China’s new leadership

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After much behind-the-scenes horse-trading, China’s Communist party this week unveiled the country’s new top leadership for the next five years. Hu Jintao, president, and Wen Jiabao, premier, remained in their posts, while four new members, including the possible successors to Mr Hu and Mr Wen, joined the nine-strong Standing Committee of the Politburo, the party’s top echelon.

Minxin Pei, director of the China Program at the Carnegie Endowment for International Peace, argues that “the headline outcome of the congress – the appointment of Mr Hu’s possible successors – will have practically no effect on how China fares in the next five years, while succession-induced paralysis will most certainly delay the key decisions imperative to China’s future stability,” such as those addressing inflation, overheating stock markets, income inequality and environment.

How does the Communist party elect its leadership? Has Mr Hu’s power base been strengthened or eroded? Will he find it easier or more difficult to push his policy for more balanced, sustainable growth in his second term? What are the most pressing policy decisions facing the new leadership?

Mr Pei answered readers’ questions on China’s new leadership.


How serious is the threat of rising social inequality in China? What is the general sentiment amongst people in China with respect to the “new leadership”?
Aman, Scotland

Minxin Pei: Social inequality is a very complex issue. In China, the two principal causes of social inequality is the rural-urban gap and the coastal-inland gap. The overall level of inequality within cities and rural areas is lower than the national level. But what is unsettling in China is the rapid pace of the increase of inequality.

The difficult question to answer is what rising inequality will actually do to China? Will it slow down growth (as happened in Latin America)? Will it cause social unrest (urban riots)? Will it fuel crime? Frankly, we fear that these negative consequences will all materialise, but so far inequality is like bad weather: everybody talks about it, but nobody can do anything about it. Worse, its real effect on political stability has not been felt.

As for how the Chinese people feel about the new leadership, unfortunately, the Chinese government does not permit opinion polls of top leaders. So we don’t know. I was in Beijing during the party congress. The sense I had was that the Chinese people did not expect major political changes as a result of the appointment of new leaders. For the Chinese people, as long as the government manages to keep the economy growing and respond, in some fashion, to the public’s demands for better social services, they tend to be relatively satisfied with the status quo.


Mr Pei, for many outsiders, the Communist party’s 17th congress concluded disappointingly with no indication of sincerity to democratise China in the years to come. What opinion do you think the majority of Chinese have in their mind about Hu Jintao and Party’s new collective leadership? For one thing, most ordinary people think the Party is correct and nice and problems stem from “a few bad apples on the big tree” while the clear-minded middle class including business leaders and scholars have exchanged their demand of votes for request of notes, thus have largely been bought to keep silent on the subject of democratic rule. On the other hand, numbers of negative publicities have painted the US black and attenuated its credibility as the keeper of democracy. Under such circumstance, how can Chinese be convinced that democratisation would make them both materially and spiritually better-off?
Wen Rixin, LA

Minxin Pei: Since I have addressed the issue of public perception of the new leadership, I’ll focus on the general issue of the relevance of democracy to China. No doubt, the erosion of America’s moral authority on democracy and human rights is not helping the cause of democracy in China. Within China, the issue of democracy has been dormant since Tiananmen. The majority of the Chinese public appears to believe that as long as the government is providing what it promises - improvement in the standard of living - then it will accept its authority. This is both good news and bad news for the government. On the one hand, it has a basically satisfied citizenry. On the other hand, it is not sure how it can maintain a satisfactory level of performance. As for how to convince the Chinese people that democracy will make them better-off, my only observation is that societies have little choice in picking and choosing when to democratise. Transitions to democratic rule happen mostly by accidents and crises, than by design. It means that no matter what they think about the costs and benefits of democracy, the Chinese people may, in the end, have no choice but accept and try to make it work once it arrives in China.


In a recent article you said that President Hu Jintao has little choice but to break from political gridlock and proceed boldly with reforms. How do you propose that he does that? Political gridlock and long protracted negotiations/consensus building is an integral part of the Chinese political system. Deng Xiaoping only managed to drive through his opening up agenda after stepping down, while Jiang Zemin never had plans to break anything. On the contrary, it appears that Mr Hu is inadvertently worsening the political gridlock, by emphasising intra-party democracy so heavily at the 17th Party Congress (partly in order to diffuse speculations over his successor so that attention is refocused to what the current and not next government will be doing). If progress is to be made in pushing China through reforms, it will take more than just Hu.
Donna Kwok

Minxin Pei: The outcome of the 17th Congress does not suggest that Mr Hu can break the mode of consensus decision-making any time soon. This means that the perceived political gridlock on key economic policy issues, such as exchange rate reform, domestic imbalances and so on, will likely persist until the Olympics next year.

Gridlocks can be broken, however, if Mr Hu skillfully capitalises on a sudden political or economic event to push through his own preferred policy. He has done this in the past. In March 2003, he used the SARS crisis to firmly establish his personal authority and proved his leadership. As for intra-party democracy, I agree with you that real intra-party democracy will produce only more political stalemate with the Chinese government. But I guess the Chinese Communist Party’s leaders understand this as well, perhaps better than we do. That’s why they have been talking a lot about having more democracy within the party, but in reality have done only very little to make it happen.


There has been much talk in the media about apparent compromises that have made been between different political factions over the composition of the Politburo Standing Committee. In particular, Xi Jinping’s elevation has been seen by many as a compromise between the CYL faction and the Shanghai faction. In your view, to what extent does the outcome represent hard-nosed horse-trading? And to what extent does it represent a genuine commitment on the part of Hu Jintao and others towards power sharing and a more pluralist approach to decision-making within the party?
Nick, Shanghai

Minxin Pei: It is always dangerous to speculate on specific personnel decisions made by a party that does not have transparent procedures for selecting its top leaders. However, I do not believe that Mr Xi’s selection is a compromise between the so-called CYL and Shanghai factions. Politics at the top tier of the Chinese Communist Party is far more complex. There are many stakeholders who can influence the choice of successors. So Mr Xi is likely the choice of the largest number of such stakeholders. He may be viewed as experienced, capable, and acceptable. We do not know whether this outcome reflects any fundamental changes on the part of decision-making style at the top. But the age of strongman is over. The party has asserted its own institutional authority. Because the party is now a diverse collection of elites, decision-making at the top has to be responsive to such interests.


How would you comment on Mr Xi Jinping and Mr Li Keqiang who were just promoted into the standing committee of the Party Politburo, since it is widely reckoned that they are set to assume the presidency and the premiership five years down the road when Mr Hu Jintao and Mr Wen Jiabao complete their term.
Pengcheng Gao, PA. US

Minxin Pei: Judging by their background, they appear to be very talented party insiders, with a broad range of experience in various fields. The consensus among analysts is that Mr Xi is a candidate with the broadest scope of support from various groups inside the party. Unless something dramatic happens in the next five years, it is almost certain that these two individuals will assume the two top positions in China, the general secretary of the party and the premier of the state council. The party has no interest in experiencing any transitional instability despite differences over personnel choices.


Is it possible to deduce from the new leadership’s policy agenda whether there is a real concern about a possible thread to it from the widening urban rural disparity?
Peter R. Scherer, Washington

Minxin Pei: Absolutely. The political report of the congress shows clearly that the party is deeply worried about the rural-urban divide and thinks it will be a source of social instability. But awareness does not necessarily lead to effective policy response or implementation. China’s challenge is to translate leadership concerns into effective policy. Unfortunately, past experience shows that this is the weakest link in the Chinese political process.


Will the new scientific approach to governance championed by President Hu advance sustainable development, human rights, and real democracy with Chinese characteristics?
Kenneth Smith, Toronto

Minxin Pei: This concept focuses more on sustainable development, improvement in social equity, but not democracy. The Chinese government believes that its top priority is to continue economic growth, albeit in a more balanced fashion. It also believes that addressing the widening income gap is politically necessary. As for democracy, in the sense of multi-party competition and free elections, the party does not think it is part of the equation.


There appears to be a high probability that a bursting stock market bubble will have a detrimental effect on either the economy or personal wealth. If this translates into more social unrest, how will China’s new leaders react?
William Gamble, US

Minxin Pei: Great question. At the moment, they are trying various measures to deflate the bubble gradually, such as by raising the deposit rate to make it more attractive for households to put money in bank deposits. They are also increasing the supply of new issues. So far such measures have not been very effective.

Should social unrest occur in the wake of a spectacular crash in the market, the government will definitely mobilise all its political and administrative resources to contain it. One can imagine more intense law enforcement efforts to deal with demonstrations and riots. It is also likely that the government will punish a few insiders to show that it is responding to public opinion. Beijing has proved quite resourceful in the past decade in dealing with social instability. So I would not discount its capacity his time.


Do senior managers at big state-owned enterprises have terms? How is their performance assessed? These “bosses” are the biggest beneficiaries of the economic growth and they have a big say (often by causing sufferings) in many ordinary Chinese people’s lives.
Zhu Dan, China

Minxin Pei: This lies outside my area of expertise. However, senior managers of the large SOEs in China are political appointees first and professional managers second. They are screened by the party’s organisational department for major appointments. As a result, both political qualifications and professional expertise come into play. Assessing their performance is a rather murky process. Unlike the West, stock prices are indicators of managers’ performance. No so in China. There is a PhD thesis to be written on this issue regarding the evaluation of SOE managers. These managers are clearly beneficiaries of the country’s growth, although I would not say they are the biggest. What they do, for better or worse, does have a huge impact on the lives of ordinary Chinese people. They control so much capital and exercise enormous power in the daily lives of average Chinese people - the large SOEs are all monopolies or oligopolies.


As a Chinese I am curious about how the West looks at China’s political progress. My impression is that Western media has in recent years becoming less negative in its coverage of China’s economy, society and culture. Is it the same in their coverage of China’s politics?
Xiaoru Zhang, China

Minxin Pei: Indeed, Western media have been increasingly positive on the Chinese economy and culture. It is also positive on social change in China. But the coverage of politics in China tends to be on the negative side. That is because Western media, by professional training and ideological perspective, tends to focus on the negative aspects of Chinese politics: poor human rights, weak rule of law, and lack of democracy. I have been reading major Western newspapers for two decades. By and large, I believe that they perform a healthy function of trying to pressure China to change politically. Although their reports sometimes can be very negative, what they cover can actually lead to policy corrections in China that are beneficial to the Chinese people. The example I want to cite here is AIDS. For a long time, this problem was covered by local authorities, but once the New York Times published a major article exposing the problem, the Chinese government had to respond to international public opinion and adopt more effective measures. In Chinese, there is a saying: bitter medicine is more effective. I think that is how we need to treat Western media’s coverage of Chinese politics.


Do you think the stock markets in China will collapse, and if yes, when?
Hongtao Shi, Qingdao, Shandong, China

Minxin Pei: I am highly confident that a major correction - if not collapse - is inevitable. No respectable economists in the West today would deny that China has a stock market bubble. But the problem is to predict when it will actually deflate. I wish I knew! I could make a lot of money and quit my job!


What kind of measures this new government shall take to solve problems in education? If education fails, who should take the blame? Thanks and regards.
Petro

Minxin Pei: Unfortunately, the government has not announced any specific measures to deal with education reform this time. For the last few years, the government has announced moderate increases in education spending. But the shortage of money is not the only issue. China needs to undertake more dramatic reforms in making its educational system more responsive to the challenges of globalisation and the needs of the market. China today suffers from a paradox in education: on the one hand, it has a surplus of college graduates; but at the same time, it faces a shortage of college-educated individuals who companies can actually use. There is plenty of blame to go around. It is a systemic problem. No single fix can solve it.


Mr Pei, China’s economic growth has been to a large degree driven by fixed investment, which is unsustainable. But the central government’s initiatives to cool fixed investment have met strong resistance from local officials, because their promotions are dependent on growth figures. This week’s party congress has promoted many “obedient” local officials. Does that mean the central government’s macroeconomic policies can be more effectively pushed through to local levels?
Ma Changhao, China

Minxin Pei: Not necessarily. Personnel changes can have some effect, but only in a limited way. The most effective way of curtailing fixed investment in China is to increase the cost of capital. We all know that capital is underpriced in China. Another way of dealing with overinvestment is by pricing in environmental and social costs (such as moving large numbers of people off land). Once you use effective economic measures, you can solve a huge chunk of the problem. Ultimately, of course, the solution is political. The Chinese state will have to get out of the business of economic development and into the business of public service. Without changing the orientation of the government, fixed investment, which is the most important component of local governments’ performance, will be hard to curtail.


Will the change in China’s leadership affect China-Africa trade, and governance relations?
Kaisi Kabenga, Johannesburg, South Africa

Minxin Pei: There will be no change whatsoever.


With importance of diplomacy with China and the Middle East do politicians need a more value-neutral sense of representational democracies? Does some politicians’ belief in democracy function as what psychologists call a refractive state of mind where they invoke democracy when they can find no other way to rationalise the ambivalence of their role?
Matthew Bates, London

Minxin Pei: While I am totally ignorant of the concept of ”refractive state of mind,” I disagree that the issues of human rights and democracy should be dispelled from the diplomatic relations and dialogue between the West and China (and the Middle East). In many ways, these two core issues do not simply represent the values of the West. They actually must be addressed in order to preserve a more healthy relationship. First, countries with poor human rights record and little democracy typically have no rule of law, little regard for due process in settling business disputes, high cynicism for the concept of international responsibility. This means they are likely to be high risks for the West’s economic interests and poor partners for resolving global problems. Second, the West, being democratic, must respond to the pressures of their citizens. According to my observation, citizens in the West are not very comfortable with value-neutral policies. So such policies are not politically sustainable.


Do you think that the US economy may be embedded into China as a R&D company, where the design of products and services will be primarily conducted with the production, services and financial industries being outsourced to Asia-Pacific region during the process of globalisation in coming years? How will the globalisation process influence the global balance of powers, including the US-Sino business and political relations in the future?
Viktor O. Ledenyov, Ukraine

Minxin Pei: I would not go that far. True, many leading American have moved some R&D work to China, but the bulk of the work remains in the US. There are good reasons for American firms to be cautious. The most important impediment is intellectual property rights. China’s soft infrastructure - especially its legal framework and financial system - is far less developed than its hard infrastructure - roads, ports, and power plants. That’s another hurdle. Clearly, China’s rapid economic rise, thanks in no small part to globalisation, is changing the global balance of power. We can also see the impact on US-China relations in business and politics: business ties between the two countries are getting very close (though not without frictions); political ties have improved beyond recognition since Tiananmen (the crackdown on the pro-democracy movement in 1989). But because of the differences in their political systems, economic systems, and perspectives on geopolitical leadership, the US and China still eye each other warily.


Background: Minxin Pei is a senior associate and director of the China Program at the Carnegie Endowment for International Peace. His research focuses on democratisation in developing countries, economic reform and governance in China, and US-China relations. He is the author of From Reform to Revolution: The Demise of Communism in China and the Soviet Union (Harvard University Press, 1994) and China’s Trapped Transition: The Limits of Developmental Autocracy (Harvard University Press, 2006).

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