Chinese President Xi Jingping
Two weeks on and with a more considered perspective, the outcome of China’s leadership changes – which to so many observers at first looked disappointing – could in fact be what is needed over the next few years.
It is said that managing change typically requires four distinct phases to occur in the following sequence:
1. The pressure for change.
2. A sense of urgency.
3. A clear shared vision.
4. The capacity to change.
If these are not in place, the change process ultimately will fail, for different reasons.
Certainly the pressure for change – particularly economic changes – is recognised in China and there are elements that are already under way, such as: reforms to the domestic capital market, particularly the local corporate bond market, a needed re-balancing of the economy, the recurrent need for the increasing internationalisation of the yuan, a more professional management process, a rationalisation of the state-owned enterprise sector and a growing role for the private sector, where 70 per cent of Chinese are employed.
Most of these issues, in fact, are interconnected. So it is important to understand the political and economic leadership of China, which is already seeing many changes. The key is that the focus is now clearly on economic reform, rather than political reform, and the PSC leadership group of seven in the Politburo Standing Committee is a competent one, as are most of the 25 members of the inner sanctum (including two women) now officially behind them in the wider Politburo.
The real insight however is that Xi Jinping (aged 57) and Li Keqiang (59) will be the only two still there in five years, as all the other five members of the PSC will have to step down and retire.
So any political change and possible evolutionary political reform obviously has been put off until 2017. The new elite running the world’s second biggest economy and Australia’s biggest market – and a growing would-be superpower – has been widely perceived as cautious, conformist and likely circumspect.
The Communist Party has watched with alarm first the collapse of the Soviet Union and now the unfolding Arab Spring and – as was brutally evident in Tiananmen Square in 1989 – is clearly determined to quash anything that smacks of enthusiastic, political, reformist pressures over the next five years.
However, Hu Jintao (70) will still be around and present when Jiang Zemin (86) passes away and at that juncture will have greater influence with Li Keqiang remaining close beside him.
Although liberal leaders Wang Yang, the Guangdong Province party leader, and Li Yuanchao, were not appointed to the PSB, which is considered to be the Chinese Communist Party’s chief decision-making body, they are still influential members of the wider Politburo’s 25-member inner sanctum and are fully expected to gain influence over the next five years.
HSBC economist Donna Kwok says the new leadership team in China should be expected to step up economic liberalisation. Speaking in Sydney a few days after the leadership changes, she said: “What we have seen over the last few months, especially in the run-up to the leadership transition, supports our view that things will actually pick up pace.” Kwok points to recent liberalisation measures, including doubling the band within which the Chinese currency could trade, an important step towards the liberalisation of the RMB and which happened less than a year before the leadership change.
She points out another significant step in the past year, when the government liberalised the rates Chinese banks could pay on deposits, which before had been set by the People’s Bank of China.
The government also has significantly boosted the quota for foreigners to buy Chinese shares to $US80 billion from $US30 billion and established a new program allowing foreign investors to invest in China using Chinese currency earned offshore.
So after the movements during the past year, it is now over to the new leadership team to create the shared mission narrative and to manage the capacity for economic change that is ahead in China. It will be a challenge, but the foundations have been laid.