EconoMonitor

Tough Leaders, But Liberal Reforms in Uncertain World – Chinese Leadership Transition

Although seen as hard-core conservatives in the West, China’s new leaders will move toward liberal reforms.

As expected, Vice-President Xi Jinping, 59, was set to succeed outgoing leader Hu Jintao as party chief, while Vice-Premier Li Keqiang, 57, is now on course for a top-level post by next March.

Like President Hu Jintao and Premier Wen Jiabao, Xi and Li will support the market forces, while seeking to bridge income polarization. In the short-term, both will focus on sustaining China’s legacy of growth and equity, to emphasize continuity amidst change.

By mid-2013, Xi is likely to develop his signature policy platform. At the broadest level, these policies are likely to focus on structural reforms economically, continued inner-party democratization politically, an intensified struggle against corruption internally, and China’s rising global clout internationally.

Unlike Xi, Li Keqiang will receive his full official mandate next March. President Hu’s protégé represents a balancing force. As the new premier, Li Keqiang will be tested by housing policy. He must ensure that property markets will continue to play a vital role in growth, market speculation will not hinder these efforts. He must also oversee the production of 36 million affordable housing units for ordinary Chinese.

In the West, the Xi-Li duo and the new leadership has already been seen as a return to conservatism. That’s a misperception. China is moving toward liberal reforms, but such changes require tough hands.

Liberal reforms, conservative leaders

In the past few months, anticipation has steadily climbed in Beijing as the old Standing Committee of the Politburo will be replaced by the new one. However, the chances of a younger generation of liberal reformers may have been affected by an intense internal debate, the Bo Xilai incident, U.S. rebalancing in the region, and the deteriorating international economic environment. These forces favor tough leaders and solid performers.

After the insulation of Bo Xilai in Chongqing, Zhang Dejiang, 66, took over his position in the megacity. Seen as a steady hand amidst crises, Zhang reorganized the government, the Hong Kong, Taiwanese and foreign investors about Chongqing’s stability. Though associated with conservatives, he is also supported by former president Jiang Zemin and the party’s pro-growth wings. While his tough style has not pleased critics, he has thrived with market forces in Jilin and Zhejiang in the late 1990s and in Guangdong in the early 2000s.

The new lineup also favored Liu Yunshan, 65, the director of the Party’s propaganda since 2002. While Liu first made his mark close to Hu Jintao’s Youth League in the Inner Mongolia. In the West, Liu is seen as a chief censor who has supported excessive media controls and thus as a hard-core conservative. However, Liu has also been supported by former party secretary Jiang Zemin.

Yu Zhengsheng, 67, the party leader of Shanghai, also made it to the Standing Committee. Like the more conservative members of the lineup, Yu has great political savvy, and has navigated across many crises. Like Xi himself, Yu and his family had suffered through the Cultural Revolution. Born in an old artistocratic Chinese family, Yu has served as a mayor in Qingdao, party head in Hubei, and most recently in Shanghai. Like other reformers, he has welcomed greater scrutiny of public officials and the intensified anti-corruption struggle.

The new lineup also includes Tianjin’s “talk less, do more” party chief Zhang Gaoli, 65, who likes to avoid the spotlight and get things done. In the Party, he is primarily known for his economic policies.  Close to former president Jiang Zemin, Zhang is also highly regarded among Hu Jintao’s proponents.

Taking anti-corruption struggle to a new level

As Vice-Premier Wang Qishan, 64, was elevated to the Central Commission for Discipline Inspection (CCDI) on Wednesday, the way was paved for him to lead the anti-graft agency. The move set up his rise to the No7 spot on the new Politburo Standing Committee. Until recently, the former mayor of Beijing was in charge of the economic track of the U.S.-China Strategic and Economic Dialogue (S&ED).

As the disciplinary chief, Wang shall enjoy full authority over a portfolio, while as a vice-premier he would have had to defer to Li. The transition will not be easy to the hands-on economic policy expert. On the other hand, there is a great and urgent social need for his strong personality at CCDI. Last March, Xi Jinping gave an influential speech at the Central Party School, emphasizing the need for the collective responsibility, which he defined as the absence of individual interests among the party members. The struggle against corruption and private moral hazards is about to move to a new level.

In the West, the new lineup will be portrayed primarily as a victory for the “conservatives,” at the expense of the “reformers.” After all, the Western sinologists argue, highly-regarded “liberals” did not make it to the Standing Committee.

Wang Yang, 57, former chief of Chongqing and current party chief of Guangdong, has been an influential supporter of market forces, political reforms and anti-corruption struggle. Despite his low profile, Li Yuanchao, 62, has significantly contributed to increasing professionalism in the Party’s internal promotion. However, Wang is still young and could well join the top next time. In turn, Li’s professional credits were not broad enough for the new lineup.

What is relevant with the Chinese leadership transition is that it is driven by a huge turnover. Nearly half of the new Central Committee are newcomers. As big boomers march into the leadership hierarchies, Chinese governance will grow more professional, more diversified and more international.

Short-term rebound, medium-term goals, but long-term transition

The medium-term objective of the new leadership is to make China’s development “more balanced, coordinated and sustainable.” As President Hu Jintao said in his keynote, China should double its 2010 GDP and per capita income for both urban and rural residents (by 2020).

This is the first time that per capita income has been included in the country’s 2020 blueprint for a moderately prosperous society. Previous targets set at the 16th and 17th CPC national congresses merely called for the growth of the GDP.

The medium-term objective can be accomplished only through liberal economic reforms. When a year ago, Beijing was pondering the 12th 5-year plan, Xi Jinping gave his support to the acceleration of economic reforms, by saying that it is necessary to “pay even more attention to a top-level design for reform and a long-range plan for reform.” In the long-term, this means a transition with five preconditions:

  • Structural reforms and a shift from an investment-driven growth to consumption…
  • That, in turn, is predicated on expanding social security and health services.
  • In the private sector, it means a shift from cost efficiencies toward innovation-driven competitiveness.
  • It also requires sustainable development.
  • And reinforcing local governance and an increased momentum in the integration of China into the world economy.

There are three important benchmarks for success: in addition to the impending struggle against corruption, affordable housing amidst urbanization, and privatization of SOEs. In particular, the reforms require the privatization of the state-owned enterprises, which is supported by the influential National Reform and Development Committee (NRDC), but resisted by State-owned Assets Supervision and Administration Commission (SASAC).

China’s soft landing eclipsed around January and February, when Beijing moved toward a “mini-stimulus”; a broad array of different fiscal and monetary policies, cuts in interest rates and reserve ratios, infrastructure projects, tax relief, subsidies and investment projects among provinces and state-owned enterprises. Concurrently, deregulation took off in the financial sector. U.S. stagnation and the Eurozone crisis contributed negatively still in April data, which led Beijing to accelerate the mini-stimulus.

The impact has been prominent in the third quarter. Now annual growth is in target; around 7.5-8%, as long as local debt will no longer expand.

As Brussels is coping with increasing headwinds, Washington must tackle the post-election fiscal cliff and Tokyo is struggling with its third lost decade, the Xi-Li duo will seek to protect China from the global crisis, while supporting China’s sustained reforms and integration into the world economy.

2 Responses to “Tough Leaders, But Liberal Reforms in Uncertain World – Chinese Leadership Transition”

Lexi HallJuly 7th, 2013 at 2:35 am

Leadership is one of the important traits which should be followed by the help of some different and unique leaders. In China it was seen the prevailing leaders are interested in bringing liberal reforms and bring out conservative leaders. And we need to bring out structural reforms to our leadership skills. The above information is quite helpful and informative.

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