CHINAwatch

Quest for the China Dream

On 29 November last year, Party Secretary Xi Jinping evoked The China Dream during a visit to "The Road Toward Renewal" exhibition in Beijing.. The phrase went viral on China’s Twitter-style weibo and drew a spate of emotional patriotic outpouring from overseas Chinese. 

Since then, commentators have been trying to interpret Xi’s vision, ranging from a mundane call for solving China’s problems, to a sublime renaissance comparable to ancient glories of the Middle Kingdom or Europe’s Age of Enlightenment. Click here In any case, Xi was speaking of a “China Dream”  for the nation collectively, not a “Chinese Dream” in the sense of good life of the “American Dream”.  

In face of a legitimacy crisis, the yearnings for epochal change have been in the air amongst the top leadership. Since Xi took office as Party Secretary, he has launched a high-profile battle against official corruption and extravagance, calling for closer bond between the Party and the people, and upholding the rule of law and ideals enshrined in China’s Constitution. Click here

Some cold water was poured on Xi’s reformist rhetoric by an article in the New York Times. Xi’s fight against corruption and inequalities is pitted against opposition from vested interests. His demand for constitutional checks is contrasted with his warning about the collapse of the former USSR. His call for political liberalization is cited with his approbation of Mao’s revolutionary socialism. Reading the article, one can be forgiven for thinking that Xi's reformist stance resembles "a riddle, wrapped in a mystery, inside an enigma."

The confusion and myth are largely a product of binary thinking - either giving up single party leadership or sclerosis, either Western democracy or risk of a "French Revolution", either forward to the future or retreat to Maoism.

In fact, the apparent contradictions are signs of a continuing quest for China’s unique model of democracy. There is a conviction that there is no one-size-fits-all formula, least of all a quick-fix that mandated glasnost and perestroika within 500 days which precipitated the collapse of the former USSR.

Indeed, in enlightened Party intellectual debate, the original Paris Commune is considered a form of local democracy ("we the people") and Mao's revolutionary "mass line" as embracing the will of the “grassroots” (or the 99%) against social injustice.

Not many in China believe that the country's future lies in copying Western multi-party “confrontational” democracy, with all its recent fault-lines. But how to make the Party truly represent and accountable to the people within a one-party state continues to test the ingenuity of the leadership.

For starters, however, China is likely to change the household registration (hukou) system (which marginalizes migrant workers) as well as to promote civil society to monitor local governance. These reforms and others are proposed in a recent 468-page World Bank report jointly undertaken with the Development Research Centre of the State Council. Click here

Another pointer to feasible change was a succinct, down-to-earth, 10-year roadmap for China’s social and political development provided by Professor Yu Jianrong of the Chinese Academy of Social Science.  This includes a more centralized (and less locally biased) judiciary, abolition of certain authoritarian organs such as “labour educated camps”, and more governance transparency, including declaration of officials’ private assets. Indeed, some of these measures are brewing, if not already being experimented with.

However, as China vows to realize a middle-income society by 2030, it is timely to revitalize the Party by invoking a grand renewal reminiscent of what captivated the entire people at the founding of the People’s Republic.  In a thought-provoking book “The Transformation of Chinese Socialism”, Ms Lin Jun evokes the vision of “xiaokang (middle-income) socialism” with empowered local citizenry. Amongst other thoughts, she explains how “community, security, integrity, and democracy” can be intertwined to empower local citizenry, including the non-profit and voluntary sectors, in creating a harmonious and “caring economy”. Her thoughts resonate with a popular nostalgia for ideals of the Communist Revolution “where its government was clean, its army was the model of serving the people, its working men and women were dignified, and its life was meaningful without commodification and consumerism.” 

Moreover, in the age of scarcity and environmental strains, it is possible to envision an epochal transition from an “industrial” to an “ecological civilization”, in the words of Pan Yue, China’s Vice Minister of Environmental Protection Click here,  where minimalism is preferred over surfeit, and less can be more.

Indeed, local citizenry has recently been allowed to grow and even succeed in reversing major municipal projects on environmental grounds. Citizenry empowerment in the workplace is also quietly promoted as in the case of Foxconn, Apple’s Taiwanese manufacturer. The company is now allowed to bring in US-based Fair Labour Association to train its 1.2 million workers in China in voting for representatives on 18,000 union committees.

It has often been said that with the One Child Policy, China will get old before getting rich, as the pool of low-wage workers is being exhausted. However, thanks to an annual output of seven million university graduates, China will have 195 million of them by 2020, more than the entire U.S workforce. In a survey in May 2012, KPMG, an audit, tax and advisory firm, expects that over the next four years China will rival with the United States in innovative technologies, particularly in cloud computing and mobile telephony. Likewise, Clyde Prestowitz, president of the Economic Strategy Institute, anticipates the rise of a “Silicon China” Click here. According to the World Intellectual Property Organization, China tops the world in 2011 in patent applications, the first time in a century for a developing country Click here. By all accounts, therefore, China should be on track to overcoming the Middle Income Trap in transit to a higher-income country.

This prognosis is supported by a presentation of Professor Angang Hu of Tsinghua University. He finds that driven by total factor productivity growth, innovation and human capital accumulation, by 2020 China will, by whatever measurements, surpass the United States as the largest economy, growing to 2.2 to 2.5 times the U.S. GDP by 2030. By that time, China is slated to have the largest consumer market, the largest urbanization, and the largest infrastructural system, coupled with the largest pool of innovative human capital, a green country, and a more equal and equitable society.

Nevertheless, there remain many institutional bottlenecks and other challenges like resource scarcity, demography and vested interests that can derail Professor Hu’s optimistic trajectory. What is even more crucial, however, is whether China could craft a path-breaking new “social contract” that can harness a democratically organised citizenry to aid, monitor, participate in and hold accountable a clean and effective state that delivers the greatest public goods for the greatest proportion of the people. 

Notwithstanding the odds, a visionary China Dream never fails to inspire and rally dedicated or ambitious aspirants. According to the People’s Daily, a 27-year old double-major from Yale University is giving up a lucrative career overseas to work as a lowly-paid official in a remote village in Hunan Province. As a Chinese, he vows to give his share to help fellow villagers to realize the dream for a better life for themselves and their off-springs. Click here

The hearts and minds of the whole nation are now being touched by Xi’s “China Dream”, and the inspiring vision, imprecise though it is, does not look wholly unattainable.

Alexi de Tocquerville’s“The Ancien Regime  and the Revolution” is a critique on how liberal and egalitarian revolutionary ideals could become corrupted and forgotten afterwards.  The classic tome has been reported to be doing the rounds amongst China’s top leaders and is now a best-seller in China Click here. When asked by Richard Nixon, Chinese Premier Zhou Enlai was reported to have said that the implication of the French revolution was too soon to tell. Perhaps he was right all along.

(An edited version of the above article is published in the Insight Column of the South China Moring Post of 9 March 2013)  Download SCMP Op-ed - Not So Illusive

Is China's avowed new direction "a riddle, wrapped in a mystery, inside an enigma"?

Chris Buckley's article of 14 February in the New York Times "Vows of Change in China Belie Private Warnining'' rightly puts Party Secretary Xi Jinping's reform rhetoric in the context of a host of contradictions. The fight against corruption and inequalites is pitted against opposition from vested interests. Calling for constitutional checks on top-down state power is coupled with warnings about lessons of collapse of the former USSR. Mounting social pressures for political liberalization are cited with a harking back to Maoist socialism.

One can be forgiven for drawing the conclusion that Xi's apparently vigorous reform stance is at best "a riddle, wrapped in a mystery, inside an enigma," in the words of Winston Churchill's famous dictum.

The confusion and myth are a product of binary thinking - either giving up single party leadership or sclerosis, either Western democracy or risk of a "French Revolution", either forward to the future or retreat to Maoism.

In fact, all the apparent contradictions cited in the article are signs that Xi is continuing China's on-going quest for her own model of democracy. There is a conviction that there is no one-size-fits-all formula, least of all of the kind of quick-fix that mandated glasnost and perestroika within 500 days which precipitated the collapse of the former USSR.

Indeed, in modern-day enlightened Communist Party intellectual debate, the original Paris Commune is hailed as a form of local democracy ("we the people") and Mao's original vision of "the mass line" also contained seeds of representing the will of the grassroots (the 99%) against social injustice.

Not many in China believe that the country's future lies in downloading Western multi-party confrontational "democracy", with all its recent fault-lines. But how to make the Party truly represent and accountable to the people within a one-party state continues to test the ingenuity of the Party leadership.

For starters, China is likely to implement the kind of reforms proposed in a 468-page World Bank report jointly undertaken with the Development Research Centre of the State Council - "China 2030: Building a Modern, Harmonious, and Creative High-Income Society." It is known that Li Keqiang, China's Premier-in-waiting, is the report's staunchest supporter. Amongst its recommendations are measures to enhance social provisions, reform the monopoly of state-owned enterprises, change the "hukou" registration system marginalizing migrant labour, and promote the role of civil society in monitoring official governance. Click here

Another pointer to the kind of feasible change was provided by Professor Yu Jianrong of the Chinese Academy of Social Science, who recently circulated a succinct, down-to-earth, 10-year outline for China’s social and political development. First promulgated in April this year, it went viral on Sina Weibo amongst his 1.5 million followers on the popular micro-blogging site. The plan includes such reforms as legalization of peasants' land rights; centralized control of judiciaries to rid them of dependence on local authorities; abolition of certain retrograde top-down state organs such as the ""political and legal committees" and the "labour re-education system"; promotion of greater transparency of administrative information; and declaration by officials of their private assets. Click here Indeed, recently some of these measures are brewing, if not already being experimented with.

The debate on China's on-going development is intensifying. The jury is still out.

For background, it is well worth visitng the intellectual debate on Chinese socialism, democracy and re-thinking of the Chinese model in "The Transformation of Chinese Socialism", Lin Chun, Duke University Press, Durham and London, 2006.

Enforcing the existing Constitution is the best hope for China's democratic reform?

Contrary to some less well-informed Western observers, many of the rights and privileges of modern democracy have already been enshrined in China's Constitution, revised and perfected by the Communist Party's early founding fathers.

"The resulting document guaranteed full powers for a representative legislature, the right to ownership of private property, and freedoms of speech, press and assembly. But the idealism of the founding fathers was short-lived. Though the Constitution was ratified in 1982 by the National People’s Congress, it has languished ever since", acccording to an article in the New York Times of 3 February, 2013.

" Some of Mr. Xi’s recent speeches, including one in which he emphasized the need to enforce the Constitution, have ignited hope among those pushing for change", the New York Times continues.

"Most notable among those is Study Times, a publication of the Central Party School, where Mr. Xi served as president until this year. That weekly newspaper ran a signed editorial on Jan. 21 that recommends that the party establish a committee under the national legislature that would ensure that no laws are passed that violate the Constitution."

Neither Mr Xi nor the Study Times of the Party School are known for thinking off the top of their heads. The Bo Xilai affair and a growing economic, social and political divide are clear writings on the wall. It has been said many times recently that Alexis de Tocquerville's tome on the French Revolution is becoming favourite reading amongst China's top leaders.

While China will chart its own path of development and will not copy the Western model of rival multi-party politics, political reform is getting more pressing as mounting social discontent is posing an existential threat to the Party.

The debate on the need for real dmocratic reform is intensifying amongst China's top elites. Professor Yu Jianrong of the Chinese Academy of Social Science circulated a succinct, down-to-earth, 10-year outline for China’s social and political development. First promulgated in April this year, it went viral on Sina Weibo amongst his 1.5 million followers on the popular micro-blogging site. Click here 

While the jury is still out pending Xi's formal installation as China's new President, the prognosis is building up that something epocal is likely to materialize sooner rather than later, as chances for China's true renaissance, and indeed its very system survival, are now at stake.

In face of multiple crises, China 3.0 needs to stay ahead with the times

There are many tell-tale signs that China has now reached a historic watershed.

First, the economy is changing towards slower, but more balanced, equitable and sustainable growth, to be driven by consumption instead of capital investment and exports.

Second, according to Arvind Subramanian, senior fellow at the Peterson Institute for International Economics, more currencies are moving in sync with the Chinese yuan, the reminbi, as a “reference currency” than with the dollar.  Click here

Third, for the first time, China tops the world in patent applications. Click here

Fourth, a rising citizenry or civil society is succeeding in reversals of government decisions over such matters as social justice, local environment, and press freedom.

Fifth, “labour re-education”, a 60-year-old Communist system since the founding of the People’s Republic of China, has now been announced to be scrapped. Click here

Sixth, China’s new leadership is now fighting corruption as a top threat to the nation’s stability. 

Seventh, externally, China has grown too big and too globalized to continue with Deng Xiaoping’s famous dictum of “biding time and lying low” (“tao guan yang hui”). A nascent blue-water navy is taking shape and more aggressive stands are being taken in asserting the nation’s maritime territorial claims.

The list is by no means exhaustive.

According to a report of the European Council for Foreign Relations (ECFR) (Mark Leonard, ed., November, 2012) click here, China is trapped in its own success and needs to enter into a new era. “After Mao’s political revolution (‘China 1.0’) and Deng Xiaoping’s economic revolution (‘China 2.0’), they are (the country is) expecting a ‘China 3.0’”.

The report, a collection of essays by some of China’s most influential thinkers, identifies three traps or crises in which China finds itself - in the realms of affluence, stability and national power. How to respond to them is subject to intensive academic and political debate:

"In the economic realm, the main divide is between a social Darwinist New Right that wants to unlock entrepreneurial energy by privatizing all the state-owned companies and an egalitarian New Left that believes the next wave of growth will be stimulated by clever state planning”.

“In the political realm, the main divide is between political liberals who wants to place limits on the power of the state, either through elections, the rule of law, or public participation, and neo-authoritarians who fear these measures will lead to a bureaucratic collective government that is unable to take tough decisions or challenge the vested interests of the corrupt, crony capitalist class”.

“In the foreign policy realm, the main divide is between defensive internationalists who want to play a role in the existing institutions of global governance or emphasize prudence and nationalists who want China to assert itself on the global stage."

The intensity of these debates, however, belies the extent of differences between what are portrayed to be diametrically opposing schools of thought. For example, the so-called New Right does not see that China needs to import the kind of Western market fundamentalism that led, for example, to the financial crisis. Moreover, the quoted example of a push by the New Right, the 468-page World Bank Report jointly undertaken with the Development Research Centre of the State Council, is by no means all about “marketization” . It also contains the target of achieving universal access to public goods such as heathcare, education and housing by 2020, reform of the hukou system which marginalizes migrant workers, improved governance and promotion of civil society. These are all agendas said to be part of the ideology of the New Left.

As an example of the latter, the so-called “Chongqing model” also sets great store on the complementary and mutually re-enforcing role between public ownership and private enterprise, as Nobel prize-winning economist James Meade has argued.

In any event, these debates do not fracture the collective leadership, as opposing ideas are, as a rule, discussed and reconciled through various expert groups, a healthy feature of China’s relatively efficient decision-making process. There is no partisan gridlock as what causes administrative dysfunction in American politics.

Indeed, there are valid ideas in various intellectual camps which deserve adoption if China 3.0 is to find a unique path to economic, social and political development and to define the nation’s place in a post uni-polar world. These include such transitional steps as Ma Jun’s  “accountability without elections”, “budgetary” and “social” democracy through wider public consultation,  and monitoring governance through civil society; Zhang Weiying’s safeguard of individual “rights”; Pan Wei and Shang Ying’s “Wuxi experience” of neighbourhood communities; and Wang Yizhou’s diplomacy of “creative involvement” by providing public goods in the global commons commensurate with China’s emerging status as a world power.

Sun Liping, former PhD supervisor of Xi Jinping at Tsinghua University, identifies China’s “correction predicament” or “transition trap” where accumulated problems have grown too difficult to resolve and reform is opposed by powerful vested interests. He opines that a social consensus must be built to tackle this predicament head-on as there is only “a fleeting historical opportunity to face this challenge”.

China also has to grapple with  a “Middle Income Trap”, where countries reaching about $3,000 to $8,000 per capita income tend to stall in productivity and income growth. Nevertheless, according to a research study of China’s Academy of Social Sciences (CASS), this hurdle is likely to be overcome by 2021-25. Click here At the 18th Party Congress, President Hu emphasized the objective of attaining a Middle-Income Society by 2020, doubling per capita income of $5,530 in 2011 to $10,000. This would require only an average growth rate of less than 7% annually, a target not totally beyond reach, given China’s recent innovation records.

A recent OECD report suggests that “China will overtake the eurozone in 2012 and the US within the next four years to become the largest economy in the world”.  More recently, Party leader Xi Jinping talks of China’s dream of a coming renaissance. Click here However, with some seven million university graduates added every year, a rapidly growing, middle -class “Chinanet” generation  is increasingly demanding greater legitimacy, accountability, openness and personal liberty. Absent meaningful democratic reform, any vision of a Chinese renaissance would not only remain elusive, but the very survival of the Communist Party risks being threatened.  

There is a rumour that Alexis de Tocqueville’s tome on the French Revolution has been doing the rounds amongst the top leadership. This may not be without foundation, for amidst the crises and traps China is facing, perhaps democratic reform is the most critical of all. 

What's in store for China in 2013 - Mckinsey & Co

A catologue of observations by Gordon Orr, director of McKinsey's Shanghai Office dated January, 2013 -

(a) Banks underperform;

(b) Pork or chicken prices rise 100%;

(c) Local protests intensify and succeed more often;

(d) China spends more on infrastructure;

(e) Online competition bankrupts a major main-street retailer;

(f) Even the middle-classes hedge their bets;

(g) European soccer teams invest in the Chinese Super League;

(h) Investment in overseas agriculutre isthe ""next big thing"

(i) A third-tier city goes bankrupt

(j) National holiday weeks are abolished

Download Mckinsey - What's in store for China in 2013

“Is China Up to the Task?”

Doubt , if not pessimism, is expressed by by David Shambaugh on the ability of China’s new leadership to power China's Rise in an article of 21 November, 2012 here in YaleGlobal Online, a platform of the Yale Centre for the Study of Globalisation.

Shambaugh is professor and director of the China Policy Program Elliott School of International Affairs at George Washington University, and Senior Fellow in the Foreign Policy Studies Program at the Brookings Institution. The article heralds his forthcoming book “China Goes Global: The Partial Power (2013)” Click here

Shambaugh recognizes “a surprising strong consensus” both inside and outside China on the following critical domestic reform areas  –

“ – reorienting the economic growth model away from investments into physical infrastructure and subsidized exports to one driven by domestic consumption and innovation, emphasizing the knowledge economy and service industries;

 – breaking the government’s monopoly over several sectors, while empowering civil society and loosening controls over the media, so as to facilitate the free flow of information needed in a real market economy and innovation society;

– adequately resourcing “public goods” for the populace – including healthcare, environmental protection, improved quality of education, pensions, old age care – while seriously addressing social stratification and inequity;

 – instituting the real rule of law – so as to counter rampant corruption, rising crime, systemic abuse of privilege and power, and facilitate the predictable functioning of a market economy;

 – addressing seething discontent among ethnic groups in Tibet and Xinjiang in positive ways instead of relying on intimidation and repression

 – permitting greater political pluralism, even within a one-party system”.

“In the foreign-policy arena”, Shambaugh thinks that “China’s neighbours hope it will adopt a more accommodating and less confrontational posture, particularly over maritime territorial disputes. Beijing also needs to work with the United States to stem the strategic competition and mistrust now pervasive in the relationship. Its relations elsewhere in the world are increasingly afflicted by the growing perception of China as a mercantilist state soaking up natural resources and investing in strategic assets. China also needs to play a greater role in global governance commensurate with its power and position in the international community”.    

However, the eminent professor thinks that China’s new generation of leaders is hamstrung by four inherent constraints -

• A “path dependency”

“The growth model has not only produced impressive national development – it has also employed a huge relatively unskilled workforce. To transition away from this model risks widespread unemployment and labour unrest, which would threaten social stability and party rule”. 

Shambaugh explains that “The composition of (China’s ) exports needs to move up the value chain – and this is linked to shifting investment from “hard” to “soft” infrastructure: education, science, cutting-edge technologies, innovation and cultural creativity. For China to make these transitions requires more than a shift in financial allocations, though, as it requires loosening of the political system, media censorship and civil society. A “knowledge economy” cannot easily be built in an authoritarian system.”

• The “Soviet shadow” 

Shambaugh argues that with the spectre of the collapse of the former USSR, together with the lingering threats of the Eurasian “colour revolutions” and the “Arab spring”, there is a gripping fear that “opening the political system to genuine pluralism, empowering civil society, loosening media censorship, permitting free inquiry and critical thinking in education and research, or making the legislative and judicial systems autonomous of party control, would inevitable cascade out of control and spell the demise of party rule”. 

• “Institutionalized” or vested interests

“The core problem is the state sector of the economy, which still accounts for roughly 30 percent of GDP. This includes state monopolies of the banking, energy, finance, defense, heavy industrial, aerospace, telecommunications, and much of the transportation sectors, as well as enormous swaths of land and property owned by the party, state and military. Lenin warned of “state-monopoly capitalism” in 1917 – China has it in spades today. These vested interests, particularly the 145,000 state enterprises and 120 “national champion” corporations, are not about to divest their interests voluntarily”. In addition, “three other entrenched interest groups inhibit reforms: the military, the sprawling internal security apparatus and the arch-conservative wing of the Communist Party”. 

•  “Aggrieved nationalism”

There is an “entrenched national narrative of victimization. This narrative, assiduously developed over six decades through the propaganda and educational systems, underpins the political raison d’etre of the Communist Party – but it is a core source of the frictions with China’s neighbours and the West. China needs to shed this psychological baggage to truly normalize relations with Asia and the West – but to do so is to undercut the party’s legitimacy”.

To be fair, Professor Shambaugh is to be agreed as his prognosis is much more balanced and analytical compared with most China studies characterized by sectoral or pre-judgemental bias, hyping either the “China threat” or “China collapse” at one end of the spectrum to “China rules the world” at the other. According to his description of his forthcoming book, his conclusions are based on “six distinct dimensions of China’s global emergence (perceptual, diplomatic, global governance, economic, cultural, and security) and multiple manifestations of each”.

While Shambaugh’s scepticism is well-placed, it must nevertheless be seen in the following context –

On “path dependence”-

Ever since China started to reform and open up in 1978, the country’s development has been a continuous work-in-progress, to stay above waters of a continually changing tide. This perennial status of flux, of adaptation and change, has been at the core of China’s economic miracle, compressing over a century’s economic progress into a few decades. However, this has been breeding existential threats in unbalanced growth, rampant corruption, social inequity and ecological degradation and a hotbed of other social ills.

As early as the beginning of China’s 11^th Five Year Plan (2006-2010), the leadership has been highlighting the so-called five imbalances (between rural versus urban, human versus  environmental, economic versus social, national versus local, and inward versus outward investments). Ever since, the leadership has ushered in a swath of initiatives to hone “ a nation of innovation” including a battle for talent. Click here and the promotion of the kind of “soft” infrastructure highlighted by Shambaugh: education, science, cutting-edge technologies, innovation and cultural creativity, though the outcome is not yet inconclusive.

There has thus been a clear sense of changed direction since 2006 – now reinforced by the 12^th Five Year Plan (2011-15) – towards a dramatically different path based on slower but more balanced, higher-quality, more equitable and more sustainable growth. There is a broad-based awareness that the cheap labour pool is dwindling and China must redouble efforts to respond to the so-called Lewis Curve Turning Point Click here and the challenges of the Middle Income Trap. Click here

So the point here is that “path dependence” is not immutable.

On the “Soviet shadow” –

True, the Communist Party is caught in a quandary.  But what Daron Acemoglu and James Robinson describe as “extractive institutions” (“Why Nations Fail”, Profile Books, 2012) have generated growing social unrests that threaten to undermine the stability of the whole regime. It is no coincidence that from Wukan, Shifang to Ningbo, a recent series of uncharacteristic, high-profile, government about-turns have begun to happen, overturning local projects approved in Beijing in response to public protests against land grabs and pollution. In particular, the so-called “Wukan model” of open and fair village elections was daringly promoted by Wang Yang, one of China’s rising, if recently checked but no means “disabled”, pro-reform “stars”.

It is also instructive that a host of reform proposals in a new 468-page World Bank report were given the rare  imprimatur of the State Council (Development Research Centre). These include the promotion of civil society, including the role of the media to monitor governance (if initially only at the local level), and the strengthening of the rule of law, although, admittedly, there is still a long and winding road towards greater legislative oversight and judiciary independence.

But if the story is to be believed, Alexis de Tocqueville’s “French Revolution” is doing the rounds amongst China’s top leadership, including Li Keqiang, the Premier-in-waiting and Wang Qishan, the new anti-graft czar. And fighting corruption has been termed a matter of “”life or death” for the Party and the nation, according to both out-going President Hu Jinatao and President-in-waiting Xi Jinping at the 18^th Party Congress.

The point here is that the “”Soviet shadow” also means that “not managing change” in tune with the times will only threaten the whole regime’s survial.

On “vested interests”

The reason why the 18^th Party Congress was unexpectedly delayed was the shock of the Bo Xilai affair. Regardless of factional vested interests, nothing concentrated the minds of the collective leadership better than when the whole apple chart was about to be overturned by the overarching ambition of a scheming, if charismatic, individual. This was also an epiphany that vested interests must be curved, if not eradicated, particularly those represented by the monopolistic state-owned enterprises which sapped the vitality of the private sector. Indeed, this is one of the major reform areas highlighted in the World Bank/Development Research Centre report.

As for the military, a series of top military promotions and reshuffling took place during the mysterious disappearance of then Vice President Xi Jinping. It is probable that he took French leave to boost the loyalty of the military leadership in preparation for his taking over the Military Commision chairmanship in a first-of-its-kind complete power transfer at the Party Congress. As it is now confirmed, the Party’s top leadership has been reduced from nine to seven members, downgrading the security and propaganda apparatus below the level of the Politburo Standing Committee.

All these changes are of course not enough to break the so-called “iron quadrangle” of the military, the security apparatus, state-owned enterprises and arch-conservatives. This is not totally unlike the American example of the military-industrial complex forewarned at the time of President Einsenhower plus its modern adjuncts of big business and Wall Street.

The point here is that vested interests, when push comes to shove, can also trigger reform in order to maintain overall regime stability.

On Aggrieved nationalism

The nation’s psychological baggage is a reality borne of centuries of foreign oppression. Some of the remaining territorial disputes are in fact their outcome. Such disputes are unlikely to be resolved anytime soon. So territorial integrity is likely to remain a sore point in the national psyche for a long time to come. 

Nevertheless, China has now become more proactive in the global commons, for example in international peace-keeping, as the largest contributor of peace-keeping forces amongst Permanent Members of the Security Council. The country is also instrumental in brokering the six-party talks on North Korea and is taking a keener interest in addressing conflicts in the Middle East. But such a role cannot be equated to acquiescence with one-sided demands or abrogation of China’s own national interests. Indeed, no self-respecting nation would do this.

Meanwhile, China is now embarking on a mission to promote the country’s soft-power, including Confucianism and other aspects of China’s culture and heritage. But notwithstanding the gravitas of China’s economy, debates about the merits of the so-called Beijing Consensus and growing world-wide interests in the Chinese language, China is unlikely to have many genuine followers until the country succeeds in showcasing a new attractive civilization with a heart and soul that appeal to the spirit of the times.("China's Economic Success and Its Implications for the World Order" Click here

In the final anaysis, despite many negative connotations, “in the past ten years under the current leader, Hu Jintao, the economy has quadrupled in size in dollar terms. A new (though rudimentary) social safety net provides 95% of all Chinese with some kind of health coverage, up from just 15% in 2000. Across the world, China is seen as second in status and influence only to America,” according to The Economist front cover article of 27 October 2012.

An article here  for the South China Morning Post dated 19 September 2012, China's Economy and Policy, the flagship publication of Gateway International, a global China consultancy firm, postulates that brighter days are ahead for China’s economy.

The latest OECD report “Looking to 2060: Long-Term Global Growth Prospects” dated November 2012 here suggests that “China will overtake the eurozone in 2012 and the US within the next four years to become the largest economy in the world.  By 2060 …… the combined GDP of China (27.8%) and India (18.2%) will be larger than that of the OECD – and the total output of China, India and the rest of the developing world (57.7%) will be greater than that of developed OECD and non-OECD countries (42.3%)”.

Notwithstanding competition and rivalry, which are common to all political systems, the different factions, power-centres, and vested interests of the Party polity all embrace and continue to benefit from China’s continuing reform and progress. The question is not whether to reform but where, how much, and how fast, and of course, how to apportion their respective power and influence.

Depending on the time horizon and a host of imponderables, brighter prospects may or may not materialize. Nevertheless, I am more inclined to the view that the bottle is at worse half full. There is serious leakage that needs to be fixed but more water is coming in. At any rate, the jury is still out.

If one is to believe that in reply to Richard Nixon, Zhou Enlai said it’s still too early to tell the impact of the French revolution, perhaps it is still too early to be pessimistic about China, especially at such an epochal watershed when no change is no option.

China will remain a work in progress for years to come. So, until China manages to address all of the above challenges, Professor Shambaugh is accurate - China remains a "Partial Power".

Why the old guard still predominates at a time of critical change?

After months of endless speculation, China's new leaders have been unveiled. An informative parade of bios here is provided by The Diplomat, an international current-affairs magazine for the Asia-Pacific region.

Why are five about-to-retire leaders in a seven-member top leadership and why are they still considered up to the task ? This is explained in my Op-ed article in the South China Morning Post of 14 November, 2012 entiled “Old guard can still reform China”. A PDF version, with a somewhat different title, is here.

Let there be no mistake that the task ahead is anything less than Herculean.

Premier Wen Jiabao has forewarned many times that China’s development is “unbalanced, uncoordinated and unsustainable”. But the problems are getting more and more acute – rampant corruption, tightly-knitted vested interests, market dominance and inefficient capital allocation of state-owned enterprises, slower growth, aging demographics, and environmental and resource constraints.

Chairman Mao once said that “even the Communist Party can get old”. Now turning over 90 years, the Communist Party is struggling to keep up with the times. China is adding over six million university graduates a year and over 500 million citizens use the internet, all with new hopes and aspirations. The old style of repressive governance is past its sell-by date.

Over three decades of reform have miraculously changed China’s economy, now within sight to be the world’s largest in a decade or so. But over the decades, no leadership has dared to dismantle the ticking time-bomb of political reform. Premier Wen has alluded to the urgency of political reform but his has been a lone and ineffectual voice in the leadership. Absent this reform, the system remains as “extractive” as ever, as most wealth accrues to the small elite group of “princelings” and their allied vested interests. The historical lessons in “Why Nations Fail” (Acemoglu and Robinson, 2012) are sobering. Click here

According to President Hu Jintao, the country is facing Four Trials and Four Threats.

The Four Trials are in the areas of Governance, Reform, Market Economy, and External Environment The Four Threats are Mental Laxity, Inadequate Competence, Detachment from the People, and Negativism and Corruption.

From Egypt to Myanmar dictatorial regimes are making way for democracy and freedom. China is finding herself increasingly surrounded by democracies of different shapes and sizes. No wonder, it is said that Alexis de Tocqueville’s seminal work - “French Revolution” - has been doing the rounds in bedside reading of Wang Qishan, now to take charge of the Central Commission for Disciplinary Inspection (CCDI), China’s anti-graft organ, and Li Keqiang, the new Premier-in-waiting

It is instructive that not long before the 18^th Party Congress, Li has signed a foreward in a 468-page World Bank Report jointly undertaken with the Development Research Centre of the State Council (a rare occurrence), which contains a series of measured yet significant reform proposals on state-owned enterprises, local authorities’ powers, access to healthcare and social security, migrant labour’s entitlements (the hukou system), green economy, and the role of civil society. ("China 2030: Building a Modern, Harmonious, and Creative High-Income Society"- Click here)

It is also instructive that at the 18^th Party Congress, out-going President Hu reiterated the Party’s consensus aim of realizing a middle-income society by 2020, doubling per capita income from $5,530 in 2011to $10,000 in the process.

While the inclusion of the old guard in the latest top leadership line-up is a political compromise between factions and vested interests, it is perhaps unavoidable in order not to deny the hard-earned last-chance of making it to the top of able, well-tried, and certainly well-connected, if un-colourful, performers.

At an uncertain juncture of China’s critical cross-roads, the current line-up could at least ensure stability while meaningful changes are taking place under Xi and Li’s leadership.

Out-going President Hu used the words of “life or death” to describe the urgency of reforms, in particular, in tackling corruption. Such warnings are broadly echoed by in-coming President Xi, who openly expressed praise for President Hu's seizing the moment by taking the initiative of setting an example of complete power transfer at one go, including chairmanship of the Military Commission.

Together with the reduction in size of the Politburo Standing Committee from nine to seven Members, this should greatly enhance the power of the new leadership to take on the difficult reforms ahead.

When the survival of the whole Party is at stake, there is perhaps nothing more cogent to concentrate the minds, even those who have only five more years to serve before retirement. This is particularly so as a clear blueprint for the immediate future is already in place, under the lead of a strong and confident President and a reform-minded Premier.

Can Xi change China and the world?

On the eve of an epochal leadership transition, The Economist front cover article (27 October 2012)  here shows why Xi Jinping, China’s expected President-in-waiting, must grasp the nettle to overcome a series of dire challenges to the country’s stability, if not its very survival.

“The departing prime minister, Wen Jiabao, has more than once called China’s development (“unstable”,)“unbalanced, uncoordinated and unsustainable”.

This is in spite of China’s impressive gains on a wide front during the past decade under the watch of the out-going Hu-Wen leadership.

The Economist continues,

“In the past ten years under the current leader, Hu Jintao, the economy has quadrupled in size in dollar terms. A new (though rudimentary) social safety net provides 95% of all Chinese with some kind of health coverage, up from just 15% in 2000. Across the world, China is seen as second in status and influence only to America”.

According to successive PEW public attitude surveys, a vast majority of the population remains broadly supportive of where the country is heading, in stark contrast to the surveys’ findings on many Western nations. However, across various strata of society, there is a growing tide of disquiet, mistrust, and civil protest against the Chinese government.

“The poor chafe at inequality, corruption, environmental ruin and land-grabs by officials. The middle class fret about contaminated food and many protect their savings by sending money abroad and signing up for foreign passports. The rich and powerful fight over the economy’s vast wealth. Scholars at a recent government conference summed it up well: China is “unstable at the grass roots, dejected at the middle strata and out of control at the top”, says the Economist article.

The latest protest in Ningbo during 25-28 October 2012 against a petrochemical plant project is a case in point. See a YouTube video here. Like a few recent high-profile cases elsewhere such in Dalian, Liaoning Province and Shifang, Sichuan Province, the governemnt quickly backed down, unlike previous get-tough repressive tactics, even as the projects in questions represented massive investments approved at the highest levels in Beijing. Click here

“Once, the party could bottle up dissent. But ordinary people today protest in public. They write books on previously taboo subjects and comment on everything in real time through China’s vibrant new social media. Complaints that would once have remained local are now debated nationwide. If China’s leaders mishandle the discontent, one senior economist warned in a secret report, it could cause “a chain reaction that results in social turmoil or violent revolution”.

“Having long since lost ideological legitimacy, and with slower growth sapping its economic legitimacy, the party needs a new claim on the loyalty of China’s citizens”, the Economist intones.

There is no doubt that the Party is well aware of its existential challenges. As pointed out by The Economist's Briefing article on the same subject, a rare joint study published in February 2012 of the World Bank and the Development Research Centre of the State Council captures a host of China’s impending challenges with suggested recommendations. These include liberalization of the hukou system which marginalizes China’s “under-class” community of migrant workers, reform of state-owned enterprises to make way for the private sector, liberalization of the financial system, enhancing innovative productivity to escape the “Middle Income Trap”, growing a green economy, and promoting a greater role for civil society. It is reported that Li Keqiang, China’s Premier-in-waiting is the study’s staunch supporter. Click here

Likewise, China’s economy is taking an about-turn in the 12^th Five Year Plan (2011-15), from a high-speed, low-cost, energy-intensive, and export-dependent model to a slower, higher-value-added, consumption –oriented and environmentally sustainable model. This shows how China is responding to the challenges of the “Lewis Turning Point” (a related obstacle of the Middle Income Trap), where the country’s reservoir of cheap labour is running out when the population profile starts to age. Click here

To mitigate the looming aging profile, there is still no sign that China is scrapping the One Child Policy anytime soon. Perhaps this is not going to happen before the middle class exceeds half of the population by 2020 or thereabouts, when without government diktats, quality will count more than quantity in determining the size of families. However, there is urgency in making this policy change as turning around the population profile even a little will take decades rather than years. In any event, under present circumstances, China will grow old because the country gets rich (in per capita terms).

China’s most daunting challenges, however, remain social and political, in particular growing inequalities, lack of checks and balance against corruption and power abuse, absence of an independent judiciary, and want of social justice and freedom of political expression.

It is rumoured that one of Li Keqiang’s favourite reads is Alexis Tocqueville’s opus on the French Revolution. The downfall of the “ancien regime” was characterised by what Daron Acemoglu and James Robinson call “extractive institutions” in their seminal work “Why Nations Fail” (Profile Books, London, 2012). Perhaps the Premier-to-be is mindful of Zhou Enlai’s famous response to Richard Nixon, that the impact of the 1789-99 Revolution was then too early to tell.

Granted, “extractive” elitism is not confined to China alone or developing countries in general. It also happens in America as the lead promoter of democracy. In The American Conservative May 2012 issue, Ron Unz, the journal’s publisher, poses the question "Which superpower is more threatened by its “extractive elites?” His question is the context of a critical comparison between the U.S. and China's body-politic, referring to the 1% versus 99% divide in America. Click here

The United States may also have a kind of “prince-lings” in the form of an unholy alliance between Wall Street and the powerful “military-industrial complex” forewarned by President Einsenhower. However, in the final analysis, notwithstanding any such “extractive elitism”, America possesses, unlike China, the check and balance of the ballot box and a highly independent judiciary defending the spirit of the American Constitution.

As for China, The Economist leader finds signs of further reform in a front-page article dated 16 October 2012 in Qiushi , the Chinese Communist Party’s main theoretical journal, which, according to the magazine, calls on the government to “press ahead with restructuring of the political system”. The Economist proceeds to  lay out, “taking a deep breath”, its vision for progressive political reform, starting from the village level all the way to competitive election for the nation’s top leadership.

“Independent candidates should be encouraged to stand for people’s congresses, the local parliaments that operate at all levels of government, and they should have the freedom to let voters know what they think. A timetable should also be set for directly electing government leaders, starting with townships in the countryside and districts in the cities, perhaps allowing five years for those experiments to settle in, before taking direct elections up to the county level in rural areas, then prefectures and later provinces, leading all the way to competitive elections for national leaders”.

“The Chinese Communist Party has a powerful story to tell. Despite its many faults, it has created wealth and hope that an older generation would have found unimaginable. Bold reform would create a surge of popular goodwill towards the party from ordinary Chinese people”.

“Mr Xi comes at a crucial moment for China, when hardliners still deny the need for political change and insist that the state can put down dissent with force. For everyone else, too, Mr Xi’s choice will weigh heavily. The world has much more to fear from a weak, unstable China than from a strong one”, opines The Economist.

In any case, in the wake of the Bo Xilai saga, the Party has been shocked into reality that strengthening the rule of law and further reforming the Party are pre-requisites for political survival. Click here

However, while the Party is drumming up the need for the rule of law (as distinct from rule by law), there is still no sign of a political decision to establish a more independent judiciary.  Local judges remain appointed by local party secretaries. Despite channels of appeal to higher courts, this system of judiciary has spawned a glaring "feudal" anachronism whereby aggrieved individuals have to make it all the way to Beijing to seek redress against overt or covert resistance of local officials. Short of a complete judiciary overhaul, if at least all judges are appointed by Beijing instead, this would immediately minimize the chances of miscarriage of justice through collusion at local levels.

As for political reform, the magazine’s reading of Qiushi is one-sided at best. The Party article merely reiterates the need for China to find her own path in continuous reform on all fronts in keeping with the changing times. It warns against the inherent contradictions in Western capitalism, which have been increasingly exposed in recent years. The article is an affirmation of the leadership of the Party. Absent is any suggestion of copying the West’s model of competitive multi-party democracy.  

Nevertheless, leaving aside its perhaps over-ambitious recommended timetable, the political reform proposed by The Economist is not totally incompatible with the form of “intra-Party democracy” openly promoted by the Party during the past decade. The success of Singapore’s single-party rule (notwithstanding elections) and the broad support the Communist Party has been enjoying  amongst the vast majority of the Chinese people in recent years may well give the Party added confidence to move in this direction, if only at a measured pace.

To take any view on whether China’s one-party system is sustainable and to envision the likely shape of any political form, however, it is necessary first to understand how China chooses its top leader. The Economist, like most China watchers in the West, is relatively silent on this point. When asked, I have on occasions jokingly alluded to the internal dynamics in the election of a new Pope or the leader of a powerful business association.

After the strongman era ended with Deng Xiaoping, the leadership contest has become a competitive meritocratic process sprinkled with a natural dose of political rivalry and horse-trading for the top job. Gone are the days when ideology alone mattered as the Party has since been firmly wedded into a consensus of continuous reform and opening up. The rallying focal point is to what extent, considering track records and affiliates, an individual can be trusted by the Party polity “across the aisle”, to borrow an American expression, in maintaining a collective, united, and purposeful leadership to carry the Party torch and the nation forward.

Thus, through layers of power structure, from stints as junior local party officials to ministerial appointments, from work in provinces to key municipalities, from socio-economic to political portfolios, some well-tried winners compete over the years to get to the top echelons who are of a right age, proven calibre, and high standing within and outside the Party. This process seem to hark back to China’s ancient meritocratic mandarin system that underpinned the most successful (and long-lasting) dynasties.

The Chinese system of meritocracy resonates with the ancient Confucian wisdom that the state should be well governed by the most meritorious and the most able to serve the public good. 大道之行也, 天下为公, 选贤与能. If in the coming decades, this system of single-party collective leadership based on Confucian competitive meritocracy continues to prove successful in driving China, the world’s largest country, forward on all fronts, it would be a powerful alternative mode of government to the Western model based on rival multi-party democracy.

Read “How are China's top leaders selected and how stable is China's Communist Party?” here

Last but not least, Confucian ideas are being re-interpreted by China in the modern context of government for the people, harmony in the society, harmony between nations  and harmony between man and nature. While Western democracies are revealing various fault-lines, such as the global financial crisis, the European sovereign debt crisis, the “Occupy Wall Street” Movement, and relations with the rise of political Islam, it may be tempting to speculate whether a China Renaissance based on a Confucian model of harmony may offer a viable alternative to the existing West-dominated word order.

However, any such visions of grandeur are unlikely to materialize from China’s economic renaissance so far. First, China’s economy is by no means an unqualified success - more in quantity than in quality. Second, much of the world remains suspicious of the implications of a rising China, seen as an outlier to world-accepted social norms and values. Third, the world’s extant superpower, the United States, feels increasingly threatened by an ideologically-adverse challenger, and is rapidly re-focussing its geopolitical strategy. Fourth, and perhaps most importantly, China’s perceived foibles in human rights, rule of law, corruption, inequalities, social justice, and pollution are having a negative impact on the world’s perception of China.

If China is to rise to the historical opportunity to influence the world order for the better, the nation must first reform its many failings to create a new attractive civilization with a heart and soul that appeal to the spirit of the times.

For Xi, the tasks ahead are historical as they are Herculean. There is no doubt that not only the Chinese people, but the whole world will be watching with abated breath. 

Read “China’s Economic Success and its Ideological Implications for the World Order” here

China's leadership transition and U.S. presidential election - Whys, Wherefores, Risks and Opportunities for Asia

A presentation at the Jefferies Conference for Corporate Investors at the Island-Shangri-La Hotel, Hong Kong on Wednesday, 17 October, 2012

Download China's leadership transition and US presidential election - Key points in pictures and Full version

"Brighter days ahead for China's economy"

In an article for China's Economy and Policy, the flagship publication of Gateway International, a global China consultancy firm, G. Bin Zhao, executive editor, outlines a brighter picture of China's economy in the coming decade. He advances the following arguments -

(a) By all accounts, China's economy, though not necessarily comprehensive national power, is set to overtake the United States by 2018 to 2021, even if China's growth rate drops to 5% p.a.;

(b) Already rapidly internationalized, the RMB is set to become at least one of the world's leading reserve currencies, if not the leading one, after the Chinese yuan becomes fully convertible on the capital account probably by 2020, when China's economy is to become the world's largest;

(c) Subject to deepening economic integration with the Mainland, Hong Kong is likely to overtake New York as the leading global financial centre within 20 years;

(d) Albeit noted for scale rather than global brand leadership, China's enterprises have increased their listing in the Global Fortune 500 from only 11 a decade ago to 73 companies (79 if Taiwanese companies are included). More are likely to transform into truly global leaders to take possibly up to half of the league table within two decades.

(e)  According to China's State Intellectual Property Office, total patent applications were more than those of Japan and the US in 2011. Meanwhile, science and technology think tank Battelle estimates that China is likely to increase her share of 15% of global research and development spending to surpass the US within a decade. The international stature of Chinese universities is expected to rise: the University of Hong Kong expected to rank among the top 10 in the world, while Peking and Tsinghua universities to rise among the top 20.

(f) China is expected to narrow the gap with the US in the aerospace industry within two decades.

Download SCMP - 17.09.12 - Brighter days ahead for China's economy

G. Bin Zhao's optimistic prognosis seems to chime with the forecast of China's looming economic dominance "possibly only years away" by Arvind Subramanian, Senior Fellow at the Peterson Institute for International Economics, Washington DC, in his new book, "Eclipse: Living in the Shadow of China’s Economic Dominance."  Click here

All these rosy predictions, of course, tend to downplay the well-known litany of critical domestic and external challenges China faces in the coming decades, including leadership transitions, worsening corruption, inequalities, social discontent, ecological degradation, water, energy and other resource constraints, unbalanced reliance on infrastructural investments and low-margin exports, weakened external markets, problematic foreign relations, a rapidly--aging demographic profile and rising aspirations of an educated, liberal and internet-savvy middle-class.

However, past prejudgments of China’s eventual collapse have repeatedly belied themselves by predicating upon the past, especially China's politically convulsive past. The clear present-day reality is that the Party is fast turning itself into a ruling party that can only sustain its legitimacy by delivering what most people want, by continously re-inventing itself, and by building China's long-term competitiveness in keeping with the changing times.

For example, a recent YaleGlobal article ""Beyond Factory Floor: China’s Plan to Nurture Talent" dated 10 September 2012 Click here shows how determined China is in honing home-grown innovation and talent in the coming decades.

Alongside the coming leadership transition, a raft of major reform measures is already on the cards, judging from a recent 468-page World Bank report jointly undertaken with the Development Research Centre of the State Council, which counts Li Keqiang, China’s likely Premier-in-Waiting, amongst its staunch supporters.These measures include the reform of state-owned enterprises, growing a green economy, tackling the "hukou"" system which marginalized migrant workers, and the promotion of civil society.

Success is by no means guaranteed and many black swans can be expected along the way. But there is little doubt China is leaving no stone unturned in “Building a Modern, Harmonious, and Creative High-Income Society" by 2030. Click here