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China is clearly at a political turning point, something that does not get much attention from Western pundits. Instead, the focus tends to be on economics and finance, perhaps because they are easier to interpret. Thus, over the first six months of this year, almost all of the more respected China economic analyses have focused on just three things:
1. The economic story and the management risks associated with its potential bubbles: inflation pressures, loose monetary policy, rising property prices, government off balance sheet financing.
2. The 12th five-year plan, publicly released in March, which officially addresses Premier Wen Jiabao’s “Un” concerns about the economy: unbalanced, uneven, unco-ordinated and unsustainable in the longer term.
3. The “game-changing” effects from starting the internationalisation of the yuan, which is occurring much sooner than many envisaged.
The latter development has been the most surprising. Much like China’s accession to the World Trade Organisation (the initial agreement was struck in 2001) it is forcing on the Chinese leadership more reforms and a greater opening up. The WTO reform imperatives largely ceased in 2006-07 due to growing political disagreements, a slowing that the global financial crisis further exacerbated. Much of the leadership began to believe that the Western model of capitalism was broken. It was a poor assumption and many Chinese commentators are coming to that realisation.
Much will be played out in the next 15 months when seven of the nine political and economic leaders will officially change on China Day in October 2012. The only two leaders who will remain are Xi Jinping and Li Keqiang. Hu Jintao and Wen Jiabao wanted the economics-focused Li Keqiang to become the next leader. But Jiang Zemin’s “fixer”, Zeng Qinghong had organised for Xi Jinping, a princeling with a family history in the party and from the same province as Zeng, to be given the role.
Chinese politics is entering a fascinating and crucial process, if characteristically opaque. Australian corporations should watch closely.
Not that there will be many clues about what is going on. There has been a conscious attempt over the past five years to hold important policy debates internally.
Disagreements are many and they have been intensifying but have mainly been resolved by compromise and consensus, largely for two reasons. One is that there is an even split between the princeling faction (birthright) and the Tupai faction (meritocracy). Wen and Hu are in the second. Ever since the departure in 2003 of former premier Zhu Rongji – a man who was often referred to as “One Chop Zhu” because of his decisiveness – there has been a conscious effort for everyone to sit in the boat and row in the same direction, in the belief that if anyone stood up, the boat could capsize and everyone would fall out.
An instance of the growing policy disagreement was seen when Wu Banguo, the number two in the Supreme People’s Court (Wen Jiabao is number three) spoke out after Wen Jiabao made his “four uns” statement. Wen had made his comments at the National People’s Congress, during his concluding speech. Three days later, Wu gave his “Five Nos”:
1. We have made a solemn declaration that we will not have a system where multiple parties hold office in rotation.
2. There will be no diversification of “our guiding thought via the Party”.
3. There is an emphatic ruling out of the possibility of separating the executive, legislative and judicial powers, as many, including Wen, have called for.
4. A bicameral or federal system of government will not be adopted.
5. Further privatisation is not under consideration as it would risk chaos and invite the abyss of internal order collapse.
In early July, the 90th anniversary of the Chinese Communist Party’s founding was held in the Great Hall, accompanied by great publicity. All the leading past and present lights were in attendance, with the notable exception of former premier Jiang Zemin. Rumours quickly emerged that he was very or ill or had even died. The rumours have since been publicly denied, so the interpretation shifted. It was speculated that it shed light on the core question as to Xi Jinping’s succession next September. Jiang was largely responsible for Xi’s surprise accession (through Zeng) over president Hu’s and premier Wen’s preferred candidate, Li Keqiang.
With seven of the nine entrants to the new ruling Supreme People’s Congress yet to be “crowned”, there is a lot of uncertainty, especially as the struggle between Xi and Li is yet to play itself out.
It will be a fascinating journey. The party has come to realise that reform is the driving force behind development, which is the purpose of such reform; stability is only the precondition.
Jiang Zemin said in 1998 that “development is of overriding importance. Reform is the driver of development and unavoidable if the country is to go on the path to modernisation. Stability is our overriding task. Without stability nothing can be achieved and what achievements we will have made will be lost.”
We are about to see how this three-part process unfolds. Keep watching.