New leaders face tough challenges

When the man anointed to rule China for the next decade addressed his new subjects for the first time on November 15 his speech was refreshingly free of the stale political slogans favoured by outgoing Chinese president Hu Jintao.

In his booming, accentless Mandarin, Xi Jinping mentioned the word “socialism” only once and used a significant portion of his short address to criticise the Communist party he leads.

“Our party faces many severe challenges and there are many pressing problems within the party that need to be resolved,” Mr Xi told the nation in a live televised address. The new leadership must “effectively deal with the prominent issues within the party; earnestly improve the party’s work style and maintain close ties with the people”.

As speeches by Chinese leaders go, this one was a remarkably frank admission of the huge problems facing the authoritarian party that has led the world’s most populous nation since 1949. In a clear attempt to differentiate himself from his technocratic predecessor, Mr Xi said the party must make “great efforts” to avoid placing “undue emphasis on formality and bureaucracy”.

He stressed the need to crack down on rampant corruption and bribe-taking within the party and government and to improve social services and environmental protection.

Since the madness of Mao Zedong’s Cultural Revolution ended with his death in 1976, the country has witnessed one of the most impressive periods of economic growth in history.

The past decade in particular saw China’s economy grow rapidly, increasing from the world’s sixth-largest to the second-largest, accompanied by low inflation and a benign international environment, at least from Beijing’s perspective.

Most Chinese academics and government officials agree Mr Xi and his incoming administration will not have the luxury of such powerful forces pulling in their direction. This is partly because the Hu Jintao administration, despite overseeing what was perhaps the greatest period of prosperity in centuries, did not seriously attempt to enact economic and political reforms that could have put the country on a more sustainable path.

“Hu [Jintao] and friends will be remembered for transitioning the [People’s Republic of China] from a regional to a global power, but they actually deserve little credit for that; it was going to happen no matter who helmed the country,” write Derek Scissors and Dean Cheng at the Washington DC-based Heritage Foundation. “Their decade leading the PRC should be viewed largely as one of lost opportunities, even failure.”

They argue that, in 2002, when Mr Hu and his colleagues took power, China boasted sustainable growth of more than 8 per cent, income inequality appeared at least to be manageable, investment and consumption were roughly balanced and the banking system had been overhauled after teetering on the edge of insolvency five years earlier.

This year the economy is expected to grow just over 7.5 per cent, its slowest pace since 1999, and investment far outstrips household consumption as a share of GDP.

In response to the 2008 global financial crisis, Beijing ordered state-owned banks to flood the economy with cheap loans to prop up flagging growth, prompting an enormous expansion of credit that economists worry will ultimately not be repaid.

Thanks to huge overuse of water, coal and other resources, and blatant disregard for environmental laws and regulations, China is arguably the most polluted place on earth, with environmental concerns an increasingly common cause of demonstrations and riots.

The rising consensus among economists is that the export-oriented, investment-led growth model that has sustained China for more than three decades is running out of steam and major reforms are needed for growth to continue.

“Ensuring the sustainability of growth is an enormous challenge,” says Zhang Bin, an economics researcher at the Chinese Academy of Social Sciences.

“The contribution of manufacturing to economic growth is already reaching its limits so we need to concentrate on the development of core services instead.”

He says that one of the first priorities of the new government will be to improve social services, a task that the Hu administration attempted with varying degrees of success.

“The government is basically absent from providing public goods and the laws and regulations [that govern social services] are defective. The government needs to put far more investment into things like food safety, science, education, health and solving housing problems; this is what we call a lack of software.”

While the Hu administration at least attempted to redress the paradox of being a socialist nation that struggles to provide basic social services, in the more fundamental area of political reform they did not even try to shake up the status quo.

In response to rising demands for more transparent government from an increasingly wealthy and well-informed public, the party mostly responded with a combination of heightened repression and short-term policies to keep the economy humming.

In recent years the domestic security budget, which includes money for things like police, secret police, courts and paramilitary troops, has exceeded the official military budget. China spends more on repressing internal threats than guarding against external enemies.

“In the next 10 years the biggest crisis for the government will be a crisis of legitimacy,” says Wu Qiang, a politics professor at Tsinghua University. “Can the party introduce democracy within itself or will it be overthrown by an external force? That is the biggest question it faces.”

Some analysts and even some government officials believe Mr Xi has the desire and possibly the authority to introduce sweeping political reforms in the coming years, but so far there is little solid evidence to support that theory.

Mr Xi’s inaugural speech focused on the importance of improving his subjects’ lives with higher incomes, better social services and better living conditions, but there was no mention of giving the people a greater say in who governs them and how. In the brief address there was also no direct mention of how Mr Xi intends to deal with the rest of the world at a time when China appears increasingly assertive and even threatening to many of its neighbours.

He did repeatedly emphasise the “great revival of the Chinese nation” and the need for China to “stand more firmly and powerfully among all nations”.

This kind of language plays well to a populace raised on a steady diet of nationalism and lessons on historical “humiliations” inflicted on China by foreign invaders. Many Chinese academics, however, argue that Beijing’s foreign policy apparatus is a mess and needs an urgent overhaul.

“If we take the South China Sea as an example, we can see that oil companies, maritime surveillance authorities and even the military are exerting influence over China’s foreign policy there,” says Zhu Feng, a professor of international relations at Peking University. “The biggest challenge for China in the next decade will be whether or not it can co-ordinate the many domestic interest groups to come up with a more effective foreign policy.”

The world should hope Mr Xi and his team are up to navigating that journey and carrying out the urgent political, economic and foreign policy reforms needed to address the baffling array of problems they face.