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The Fifth Session of the 11th National People's Congress, China's top legislature, at the Great Hall of the People in Beijing on March 14.
The Fifth Session of the 11th National People's Congress, China's top legislature, at the Great Hall of the People in Beijing on March 14.
Xi Jinping, the vice president of China, center, who will soon ascend to the presidency, attends an event in Beijing last month.
Xi Jinping, the vice president of China, center, who will soon ascend to the presidency, attends an event in Beijing last month.

China's new leader inherits major challenges

A series of scandals won't threaten the Communist Party of China's hold on power as Xi Jinping takes over from Hu Jintao at the top.

To the disappointment of many, China has not transformed its openness to trade with the West into adoption of western political norms. But it has picked up a few of the democratic dark arts. Exhibit one: the carefully timed data dump.

At 7pm on Friday, September 28, the evening before the start of China's week-long National Day holidays, state news agency Xinhua announced the fate of Bo Xilai, former darling of the Chinese hard left, whose Chongqing model - a mix of Maoist revivalism, state-led economic growth and populist anti-crime measures - was designed to take him first into the Politburo Standing Committee and then perhaps to the presidency.

Bo was accused of abuse of power, massive corruption and "improper sexual relations with multiple women". He was also stripped of his Communist Party membership, a move that paves the way for his trial.

Additionally, Xinhua announced that the date of the 18th Party Congress, itself the subject of multiple rumours as the CPC grappled with the Bo affair, was fixed for November 8.

The announcements capped a hectic few months for the party leadership. The year leading up to the ceremonial handover of power is supposed to proceed in the stately and predictable manner of a coronation. Instead we have had Bo's spectacular fall from grace, sparked by the involvement of his wife in a bizarre murder case and the attempted defection of his right-hand man, the escape of a prominent rights activist from illegal house arrest to the US Embassy in Beijing, the mysterious disappearance of the heir apparent to current president Hu Jintao and the outbreak of serious nationalist rioting in cities across China, following Japan's purchase of three of the disputed Diaoyu islets in the East China Sea.

All of this illustrates a fundamental paradox for incoming president Xi Jinping, now back in circulation after what many believe to be a back injury sustained while swimming.

While none of the events of the past year present a direct threat to Communist Party rule, they demonstrate that China is a complex and fractious society that has to be properly managed.

One of Xi Jinping's possible colleagues on the Politburo standing committee seems to realise this and has some idea of what to do. If Bo Xilai was the darling of the left, then Guangdong Party Secretary Wang Yang is the idol of the party's right.

In Wang's "Happy Guangdong" the state is supposed to step back and let civil society take the lead, at least to a modest extent. Wang has eased the stringent restrictions on NGO formation, encouraged state-controlled unions to bargain actively on behalf of workers and thrown open the city budget of provincial capital Guangzhou to public examination.

His finest hour, in reformist eyes, came in response to an uprising in the village of Wukan late last year, when local residents incensed by the illegal sale of their land by local party officials drove them from town. Wang brought an end to the armed standoff that followed by dismissing the officials concerned and allowing the villagers to elect their replacements.

By reputation, Xi Jinping is a man of neither left nor right, though he has connections to Guangdong through his father, late party elder Xi Zhongxun, who came up with the idea of creating Special Economic Zones in the province in the early 1980s and sold it to then paramount leader Deng Xiaoping.

Xi's early career was spent rising through various posts in the political commissariat of the People's Liberation Army and he is still believed to enjoy much closer ties with the military than Hu Jintao.

His civilian career has been spent almost entirely in the prosperous coastal provinces of Jiangsu, Fujian and Zhejiang, with a brief stint as party secretary in Shanghai before being spoken of as future president at the 17th Party Congress in 2007.

In this sense, Xi is not just the winner of the competition to lead China, but the candidate of the winners in the overall process of economic reform. His career maps almost exactly on to the places which contain the most millionaires in China. This is in keeping with his acknowledged affiliation with the so-called "princeling" faction in Chinese politics, named for the children of high officials making their way through the ranks of the Communist Party

By contrast, outgoing president Hu rose through membership of the so-called "CYL faction", the patronage network based around the Communist Youth League. He spent almost all of his career in the impoverished western provinces of Gansu, Guizhou and Tibet, where he was first identified as a candidate for high office for his suppression of an uprising in Lhasa in 1989. His rule has been characterised by a mildly redistributive economic agenda, a drift towards state direction in the economy and an obsession with "stability management" to the point where China's internal security budget exceeds its spending on the conventional armed forces.

While analysing the CVs of China's leaders gives us an idea of their outlook and inclinations, it doesn't tell us what they will actually do.

That's because China's transition from tyranny to oligarchy stresses cross-party consensus in policy-making and ensures that positions of power are distributed between different factional interests: Xi's incoming deputy, premier-to-be Li Keqiang, for instance, is a member of Hu's CYL faction. In economic and social policy Xi will also be bound by the parameters of the current five-year plan, which ends in 2015.

Such continuity can be reassuring, but it also limits Xi and the ruling group's ability to respond rapidly to changing events. And this is a concern because Beijing's economy looks set to underperform on its growth targets.

Part of the problem is global, with Europe a particular culprit: while China's exports have grown more slowly than anticipated to the rest of the world, exports to the European Union have actually shrunk. What makes the timing particularly unfortunate here is that this coincides with a comprehensive drive to move from an export-driven to a consumption-based economy.

Declining but robust revenues from the export sector were supposed to help pay for a comprehensive welfare package designed to encourage people to save less and spend more. Collapsing revenues make this all the more difficult to achieve.

A related problem goes back to the measures China took to stimulate the economy following the 2008 financial crisis. While some stimulus came from the central government, most came in the form of policy loans: local governments were ordered to come up with economic and infrastructure projects and local banks were told to lend to them. In the short term it worked: the 20 million or so who were laid off that year were soon re-employed, but it caused a major property bubble.

When Beijing popped that bubble in 2010, it left local governments with massive debts at more or less the same time they were committed to equally massive spending programmes.

At the same time, the government's emphasis on policy banking tended to crowd the private sector out of access to finance and reducing the local enterprise taxation, which, with dealing in land, form the major components of local government revenue. And all this makes it hard to repay the banks.

Opinions differ as to the severity of this problem, but at this stage it's highly unlikely that Xi's China will have the capacity to pull the rest of the world out of the economic doldrums, as some have hoped.

Xi also takes the helm at a time when relations with Japan over competing claims to the Diaoyu/Senkaku islands have reached a crisis point, after the Japanese government announced on September 10 that it had bought three of them. Tokyo was acting to head off Shintara Ishihara's plan to purchase the islands himself and develop them. But Beijing still took the move as a provocation, threatening economic sanctions as nationalist demonstrations took place in cities across China, some ending in attacks on Japanese-owned businesses and property.

While actual armed conflict is unlikely, the fact that the dispute has flared up while China is undergoing a leadership change makes it difficult for the incoming leaders to be seen to back down. Xi Jinping's close links to the Chinese armed forces may also be a cause for concern here, especially if China's stance causes a corresponding shift towards greater nationalist sentiment in Japan.

Leadership change in China is usually accompanied by some version of the Gorbachev fallacy, the earnest hope that someone who has spent his entire life rising to the top of the Communist Party will liquidate it once he gets there.

Though a more relaxed figure than Hu Jintao, there is nothing in Xi Jinping's career to show that he intends to make any fundamental change to China's power structure. Regimes facing economic difficulties and foreign policy crises are also not prone to indulge whatever liberalising instincts they may have. On the other hand, they may well produce some fascinating data dumps.

Jamie Kenny is a UK-based journalist and writer specialising in China.

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