

But, but, they already have the river of mercury,

and Ac Tah said it may have to do with our consciousness shift come 12.21.2012?


laomei's picture

Rural hukous are worth more than urban hukous... and this rag has no idea what it's talking about.

BlackholeDivestment's picture

....bla bla bla ...abort the girls 'til rucky boy get job at Wal Mart.

Arthur Borges's picture

The underlying attitude in this article is to size up how fast China will subscribe 100% to the western model of government and society and the author is disappointed.

The answer is that it won't happen: like any other society, it will borrow the ideas it likes and strive to adopt them at its own speed after resizing and reshaping to suit local needs and goals.

Any change that happens will be gradual, e.g. the author raises the issue of abolishing the one-child policy. It won't be abolished overnight. It will simply be eased by stages. The most recent change was to allow a second child to couples where both spouses come from one-child families. You can call that "mediocre" and "conservative" but nobody is really in a mood for any more Great Leaps Forward into Democracy, especially when the Great Democracies ain't lookin' that great no more.

falak pema's picture

china now will have the best soccer-football team in the world; that will be Xi's main goal.

When you say thet won't buy western ways, you forget the essential : football. 

The rest is rugby to them! 

Borges is not Borgia, unless I'm missing Lucretia for Lucrece.