CHINA UNDER XI JINPING: SCOPE AND LIMITS EFFORTS TO DEEPEN CHINA S REFORM

Analysis No. 209, November 2013 CHINA UNDER XI JINPING: SCOPE AND LIMITS EFFORTS TO DEEPEN CHINA S REFORM Cui Honjian China s new government has been in power for roughly six months. Its ruling philosophy, logic and policy orientations and even the leaders personality, have received extensive attention from the international community. This is not only because of China's enormous economic size and the economy s global impact and influence, but also because of the critical role of China s political power in shaping its future development. After 30 years of economic reforms and rapid economic growth, China's reform process is now at the crossroads: some of the old problems have not been properly resolved, while new problems have emerged. China faces great challenges in domestic and foreign affairs. What the international community is currently concerned about is to find out whether Xi and his Politburo Standing Committee (PSC) colleagues are planning to strengthen and deepen the country s reform process. At present, China's new leaders determination and thoughts of deepening China s reform process is becoming clear as some strong policy measures in the political, economic and social fields point towards further reforms. If the Chinese government continues to implement reforms, the international community has reasons to remain confident about the future development and stability of China. Cui Hongjian, Director, Department for European Studies, China Institute of International Studies, Beijing. 1 The opinions expressed herein are strictly personal and do not necessarily reflect the position of ISPI. The ISPI online papers are also published with the support of Cariplo

Introduction Following the rules of China s political system and the increasingly well-defined rules determining power transition, Xi became the candidate for China s new leader in a collective leadership system when he was elected as Vice President of the state back in 2008. At the Chinese Communist Party s (CCP) 18 th Congress held on November 2012, Xi was elected as the Party s General Secretary. This consolidated his position as China s new top political leader and he was appointed together with his six colleagues of the Politburo Standing Committee (PSC). In March 2013 then Xi and his colleagues were formally endorsed by the Chinese National People's Congress, which completed China s leadership succession process. Compared with their predecessors, Xi and his colleagues find some more favorable conditions and environment for ruling the country. The transition of China s political power is more stable while the political environment is becoming more inclusive and open. Following the rules of China's political system and those of power transition, as early as in 2008, when he served as Vice President, Xi has de facto become successor of Hu Jintao at the helm of the CCP. In order to give the new leadership a fresh start and avoid intervening in Xi s policies and leadership style, the most influential members of the previous PSC retired from politics completely, which was regarded as a further institutionalization of Chinese-type power handover. A more complete and stable power transfer for China s top leaders created a more favourable political environment for Xi. Compared with their predecessors, Xi and his colleagues find some more favorable conditions and environment for ruling the country. The transition of China s political power is more stable while the political environment is becoming more inclusive and open Before making it to the top of China s political decision-making process chain, Xi and his colleagues at the PSC were given the opportunity of understanding Chinese political and social dynamics situation by working on several levels of local and national government. It seems to be one of the advantages of China s political system: successive leaders have plenty of time to learn from their predecessors and learn the art of achieving consensus amongst different political interests and interest groups. Achieving consensus of how to continue and deepen reforms has become the common ground for the country s consecutive leadership generations. The introduction of the Twelfth Five Year Plan and the documents of 18th Party Congress are cases in point. Further Reforms Inevitable The legacy Xi and his colleagues inherited from their predecessors is that of China as the world's second largest economy burdened with a number of serious problems and issues to be addressed in the years ahead. While China s economic development model has achieved a lot over the past 30 years, a number of questions have emerged on the future and sustainability of the current economic growth model as economic growth has 2

slowed down and the risk of a hard landing of the Chinese economy has become a main concern. The regional economic development is not balanced enough while the social and income gaps are widening and energy and environmental security are becoming major challenges to sustainable development and peoples day-to-day life. Furthermore, rapid and large-scale industrialization and urbanization processes in China produced a lot of social problems. The farmers who flock into the city for jobs find it is difficult to be accepted by the local community while the urban residents keep complaining that their day-to-day lives are being disrupted by those new residents. China today is home to plenty of wealthy and very wealthy people but the overall GDP-per-capita is still too low to avoid widespread income inequalities and disappointment amongst the country s have-nots. The corruption and inefficiency of some local governments made sure that the situation deteriorated further. Furthermore, China is confronted with a disadvantageous external environment. China seems to be regarded as a negative power in the international community as it becomes more influential in international affairs. China was viewed as a threat when it adheres to its own development road and a threat to its neighbors when it tries to safeguard its territorial rights and sovereignty. China, so it seems, is becoming an isolated and indeed lonely power in the world. While China s economic development model has achieved a lot over the past 30 years, a number of questions have emerged on the future and sustainability of the current economic growth model as economic growth has slowed down and the risk of a hard landing of the Chinese economy has become a main concern There has been a debate on the direction the future development in China, accompanied by different and even conflicting views. A more conservative viewpoint argues that no matter how many fundamental achievements China's reforms have produced, problems caused by rapid economic growth under the current economic model are an obstacle to further reforms. This view represents those who feel insecure in a rapidly changing Chinese society as well as some interests groups who enjoy the fruits of the reform but are unwilling to pay the price for further reforms. Another view argues that China should continue to reform but needs to adjust the direction and revise the existing policies. These two conflicting views are respectively often referred to as the left and right in Chinese politics. However, regarding China's political culture and the actual policies, it would be superficial and misleading to describe the divergence as two opposing and dividing political tendency by using the framework of Western political categories. Because even those opponents to reform do not refuse the benefits of reform, their complaints are mainly rooted in the lack of clear expectations and confidence in the future. What they call for are fundamental and sustainable changes with a systemic guarantee. When speaking at the APEC summit in October in front of business leaders Xi said that China has to move forward and deepen reform & opening up. Facing the new expectations of the people, we must be firm our confidence with more powerful 3

measures and greater political courage and wisdom 1. Xi s Measures of Pushing Reform forward Six months are not enough to understand and assess all the challenges and issues Chinese leaders are confronted with. The same applies to reforms which in turn de facto obliges outside observers to try to judge China s willingness and ability to reform find the track of China s future reform by understanding what Xi has already done in terms of reforms over the period of the last six months China s Dream: Seeking the Consensus with Confidence The Chinese dream2 is one of topics that Xi talked about most frequently. According to official statistics, he talked about that dream and vision in all of his 15 fifteen speeches in different occasions since November of 2012 2. The main content of the Dream is reaffirming the general goal of the Communist Party: To realize the great renaissance of the Chinese nation by means of achieving the objective of 200 years. That concept itself is not entirely new, as the objective of 200 years has been announced during the tenure of former Chinese president Jiang Zemin: it was first announced at the 15 th Party Congress and then restated during the 18 th Party Congress. However, the current narrative method of introducing a policy vision is unprecedented and hence remarkable. It is easy for the public to associate the Chinese dream with the American Dream especially when the public compares Xi s policies and visions with how former US American President Kennedy inspired the American people in his time. To be sure, it is not a case of simple imitation. Xi presented himself to the domestic and international public as a more a more confident and outspoken leader than his predecessor Hu Jintao. Undoubtedly, although seeking the consensus by the means of political debates is not part of China s political system, China s new leadership needs to forge a consensus within the Party as well as between the Party and the society. Considering the debates about the direction of further reform and the reality of emerging conflicts among social groups in China, Xi needs consensus in Chinese society to be confident about his ability to promote and adopt further reforms. In the meantime, the Chinese Dream must become more tangible for the average people with a clearer description about how to create a balance between interests of state, groups and individuals. It is easy for the public to associate the Chinese dream with the American Dream especially when the public compares Xi s policies and visions with how former US American President Kennedy inspired the American people in his time 1 Xi s speech at the APEC CEO Summit. http://www.gov.cn/ldhd/2013-10/08/content_ 2501676.html 2 Website of People s Daily, 19 June 2013. http://theory.people.com.cn/n/2013/0619/ c40531-21891787.html 4

Improving CCP Governance Xi has also announced to improve CCP governance. It seems that Xi is trying to achieve that objective in two ways: firstly enforcing the Party discipline and secondly intensifying anti-corruption efforts. To enforce party discipline Xi introduced what is referred to as The Movement of Educational Practice through Mass Line( 群众路线教育实践活动 ). Confronted with the issues of corruption, low efficiency of governance, in particular on the local level, Xi launched the movement in June and stressed the necessity of solving the four bad styles of formalism, bureaucratism, hedonism and extravagance in the Party. Xi launched the campaign to tackle corruption and Address public dissatisfaction with the Party governance which did damage to the relations between the Party and the masses as Xi said during a speech in June 2013 3. These policies movement is carried out in different steps and requested party leaders to conduct in-depth exchanges with the masses to identify and correct problems. Xi compared this self-critical approach with looking into the mirror and taking a shower, in an attempt to win back the trust of the people and strengthen the foundations of the country s governance structures. Xi launched the campaign to tackle corruption and Address public dissatisfaction with the Party governance which did damage to the relations between the Party and the masses While strengthening ideological discipline, Xi also intensified efforts to adopt policies tackling corruption. Since Xi took office, 10 ministerial-level officials have been investigated or sentenced on corruption charges. In that round of anti-corruption policies the closed and monopolistic railway and oil sectors became the main target as a response to an increasingly critical public opinion concerned about widespread corruption in the above-mentioned sectors. Furthermore, Xi and his colleagues are planning to improve the institutionalization of anti-corruption policies. Promoting the Market-Orientation Reform There is a consensus amongst China s top leaders that the many of the country s problems and challenges can only be addressed and solved through the deepening of current reform efforts. The general goal of further reform has been stated in the document of 18 th Party Congress, which announces to promote new industrialization, informatization, urbanization and agricultural modernization, speeding up the transformation of the model of economic development, enhancing the inherent dynamics for development and realizing sustainable and healthy development. Xi is committed to reforms and acknowledges that especially in economics a profound revolution involving adjustment of the vital interests and improvement of the whole system is necessary. China s reform process has 3 Xi s speech on the work conference of The party's mass line education practice, 18th June, 2013 http://politics.people.com.cn/n/2013/0618/c1024-21884426.html There is a consensus amongst China s top leaders that the many of the country s problems and challenges can only be addressed and solved through the deepening of current reform efforts 5

entered a crucial phase with a number of daunting issues as hard to crack as a nut. If we are not able to the resolve main problems in one vigorous effort or go forward, all the previous efforts would be wasted, Xi maintained in October 4. Chinese Prime Minister Li Keqiang-strongly supported by Xi-is the architect and enforcer of the envisioned economic reforms. Li frequently stressed the extreme importance of adopting market-orientation reforms since he became Chinese Prime Minister. When speaking of market-orientation reforms, he argues that reforms must be accompanied by what Li calls government retreat from the market i.e. government interfering less in economic activity. Li also started confronting interest groups and their influence on policymaking, in his view standing in the way of reform efforts and reforms. Xi will announce his government s reform road map during the Third Plenary Session of 18 th Party Congress in November. According to a recent report drafted by an official think tank China will kick off the new round of reforms introducing what is referred to three overarching reform principles as focusing on eight key areas with three measures of reform. The report argues that economic reforms must be the basis to establish a socialist market economic system equipped with the instruments to pursue innovation based on the rule of law. Improving the market system, transforming the government functions and innovating of the enterprise system are the three main areas subject to reform in the context of the three overarching reform principles. Consequently it is necessary to also reform the country s administrative system, the industrial monopoly, land ownership, the financial and tax system, and the state-owned assets management system. The three main measures of promoting reform in the above-mentioned eight key areas are to 1. improve market access and promote competition; to 2. deepen the reform of the social security system and 3. to set up a "package of national basic social security removing the restrictions of the land transactions in market. The media called this report the 383 Report because of the introduction of the overarching reform principles concept, eight key areas and three main measures. It attracted the attention of the public as soon as it was reported in the Chinese media, not only because of its semi-official background but also because Mr. Liu He, the report s chief author, is one of the most important consultants to Mr. Xi. However, after its publication the report was also criticized for advocating excessive liberalization by some opposed to the fundamental reforms the report is suggesting. When speaking of market orientation reforms, Chinese Prime Minister argues that reforms must be accompanied by what Li calls government retreat from the market i.e. government interfering less in economic activity 4 Xi s speech at the APEC CEO Summit. http://www.gov.cn/ldhd/2013-10/08/content _2501676.html 6

China s Re-reform: A Mission Possible The Third Plenary Session of Chinese Communist Party will be held mid-november. If the Chinese society achieves consensus on the necessity to deepen reforms, China will be able to adopt sustainable development and maintain social stability. Time is a factor and China needs to adopt reforms quickly and swiftly. As an economy having undergone a process of transformation from a planned to a market-oriented economy over the last 30 years, Chinese society too underwent a process of transformation: from a pre-modern to a modern society. The Chinese leadership is charged to make policy adjustments in various areas in order to solve the problems and challenges resulting from the economic and social transformation processes. For example, in the time of social problems rising, maintaining social stability has become the overriding priority. According to Xi, China s overall priorities are reform, development and stability-priorities that are interrelated: China must rely on deepening reform to maintain stability and continue sustainable development. Consequently China will have to sacrifice some vested interests, such as an excessive focus on GDP growth and improving the stable but too rigid bureaucratic system. Li introduced the metaphor of riding a bicycle when explaining the relationship between reform, development and China s stability: to obtain sustainable development, China must slow down the speed of economic growth while it is not possible to slow down too much either as the bike will stop and topple over. Reforms, Li argues, are the instruments to find the right balance between speed and sustainability of China s economic development 5. To be sure, the current situation in China is not as simple as the metaphor. The new round of the envisioned reforms will be a complicated process and a compromise between various kinds of interests. When Prime Minister Li e.g. announced to address economic and social problems by promoting the urbanization process in China, it was exploited as an opportunity to launch another round of real estate development by local government and real estate developers. The Chinese leadership is charged to make policy adjustments in various areas in order to solve the problems and challenges resulting from the economic and social transformation processes. For example, in the time of social problems rising, maintaining social stability has become the overriding priority Although the road ahead is unknown, as long as the direction is clear and the willingness is determined, the prospects for Chinese re-reforms remain good. History has taught the Chinese people that there is no turning back and the margin for error is very limited. 5 Li s speech on seminar of Chinese economic situation in Shanghai, 29 March, 2013. http://finance.ifeng.com/news/macro/20130329/7843729.shtml 7