Analysis: China at an important crossroads

Harry Dadswell 8 November 2012

With the American election clogging our headlines it is easy to forget that this week will also see a leadership transition in China. There couldn’t be a greater contrast in style. Instead of the noisy rhetoric of public debate, the upper echelons of China’s ruling Communist Party decide their leadership in a process with all the transparency of a papal election. Yet this shouldn’t blind us to its historical significance; China is at the crossroads and whoever is chosen to take the reins of state will face considerable challenges in the coming years.

All eyes will be focussed on the Eighteenth Party Congress which begins today. Seven of the nine members of the Politburo Standing Committee will be retiring, including President Hu Jintao and Premier of the State Council Wen Jiabao. The figures promoted to fill these vacancies will give the strongest clues as to the make-up of the government that will be formed officially next year.

The expectation is for a relatively smooth transition, a rare thing in modern Chinese history. The most likely successors to the Presidency and Premiership, Xi Jinping and Li Keqiang respectively, are believed to be fairly reformist in outlook. For them the burning question will be whether the Communist Party can do enough to forestall increasing social pressures without losing its grip on power.

The recent disgrace of the ambitious Bo Xilai, expelled from the Party this year for his alleged role in the murder of the British businessman Neil Heywood, will inevitably overshadow the upcoming Congress. China’s leadership will be relieved at the removal of a figure widely perceived as a threat, with his populist neo-Maoism appealing over the heads of the Party to the wider public. However, the need to wash the Party’s dirty linen in public has only added to the growing concern at corruption reaching the highest levels.

So far the Party has succeeded in off-setting resentment at corruption with the ability to deliver eye-watering levels of annual economic growth at 9 or 10%. However, the economic model of the last thirty years, propped up by state investment and cheap exports, is appearing increasingly unsustainable. The next generation of leaders will have the difficult task of managing the transition to an economy in which services and domestic consumer demand will provide a more secure foundation for growth.

This is linked to the need for a radical improvement in the provision of health care, pensions and social security. Given the country’s nominal claim to be communist, few realise the paucity of welfare in China. With rural Chinese forced to save so much to cover the costs of healthcare, the prospect of a domestic consumer boom beyond the richest cities is diminished.

If the Party manages this economic transition, balancing the needs of the burgeoning entrepreneurial class without allowing the rural poor to be left behind, it might forestall demands for political reform. If this goes wrong however, there is a danger that China’s leaders will turn to bellicose nationalism in a desperate bid to retain a grip on power. Such rhetoric has been on the increase thanks to recent territorial disputes with Japan. The danger with nationalism is that whilst it is easily tapped into, it is not easy to control once released. If Xi Jinping sincerely believes that the Communist Party has the legitimacy to rule China, he must instead take the harder path of economic reform.

Harry Dadswell