China’s Visible Vs Invisible Hand

All seems to be going to plan as the Party’s annual meeting draws to its close. Vice-Premier Xi Jinping (left) has been appointed as vice-chairman of the Central Military Commission, seen as an essential way station on his path to the presidency in succession to Hu Jintao who steps down as head of the Party in 2012 and as president the year after. Though Xi didn’t get the expected CMC vice-chairmanship last year, the top job is now his to lose.

Hu is also currently head of the commission, as is customary for China’s top leader. Control of the military underpins the Party’s hold on power while its ability to continue delivering economic growth for all underpins its legitimacy to govern. The new five year economic plan for 2011-15 takes continuing growth as a given and will concentrate on closing the social stability threatening wealth gaps that have opened up between rich and poor and between coastal and inland areas.

The ever strengthening ties between the Party, state and officials and the policy of promoting national champions in strategically important industries (129 companies who now account for two-thirds of GDP) will give Xi and his likely prime minister, Li Keqiang, a means to do that: a visible hand on the tiller of economic development rather than the invisible hand of the market. The princeling Xi’s reported pro-business sentiments may be better regarded as being supportive of a cosy relationship between Party and state officials and big business. Indeed, the industrial champions have a formal role under the new five-year plan to ensure its smooth fulfillment. An unintended but inevitable consequence may be growing friction between the means of implementing the goals of the economic plan of the new leadership and the aspirations of countries like the U.S. and the E.U. who want China to become a full market economy.

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