China: Mao or Markets?

Why is Chinese president Xi Jinping embracing his inner Mao at a moment when China’s new leaders are on the verge of launching a new wave of reforms to retool China’s economy based on strengthening market forces? Hint: it may have something to do with the regime’s efforts to bring down the former Chongqing Communist Party leader and darling of the “new left”, Bo Xilai. China’s politics, like its policy decision-making tends to be rather opaque. But Xi sent a clear political message in July when he visited Mao Zedong’s landmark lakeside mansion and declared, “our nation will never change color.”

Blast from the Past

As if to make the point, a secret memo called “Document No. 9,” issued by the Communist Party Central Committee General Office, was recently leaked to the New York Times issuing a directive to party cadres listing “seven perils” not to be tolerated. These included “Western constitutional democracy”, constitutionalism, civil society, an independent judiciary, press freedom, human rights and market “neo-liberalism.” The memo, according to the NY Times, says that “Western forces hostile to China and dissidents within the country are still constantly infiltrating the ideological sphere.”

There is far more at play here than, as one interpretation has it, a bit of political symbolism to placate the left while the regime attacks Bo Xilai, leading icon of the left. This old-school Communist “rectification” campaign may be in part about consolidating party control, and certainly underscores how terrified Chinese leaders are of their own people. But most intriguingly, this posturing raises questions about China’s political trajectory, and more immediately, how Beijing will implement a wave of market-oriented economic reforms needed to advance China’s $7+ trillion economy.

In recent months, Chinese state-run media have attacked Western ideas, most prominently the notion of constitutionalism—a debate that goes back to the latter days of the Qing dynasty. The idea, articulated in Article 5 of China’s current constitution, is that “No organization or individual has the privilege to overstep the constitution and the law.” Only last December, on the thirtieth anniversary of the 1982 constitution, President Xi defended the constitution.

No more. The official media has been trashing the idea. One of a series of recent People’s Daily editorials said that constitutionalism is absurd, “like climbing trees to catch fish.”

In practice, China has tended to be governed more according to rule by law than of law, with the Communist political elite largely exempted. With burgeoning concerns over corruption and inequality, reformers have focused on the need for constitutionalism—rule of law. Some in China may fear that is a slippery slope leading to political reform as well. Earlier this year the virulence of the debate has seen one reform-minded journal’s website taken offline, and a journalists going on strike after a liberal-leaning newspaper, Southern Weekend, was censored. These have been part of a wider trend of crackdowns on dissent, including on some prominent human-rights activists.

Mao in the Information Age

These trends raise a host of vexing issues. First, in a China with six hundred million on the internet, five hundred million on Weibo, China’s version of Twitter, and over 1.1 billion cellphones, is old-fashioned Leninist political control viable—or even possible? In recent years, China has seen tens of thousands of what are called “mass incidents—180,000 reported by the government in 2010 (and they’ve since stopped reporting numbers). Most are local affairs, often over environmental damage or property scams by local party officials.

This then raises another puzzling dilemma. If your objective is to fulfill China’s modernization— Mr. Xi has dubbed it the “China Dream”—and corruption and abuse of power by some of China’s eighty million Communist Party members are major impediments to the next wave of economic reforms that the Politburo is well aware are needed, then how can even a “purified” Party be the answer?

The legitimacy of the ruling Communist Party has been largely based on performance. More than three decades of double-digit economic growth, lifting three hundred million from abject poverty, have been the foundation for the success of this de facto social contract. But Beijing is well aware that the development model that has delivered this success has run its course.

This was the premise of China 2030, a report last year cosponsored by the World Bank and the Chinese State Development and Reform Commission (SDRC), a leading policy body. The report argued that if China is to become “a modern, harmonious, creative, and high income society,” it must adopt “a new development strategy” that includes strengthening the rule of law, a greater role for private markets and “increased competition in the economy.” Importantly, the strategy argued that “reforms of state enterprises and banks would help align their corporate governance arrangements with the requirements of and permit competition with the private sector on a level playing field.”

The aim is to move from an investment-driven, export-oriented economy to a market-centered, consumption-driven, more service-oriented economy, one centered less on assembly of goods and more on knowledge-based innovation. One important challenge to Beijing is income distribution. Social inequality has been growing with China’s Gini coefficient, a widely used index, reported as high as 0.61, but officially at 0.45, close to that of the United States. Any number above 0.4 is considered ripe for social unrest. No wonder the regime is so fearful of its citizens.

The politics of Xi’s current situation is markedly different than that facing Deng Xiaoping in 1979, when China’s initial opening and reform policies were adopted. Deng had an instant constituency of a billion, as reforms ended economic stagnation and rapidly created wealth benefiting the vast majority.

Today, the Chinese political elite is part of a wide network encompassing those at the top of its state banks, state-owned enterprises and PLA-affiliated business interests, as well as local and provincial party officials. Thus, it is no surprise that China’s major state-owned oil companies have successfully lobbied against enforcing higher fuel-efficiency standards, even as the number of autos in Beijing has jumped from three million in 2008 to over five million in 2012.

Underscoring the extent to which the new leadership views the problem, in July, according to the Washington Post, President Xi bluntly told a meeting of officials in Wuhan that China needed to “break the barriers from entrenched interest groups.” Perhaps it is more than coincidence that on August 26 the vice president of the China National Petroleum Company, one of the country’s largest state-owned energy firms, was placed under investigation for “severe breaches” of party discipline.

This highlights the dilemma of China’s new leadership: It knows that it needs to pursue far-reaching reforms that will significantly impact the benefits much of China’s elite enjoy, but it has not yet mastered how to navigate among competing interest groups. The cozy relationships between state banks and state-owned enterprises at the national and local level and entrepreneurs and local party officials are one reason why China’s total debt may be as high as 200 percent of its GDP.

There are clearly scholars and officials in China who understand these dilemmas and are acutely aware of the need for a more accountable legal and political system to achieve economic objectives and maintain social stability. In a remarkable op-ed in the Financial Times, published during the NPC meeting in Beijing, Peking University economics professor Zhang Weiying wrote, “The challenge of reform is a tough one for the new leaders. After a ‘lost decade’ under Mr. Hu, the country is much less harmonious. Curbing corruption, improving income distribution and maintaining economic growth are all urgent. But it is widely argued by academics and, privately, by many officials that the priority is starting the long-delayed shift to a constitutional and democratic system. Otherwise, China will lose its economic momentum and its social stability.”

These unresolved, politically intractable internal dilemmas faced by Chinese leaders may be contributing to Beijing’s nationalist rhetoric and assertive behavior regarding disputed islets in the East China Sea (with Japan) and South China Sea, the foreign-policy equivalent of its domestic measures. Both Beijing’s irredentist-centered nationalism and its current neo-Maoist-tinged domestic campaigns may be, as some analysts suggest, a short-term, politically expedient tactic.

The term “Market-Leninism” has been a half-joking reference to China in the reform era. But as the inherent contradictions of that reality play out, Beijing’s new leaders face a precarious decade in their efforts to complete China’s modernization and remain in power.

Robert Manning is a senior fellow of the Brent Scowcroft Center for International Security at the Atlantic Council. He served as a senior counselor to the Undersecretary of State for Global Affairs from 2001 to 2004 and a member of the US Department of State Policy Planning Staff from 2004 to 2008.

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