China’s Inevitable Changes

By Rodger Baker and John Minnich

stratforThe Central Committee of the Communist Party of China will convene its Third  Plenum meeting Nov. 9. During the three-day session, President Xi Jinping’s  administration will outline core reforms to guide its policymaking for the next  decade. The Chinese government would have the world believe that Xi’s will be  the most momentous Third Plenary Session since December 1978, when former  supreme leader Deng Xiaoping first put China on the path of economic reform and  opening.

Whether or not Xi’s policies will be as decisive as Deng’s — or as  disappointing as those of former President Hu Jintao — the president has little  choice but to implement them. China’s current economic  model, and by extension its political and social model, is reaching its  limits just as it had prior to Deng’s administration. The importance of the  upcoming meeting is that it comes at an inflection point for China, one that its  leaders can hardly afford to ignore.

A Fundamental Challenge

It is worth recalling just how extraordinary Deng’s 1978 meeting was. Mao  Zedong had died only two years earlier, taking with him what little remained of  the old pillars of Communist Party legitimacy. China was a mess, ravaged by  years of economic mismanagement and uncontrolled population growth and only  beginning to recover from the trauma of the Cultural Revolution. Had the  People’s Republic fallen in 1978 or shortly thereafter, few would have been  truly surprised. Of course, in those tense early post-Mao years hardly anyone  could foresee just how rapid China’s transformation would be. Nonetheless,  battling enormous institutional constraints, Deng  and his colleagues quickly set up new pillars of social, political and economic  stability that guided China through the fall of the Soviet Union and into  the 21st century.

Although Xi presides over China during a time of economic prosperity, not  disrepair, perhaps not since Deng has a Chinese leader faced such formidable  challenges at the outset of his tenure. Former Party general secretaries Jiang  Zemin, and to a greater extent Hu, could largely follow the lead of their  predecessors. Jiang, emerging as a post-Tiananmen Square leader, was faced with  a situation where the Party was rapidly losing its legitimacy and where  state-owned enterprises were encumbering China’s economic opening and reform.  But internationally, China’s position was relatively secure at the beginning of  Jiang’s term in office, and by the time he took on the additional role of  president in 1993, the decline of the Japanese economy and the boom in the  United States and the rest of Asia left an opening for China’s economy to  resurge.

These conditions enabled Jiang’s administration to enact sweeping  bureaucratic and state sector reforms in the late 1990s, laying much of the  groundwork of China’s post-2000 economic boom. When Hu succeeded Jiang in  2002-2003, China’s economic growth was seemingly unstoppable, perhaps even  gaining steam from the Asian economic crisis. The United States, which had  seemed ready to counter China’s rise, was instead fully focused on Iraq and  Afghanistan, and though the Communist Party of China was not exactly seen as the  guiding moral compass of the state, the role of print and social media in  raising criticism of Party officials had not yet exploded.

As Xi prepares his 10-year plan, China has reached the end of the economic  supercycle set in motion by Deng. Public criticism of officials and thus of the  Party is rampant, and China’s military appears  much more capable than it actually is, putting China is a potentially  dangerous situation. Once again the United States is looking at China as a power  perhaps to contain or at least constrain. China’s neighbors seem eager for  Washington’s assistance to counterbalance Beijing’s influence, and long-dormant  Japan is awakening once again. Xi may not have to rebuild a fractured Party or  state as Deng did, but in some ways he faces the same fundamental challenge:  redirecting and redefining China.

China can no longer follow the path it has in previous decades. Deng emerged  as China’s paramount leader out of the struggles and chaos of the Gang of Four  era and the Cultural Revolution. He redefined what China was and where China was  going, not out of a desire to try something different or an infatuation with  “Western” economic models but out of a fundamental need to change course.  Whether Xi wants it to be or not, China is at another crossroads. He has little  choice but to make consequential decisions, lest he leave China scrambling from  one quick fix to another at the expense of long-term opportunities.

The Perils of Rapid Reform

Reform, with “Chinese characteristics,” is not about Westernizing the Chinese  model. Rather, it is about reshaping the relationship between the Party, the  economy and the people in a way that will maintain the centrality of the Party.  This may require improving the efficiency of the Party and governing structures,  changing the organization and rules of business, and deferring to the rights and  responsibilities of the citizenry. But while this will likely entail selectively  scaling back the Party’s power in certain areas, it does not mean the overall  reduction of Party power.

Since the founding of the People’s Republic in 1949, the Party has been  constitutionally at the center of Chinese leadership. Mao’s authority stemmed  from his role as chairman of the Central Committee of the Communist Party of  China, a position he held from 1945 until his death in 1976. Concerned by Mao’s  concentration of power, Deng never adopted the same titles, though he still  managed China through the Party, drawing strength and authority through his  careful balancing of retired and serving Party officials. In 1993, the Party  general secretary took on the parallel role of the president. Jiang served in  both roles, as did Hu and Xi.

The consolidation of Party and political leadership was made clear in the  formula. It is matched by the general secretary and president also holding the  dual roles of chairman on the two parallel Central Military Commissions, one  under the Party and the other under the state. Under Mao, the Party and the  state were united in the figure of Mao himself. In the 20-year transition from  Mao to Jiang, the Party remained synonymous with the state, but the  consolidation of power in a single individual was replaced as Deng sought to  initiate a system of group leadership to avoid the rise of another strongman.  Jiang’s accession to the presidency formalized Party-government leadership, but  consensus leadership constrained his power. Jiang may have technically held all  the key posts of power, but other power brokers in the Politburo could  counterbalance him. The system ensured that the paramount leader remained  constrained.

This group dynamic allowed the Party to avoid the rapid and far-reaching  policy swings of Mao, but it created stagnation in the bureaucracy and state  sector. Ensuring the right web of connections often became more important than  fulfilling the responsibilities of the Party or the state. Deng’s machinations  helped eliminate strongman politics and degraded political factions like the  Gang of Four, but these were replaced by more complex and widespread  bureaucratic and industrial patronage networks. The result was more a web than a  set of individual strings. No longer could any one interest press entirely  against another without risking the entire structure. The intertwining threads  were just too complex. Rapid policy swings were impossible and factional battles  that threatened the fabric of the state were effectively eliminated, but the  cost was a decision-making process that was increasingly cumbersome and timid.  Radical reform would never make it through the process of consensus building,  and any policy deemed harmful was met with resistance.

This worked well during China’s boom. Though China was corrupt, beset with a  cumbersome regulatory environment and prone to violations of intellectual  property rights, it was fairly predictable overall, unlike so many other  developing economies. The consensus model was also more attuned to social  stability, constantly making tiny adjustments to appease or contain the demands  of public sentiment. In times of slowed economic growth, China’s leaders would  stimulate the economy. In  times of apparent overheating, they could cut back on credit. If people were  frustrated with local officials, the central government would alternately remove  the accused leaders or crack down on the protesters. But when the foundation of  China’s economy began to shake after 2008, when China’s  very success drove up wages and prices as its biggest consumers faced  serious economic problems of their own, China’s consensus leadership proved  unequal to the task.

During China’s rise, Beijing needed only minor adjustments to maintain  stability and growth. But now that the country is in a far different set of  circumstances, Beijing needs a major course correction. The problem is that  consensus rarely allows for the often radical but necessary response. And for  good reason: The success of radical change is not guaranteed. In fact, history  suggests otherwise, as it did notably with the case of Mikhail Gorbachev and the  Soviet Union.

Adaptation

To overcome the limitations of consensus leadership, Xi apparently is trying  to strengthen the role of president. He wants to redefine the presidency so that  it is not merely the concomitant title for the Party leader but also a post with  a real leadership role, similar to the presidencies of other major  countries.

This is a way to compromise somewhere between consensus and strongman. The  presidency should not exceed the Party, but as the head of state, Xi is hoping  to use his position to have a greater say in how the Party is restructured. The  first target is the bloated bureaucracy. Already there are signs that several of  the reforms are about removing layers from China’s bureaucratic structures. This  should add efficiency to the system (its stated goal), but it may also confer  greater central oversight and control by cutting through the webs of vested  interests that have taken hold in many of China’s most powerful  institutions.

The reforms slated for the economic sector are similar. They will introduce  more market and competitive mechanisms while giving Beijing greater control over  the overall structure. Consolidation, efficiency, transparency, reform and  restructuring are all words that possess dual meanings — one regarding more  efficient and more flexible systems, the other regarding systems that the center  is better able to direct. At a time when China needs radical change, it first  needs to change the mechanism through which policies are decided and enacted.  The government hopes that by disengaging from constant, restrictive intervention  into certain sectors, it will have greater capacity to intervene selectively,  focusing on enforcement and compliance rather than dictating every move of  state-owned enterprises. There is no guarantee that these reforms will work or  that they can be implemented effectively or smoothly. China has seen three  decades of economic growth, and in turn three decades of more tightly woven  relationships and knitted interests. Unraveling any thread can rapidly degrade  the entire structure, unless stronger central replacements are already in  place.

China’s leaders are facing the difficult task of adjusting once again to  changing circumstances. Political legitimacy and control remain closely linked.  It is Xi’s position as head of the Party that ostensibly gives him legitimacy as  head of the state. But to create a more nimble and adaptive government, Xi is  seeking to harness the people in a slight reversal, using his role as president  to rebuild the legitimacy of the Party, and in doing so take stronger control of  the Party mechanisms. This is a difficult balance. But China is at a turning  point, and without nimble leadership, a system as large and complex as China can  move very rapidly down an unpredictable and uncontrollable path. The leadership  can attempt to take control and hope for success, but the consensus system and  entrenched and bloated bureaucracy are reaching the end of their effectiveness  as China enters uncharted economic and social waters.

China’s Inevitable Changes is republished with permission of Stratfor.

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