Economic Reform Will Be Slow and Cautious

Chinese leadership successions are exercises in continuity. It takes several years for the top Party, state, government and military jobs to be transferred from one generation to the next, even if the passing of the very top ones involves just two men, Hu Jintao and Xi Jinping. The new leadership also inherits a five-year plan that more than spans the duration of that extended transition. Xi becomes only Party Secretary this month; Hu Jintao remains president until next year and chairman of the Party’s military commission, which oversees the PLA, until 2014. The five-year plan lasts until 2015.

This week’s Party Congress is only the formal start of a handover that has also been underway for several years in as much as the next president and prime minister have long been identified even if the factional infighting for places at the highest table, the Politburo standing committee, continues to the last. But it is a public face of unity and Party monopoly that the process is designed to project, one reason that the Bo Xilai affair this year has been so unsettling to the top leadership.

Further complicating Xi’s assumption of power is that he will have not just one former president looking over his shoulder in Hu, but a second as well, Hu’s own predecessor Jiang Zemin, who has re-emerged in this leadership transition as a power broker on behalf of his Shanghai faction. Xi will have to move patiently to consolidate his position (though no one rises to the apex of the Party without postion consolidation as a core skill). But that will mean there is unlikely to be rapid movement on economic reform. It is at a point where entrenched vested interests have to be moved. Xi will have only limited political capital to do that at the outset. Even discussion of the next steps in economic reform will wait until after next year’s National People’s Congress.

In the meantime, the policy priority, clearly laid out by Hu in his speech to the Party Congress this week, is to maintain political and social stability. That is to be done by generating high and stable economic growth; providing a basic social security net to head off social unrest, and for which the growth is needed to pay for; and providing good governance in the absence of anything that looks like multi-party elections, this last being a reason that tackling corruption has been played so prominently, just as it was during the leadership transition of 10 years ago.

Within those constraints, economic reform will be restricted to measures to narrow the wealth gap, raise the income of the lower paid to stimulate domestic consumption, provide greater access to credit from the formal banking (i.e. state-owned) system to the private sector and those in the countryside, a switch in emphasis to the quality of economic growth more than its quantity as measured by raw GDP growth, necessary anyway as the economy moves to structurally slower growth, but also to address the growing popular concern about environmental degradation, and tertiary and vocational education reform to fill the skills gap of an economy moving up the development ladder. None are barriers to economic reform, but all are baby steps in moving it forward.

Nor does any of that offer a serious challenge to a patronage-laden Party-led economy. More market-oriented reforms could, and, because they would mean institutional reforms, could eventually challenge the Party’s monopoly on power. Political reform and the development of civil society remains a long way down the road.  Economic reform has to precede it under the so-called Beijing consensus of development. It is a chicken an egg argument that can be used to postpone political reform almost indefinitely, or at least for as long as the system can hold up and produce rising income levels. Hu’s target of doubling the economy and per capita income by 2020 suggests the leadership believes there are legs to the strategy. Not all are so sanguine.

At best, there will be some reform of the Party, particularly to make it more meritocratic and self-accountable, but always within a framework of its unchallenged primacy in the body politic. But absent the acute crisis that initiated substantial economic reform in the late 1970s and early 1990s, certainly possible if not probable, the rebalancing of China’s economy will continue to be slow and cautious.

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