Op-Ed Commentary: Chris Devonshire-Ellis
Apr. 11 – The inauguration of the next generation of Chinese leaders this autumn will be the third time I have witnessed such a handover of national power in Beijing. The first time saw the elderly Deng Xiaoping hand over the reins to Jiang Zemin who, alongside Premier Zhu Rongji, oversaw a decade of China’s opening up and reform, culminating with the handover of Hong Kong to China, the granting of WTO membership, and the winning of the Olympic Games to be held in Beijing.
Those years of the Jiang-Zhu partnership were some of the most fascinating in China as the nation woke up to capitalism and seemed to embrace a much-needed policy of openness and foreign investment. Taxes were low, and favorable policies towards foreigners working and investing in China encouraged many to enter the Chinese market.
China was on a roll, and although the explosive growth of the nation generated other problems – such an East-West wealth divide – the double act of Jiang and Zhu’s policies set the seal on an incredible rise in China’s wealth. Indeed, Zhu, when learning of China’s accession to the WTO, went so far as to say that reforms in the development of China opening up to the rest of the world were, from then on, irreversible.
The next generation of leaders, current President Hu Jintao and Premier Wen Jiabao, were more cautious. Rolling back previous tax incentives for foreign investors, they said China would concentrate on quality, not quantity, of both FDI and of China’s own business development. Investment into R&D was massively increased, and new policies were introduced that aimed to move China’s businesses up the value chain and away from the previous decade’s emphasis on cheap manufacturing.
Rising too were the huge behemoths that are China’s banking and financial institutions, getting rich on state-owned profits and a policy of linking to the U.S. dollar. China learned fast how to manipulate their membership to the WTO in ways never before seen by the United States and other developed markets. A certain business savviness crept in, coupled with a more astute and heavily-invested foreign policy that saw China nearly double the number of diplomats it sends abroad. China’s wasn’t just a player in global trade, it was seeing itself as a global challenger to the United States.
But with this came domestic and foreign deterioration. Income gaps widened across China to unprecedented levels, and both internal and regional tensions came to the fore. Serious rifts with many of its neighbors have seen China indulge in spats with Japan, India, Mongolia, Vietnam, The Philippines and Malaysia over territorial issues, and with Myanmar due to impressions that it is lording over a previously friendly state. Meanwhile, tensions in Tibet and Xinjiang have also increased significantly.
Wanting to engage with the entrepreneurial aspects of Hong Kong’s business elite, and encourage private enterprise, China’s Communist Party even opened up its membership doors to “capitalist” businessmen, clouding the issue of the very nature of Chinese contemporary ideology. “Capitalism with Chinese characteristics” was often used to describe a party still technically driven by Marxist theory. That contradiction has been noted by the Indian Communist Party whose own annual Congress was held last week and was critical of the direction China’s Communist Party has been taking.
But with China’s development has come other issues; silly arguments over Nobel Prize winners, the detention of various artists, and a growing resentment of perceived international sleights and interference in internal affairs. In truth, China’s internal affairs have not kept pace with the country’s speed of development. China’s income gap between rich and poor has risen by a multiple of 13 in 20 years, and for every Ferrari there are 100 uneducated children in the countryside. Government officials have embraced a system seemingly running out of control; when placed in a position of power with the means to extract wealth from that, temptation away from communist ideology has proven too strong for many.
It is into this environment that China is about to usher in a new generation of leaders. But this environment has apparently split China’s Communist Party over the direction it should take. Both sides want reform, the differences being what shape these reforms take. Let’s examine these:
The Zhou Faction
We can name this after Zhou Yongkang, a politburo member who oversees China’s law enforcement and internal security apparatus. With strong links to the military, he was also close to Bo Xilai – the now disgraced politician whose recent removal as party secretary of Chongqing and revocation of Communist Party membership pending murder and corruption investigations have wrecked his chances of being elected to the nine-man politburo this coming Fall. However, like Bo, Zhou has been known to express concerns over aspects of the current direction China is taking and of China’s destiny remaining linked to that of the CCP.
An often overlooked provision in China’s constitution states that the overriding importance of the CCP and China is the preservation of the Communist Party as sole authority in China. Everything else is secondary to this aim. Below this goal are the usual Marxist doctrines concerning equality of the people and so on.
Bo, in fact, had raised concerns over China’s income gap level just days before his incarceration. In statements released by Bloomberg, he had commented that the wealth gap in China has exceeded the level thought by academics to trigger social unrest. He was referring to China’s GINI coefficient, which the Chinese government has not released data on since 2000.
He quoted Chairman Mao in the piece, saying “As Chairman Mao said as he was building the nation, the goal of our building a socialist society is to make sure everyone has a job to do and food to eat, that everybody is wealthy together.”
“If only a few people are rich, then we’ll slide into capitalism. We’ve failed. If a new capitalist class is created then we’ll really have turned onto a wrong road,” he further commented.
The inference was that measures were needed in China to reduce the path of reform and possibly to turn back to more austere measures and impose a national state of equality. Doing so, it is thought, would reduce social tensions created by a divided society and reduce pressure on the Communist Party rule. In a sense, this position is the most closely aligned to that of the Chinese constitution. Four days after the Bloomberg article was published, Bo was removed as head of Chongqing and effectively removed from the political scene. The problem with that is that many other senior Chinese figures seem to agree with him, not least senior level connections within the military, including Zhou.
That would seem to be borne out by the bizarre political instructions carried in the Liberation Army Daily, which stated: “(The military) resolutely resist the incursion of all kinds of erroneous ideas, not be disturbed by noise, not be affected by rumors, and not be drawn by undercurrents, and ensure that at all times and under all circumstances the military absolutely obeys the command of the Party central leadership, the Central Military Commission and Chairman Hu.”
Such instructions to the military would point to indications that they need reminding about who is in charge. One wonders then at the reported coup rumors in Beijing and how real or not that apparent attempt to demonstrate dissatisfaction over the path to reform actually was. It either never happened, or there was a warning.
The Wen Faction
Named after current Premier Wen Jiabao, this side of China’s political ideology appears to offer a softer approach to reforms and is more aligned with the capitalist system. Reforms could possibly include the introduction of some forms of democracy as well as the dismantling of China’s largest institutions to permit greater transparency and competition. The problem, however, is that it does not sit entirely well with the constitution’s stated goals of the CCP being the sole authority. That apparent conflict of how to justify democracy under a one-party state remains the biggest ideological challenge in China today – and certainly for the next leadership.
A Chinese version of democracy would almost certainly concentrate on the benefit of releasing social tensions and would be one way of addressing unhappiness with the income gap. Allowing Chinese nationals to elect out-of-office an incompetent or corrupt official would go a long way to alleviate a population increasingly concerned by the flaunting of conspicuous wealth by a select few. A gradual slide by China’s leaders to what I would term “a managed democracy,” effectively operated by a handful of extremely powerful families (and let’s not kid ourselves that this does not occur in the West), may offer a solution preferable to many as a natural transition. The overriding concern is the on-going validity of the Communist Party as sole arbiter.
At present, Wen’s faction appears to have the upper hand in this struggle. But that being said, the next likely presidential incumbent, Xi Jinping, is a relatively unknown quantity and it is uncertain which way either he or the new politburo will turn, especially with the military proving somewhat hawkish over the past decade.
The impact of this upon China will not be revealed until the autumn. But it seems that Zhu Rongji’s prognosis that China was on the path of irreversible reform and development could yet prove inaccurate, especially if senior members of China’s political establishment begin to feel that the constitutional rights of the Communist Party to rule as the sole authority may be weakened by Wen’s reformists. They’ll be looking for significant concessions to give those up, and the development of a new class of ultra-financially and politically wealthy families may be the only direction left for China to take to continue on capitalist and democratic paths of reform.
Chris Devonshire-Ellis is the founding partner of Dezan Shira & Associates and has lived in China for 20 years.