Dr. Thomas Lairson Professor of Political Science XI Jinping This is a collection of materials relating to the leader of the Chinese Communist Party and President of China, XI Jinping. Nyt

NYT Vows of Change in China Belie Private Warning

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Vows of Change in China Belie Private Warning

Published: February 14, 2013 21 Comments

HONG KONG — When China’s new leader, Xi Jinping, visited the country’s south to promote himself before the public as an audacious reformer following in the footsteps of Deng Xiaoping, he had another message to deliver to Communist Party officials behind closed doors.

Feng Li/Getty Images

Xi Jinping came to power at a time when the pressure of public expectations for greater official accountability is growing.

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Despite decades of heady economic growth, Mr. Xi told party insiders during a visit to Guangdong Province in December, China must still heed the “deeply profound” lessons of the former Soviet Union, where political rot, ideological heresy and military disloyalty brought down the governing party. In a province famed for its frenetic capitalism, he demanded a return to traditional Leninist discipline.

“Why did the Soviet Union disintegrate? Why did the Soviet Communist Party collapse? An important reason was that their ideals and convictions wavered,” Mr. Xi said, according to a summary of his comments that has circulated among officials but has not been published by the state-run news media.

“Finally, all it took was one quiet word from Gorbachev to declare the dissolution of the Soviet Communist Party, and a great party was gone,” the summary quoted Mr. Xi as saying. “In the end nobody was a real man, nobody came out to resist.”

In Mr. Xi’s first three months as China’s top leader, he has gyrated between defending the party’s absolute hold on power and vowing a fundamental assault on entrenched interests of the party elite that fuel corruption. How to balance those goals presents a quandary to Mr. Xi, whose agenda could easily be undermined by rival leaders determined to protect their own bailiwicks and on guard against anything that weakens the party’s authority, insiders and analysts say.

“Everyone is talking about reform, but in fact everyone has a fear of reform,” said Ma Yong, a historian at the Chinese Academy of Social Sciences. For party leaders, he added: “The question is: Can society be kept under control while you go forward? That’s the test.”

Gao Yu, a former journalist and independent commentator, was the first to reveal Mr. Xi’s comments, doing so on a blog. Three insiders, who were shown copies by officials or editors at state newspapers, confirmed their authenticity, speaking on the condition of anonymity because of the risk of punishment for discussing party affairs.

The tension between embracing change and defending top-down party power has been an abiding theme in China since Deng set the country on its economic transformation in the late 1970s. But Mr. Xi has come to power at a time when such strains are especially acute, and the pressure of public expectations for greater official accountability is growing, amplified by millions of participants in online forums.

Mr. Xi has promised determined efforts to deal with China’s persistent problems, including official corruption and the chasm between rich and poor. He has also sought a sunnier image, doing away with some of the intimidating security that swaddled his predecessor, Hu Jintao, and demanding that official banquets be replaced by plainer fare called “four dishes and a soup.”

Yet Mr. Xi’s remarks on the lessons of the Soviet Union, as well as warnings in the state news media, betray a fear that China’s strains could overwhelm the party, especially if vows of change founder because of political sclerosis and opposition from privileged interest groups like state-owned conglomerates. Already this year, public outcries over censorship at a popular newspaper and choking pollution in Beijing have given the new party leadership a taste of those pressures.

Some progressive voices are urging China’s leaders to pay more than lip service to respecting rights and limits on party power promised by the Constitution. Meanwhile, some old-school leftists hail Mr. Xi as a muscular nationalist who will go further than his predecessors in asserting China’s territorial claims.

The choices facing China’s new leadership include how much to relax the state’s continuing grip on the commanding heights of the economy and how far to take promises to fight corruption — a step that could alienate powerful officials and their families.

“How can the ruling party ensure its standing during a period of flux?” asked Ding Dong, a current affairs commentator in Beijing. “That’s truly a real challenge, and it’s creating a sense of tension and latent crisis inside the party.”

Mr. Xi and his inner circle have about 18 months to consolidate power and begin any big initiatives before preparations for the next Communist Party Congress and leadership reshuffle in 2017 start to consume elite attention, said Christopher Johnson, an analyst on China at the Center for Strategic and International Studies in Washington.

“For now, he’s a guy who’s trying to be two things at once,” said Mr. Johnson, formerly a senior China analyst for the C.I.A. “The question is: How long will they be able to get by with gestures like four dishes and a soup before they have to make the hard choices?”

So far, Mr. Xi has been busy distinguishing himself from his predecessor through an energetic succession of visits and speeches. Mr. Hu, who formally remains state president until next month, when Mr. Xi will take over that post, also came to power accompanied by widespread expectations of change. But he proved to be a rigidly unadventurous leader.

In recent weeks, Mr. Xi has promised to clean up Beijing’s noxious smog and make it easier to hail a cab on the city’s congested streets. Before that, Mr. Xi also vowed that the party would allow “sharp criticism” of its failings, and said “power must be held in an institutional cage.”

Censors have allowed photographs showing Mr. Xi as a relaxed man of the people to spread on the Internet, including one of a jolly encounter with a man in a Santa Claus costume during a trip overseas.

Mr. Xi “doesn’t want to be known as Hu Jintao is known, as someone who didn’t make much progress,” said Ezra Vogel, an emeritus professor of social sciences at Harvard University who recently visited China, a country he has studied for decades.

Yet Mr. Xi has qualified his promises in ways that have already disappointed some proponents of faster market-driven change and political liberalization. In one speech, Mr. Xi said that change must be piecemeal, citing Deng’s dictum that progress is made “crossing the river by groping stones.” In another, he said Mao Zedong’s era of revolutionary socialism should not be dismissed as a failure.

He has also repeatedly demanded that the military show unflinching loyalty — a principle that, in his view, the Soviet Communist Party under Mikhail S. Gorbachev fatally failed to uphold.

Mr. Xi, 59, is the son of a revolutionary who worked alongside Mao until he was purged and jailed. A senior commentator for a major Chinese newspaper said that political patrimony had made Mr. Xi even more sensitive to showing that “while talking about reform, he also wants to tell the party that he won’t become a Gorbachev.”

Unlike the former Soviet leader, Mr. Xi presides over an economy that, for all its hazards, has grown robustly over three decades, propelling China to greater international influence. But Chinese officials have warned that rising stature is also generating external rivalries and domestic demands that would magnify the damage from political missteps and schisms.

“We’re a major power, and we absolutely cannot allow any subversive errors when it comes to the fundamental issues,” Mr. Xi told party officials in Guangdong. “If that happens, there’s no going back.”
The Diplomat

What Will the National People’s Congress Bring?

By David Cohen

March 2, 2013

With the opening of the National People's Congress (NPC) next week, China's long transition season is coming to an end.  Incoming leaders Xi Jinping and Li Keqiang will take over the government as President and Primer during the session, and they will have their first chance to present new laws.  If they have plans to begin taking on the interest groups which dominate China's state economy, this is the venue where they will present them.

From the reports which have emerged so far, it seems that there are three areas to watch for economic reforms: organizational changes to the government, environmental protection, and urban housing and local government finance. 

Organizational changes would be the key to taking on the tight bonds between state-owned companies and regulators which largely protect the former from private competition.  Changes to local government finance could reduce their dependence on bank financing and land sales, making it possible to address the issues of forced demolitions and “financial repression” – the reliance on the savings of Chinese depositors to finance government.

Organizational reform:

Major reforms in China have historically required changes to the structure of the government – with weak systems for internal oversight, what the law says is less important than who implements it.  The last decade has seen more and more power accrue to institutions like the National Reform and Development Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT), which focus on industrial policy and have been closely involved in the push to make the largest SOEs into “National Champions.”  They protect the privileged status of these companies, and a push toward market competition will require reducing these agencies' powers and giving market-oriented agencies the power to compete with them.

The Party's Central Committee has already approved a restructuring plan, which will be formally ratified at the NPC.  Although the details have not yet been announced, Xinhua reports that it will “further separate government administration and enterprises,” which fits with Caixin's and Bloomberg's reporting that the enormous – and corruption-plagued – Ministry of Railroads will be broken up, with the regulatory functions given to the Ministry of Transportation and operations spun off as a new SOE.  This is progress – and it would mean that regulators' salaries will no longer be directly paid by profits from the industry, although massive SOEs have proved adept at manipulating their regulators without this advantage.

The same reports suggest that nothing will be done to the NDRC and MIIT, despite rumors in recent months.  This would be unsurprising – Chinese leaders usually start weak and accumulate power as they get opportunities to place their people in influential jobs, and a shaky economy has created fears of a recession that might threaten the Party's legitimacy.  A Chinese leader would have to feel very secure indeed to start his term as President by taking on the largest interest groups in the system and the main drivers of China's recent economic growth.

Cheng Li of The Brookings Institution disagrees, arguing that Xi's popularity and relatively united Politburo gives him the strength to take on the NDRC now.  He also gives a good overview of other proposed changes to government structure in an interview with the Wall Street Journal's Tom Orlik.

In addition to reducing the power of SOE-focused agencies, a move away from state-driven growth would require finding champions for the market economy – and the waiver of mandatory retirement for central banker Zhou Xiaochuan has led Reuters to argue that the People's Bank of China has been nominated for this role. 


Action on the environment is, of course, long overdue, and needed to address the increasingly dangerous levels of air (as well as water and soil) pollution that have been spectacularly demonstrated in Beijing this winter.  Given the recent outcry over pollution within China, it seems certain that the government will address it.  But this issue too has an institutional dimension – China's environmental standards are enforced by local governments, which are simultaneously responsible for managing the local economy, making them beholden to polluters.  All too often, they are also the owners of local state-owned companies engaged in heavy industry, and rely on them for revenue.

In this context, Daniel Rosen at China Economic Watch argues that the recent guidelines on consolidating heavy industry from the Ministry of Industry and Information Technology are a good sign: the plans call for rolling up local SOEs into a few regional and national companies, taking them out of the hands of local governments.  But unless local officials can be convinced that providing clean air and water is as important to their careers as growth and employment, they will remain locked in a race-to-the-bottom competition to attract investment. This portends poorly for the environment.

Local government:

Revamping local government financing is an unsexy topic, but if Li Keqiang is able to make changes stick it could be a boon to long-awaited rebalancing away from investment-driven growth – and give the government some room to make progress on stopping land seizures and forced demolitions.  These are issues of major concern to China's leaders.  Li Shenming, a high-ranking member of the legislature and China's ministry-level Academy of Social Sciences, made a public call for urgent reforms this week, suggesting that they will be on the agenda at the NPC.

As Rosen notes, taking local SOE revenue out of the already-strained finances of local governments by restraining land sales will require giving them a new source of funds.  Reuters reports that this may happen with a reform to China's bond market that will open it to municipal governments, which have been forbidden from issuing bonds since the reforms to government finance of the mid-90s.

If the bond markets attract private investors, they could allow China to address two huge issues – forced demolitions and dependence on bank deposits for government financing.  As the new book China's Superbank argued, these are closely related: municipal governments rely on bank loans for their finances, which are secured by effectively selling in advance decades' worth of land sale revenue through local government financing vehicles, which commits them to continuing land seizures in order to make their debt payments.  Meanwhile, the capital for these loans largely comes from bank deposits, which pay extremely low interest rates and rely on a lack of alternative opportunities for investment to attract customers.

Municipal bonds could allow local governments to appeal to investors directly (or, more precisely, through the mediation of the Ministry of Finance), competing with banks to offer better returns.  This seems to be the plan, as other changes – such as increased capital requirements – seem to be having some effect.  This week, China's fifth-largest bank raised deposit rates for the first time since regulations permitting such competition were issued in June.

Of course, bonds also have to be paid, so without creating other sources of revenue they will not loosen the pressure on local governments to sell land. 

  • WSJ

  • March 1, 2013, 3:46 PM

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