Reading China's succession tea leaves
By John Rapley
Last week, at the conclusion of the Chinese Communist Party's 18th National Congress, seven men stood in Shanghai's Great Hall of the People. Led by Xi Jinping, the new general secretary of the Party, China's new leadership was presented to journalists.
China's economic transformation has entered a difficult phase. While the country's growth rates remain the envy of the world, at levels even the longest Jamaican memories will not recall, they have been slowing down. And as Warren Buffet famously quipped, you only find out who's swimming naked after the tide goes back out.
The receding tide of China's booming years has revealed a naked emperor: the gains in well-being have been driven by aggregate growth, not economic empowerment. Through the roaring years, the country grew very unequal. And as growth recedes, discontent with inequality is starting to rise.
Yet in addition to the political, social and moral problems in this divide, there lies a potentially serious economic one as well. As China's growth shifts from a capital- and resource-intensive phase to a labour-intensive one, the country will need more consumption. With foreign demand pinched by the Great Recession, the Chinese themselves will have to start buying all that stuff their factories spit out.
When Western countries went through a similar transition in the 19th and early 20th centuries, the growing economic power of the masses spurred the democratic movement. Liberals, investors and reformers are hoping that China will similarly match its economic liberalisation with a political openness.
They will have been disappointed by the recent political succession. Because of the Chinese leadership's opacity, it is always difficult to discern clear motives for leadership changes. But most China experts judge that the new Standing Committee of the Politburo, the inner circle of China's governing class, will tilt the country towards increased conservatism.
This mightn't mean a change in economic policy, at least for now. But it could dampen hopes for political easing. That could, in turn, prove economically problematic down the road. There are signs that the leadership may favour heavy state investment as a way to spur growth. However, the evidence suggests this will favour relatively inefficient state firms and unneeded infrastructure projects, ultimately paring growth.
The bigger challenge will be finding a way to empower ordinary Chinese economically without empowering them politically. The new Chinese leadership apparently believes that ordinary folk want material goods, and not much else.
The problem is that even if ordinary folk take only an occasional interest in politics, they nonetheless like to know they can discipline a wayward leadership. As their property holdings and economic interests multiply, they have more material interests to defend against predatory or fickle regimes. While political scientists still debate whether rising incomes and ownership drive the push for democratic reform, over the long run, the two seem to go together.
For years, China's leadership has wrestled with this issue. Right now, the old guard, which believes the ruling party's uncontested power can be built atop economic success, seems in control. On the upside, by reducing the Standing Committee of the Politburo from nine to seven members, China has given itself a tighter, potentially more decisive leadership. Moreover, unlike in past transitions, China's outgoing leadership has relinquished positions of control. China's new rulers will thus enjoy greater freedom of movement.
In the short run, given the weight of conservatives, this could inhibit liberalisation. But if, as seems more than possible, China's problems multiply, the leadership would be in a position to shift to a reformist agenda.
The Israeli diplomat Abba Eban once quipped that humans always act wisely, but only after first exhausting all other options. Over the next few years, China's leadership may try exhausting the conservative options, possibly causing some economic instability. If that happens, they can only hope they don't wait too long to begin proper political reform.