Inside Xi Jinping's Reform Strategy

The deft political moves that are sidelining the Chinese leader's opponents.

Chinese President Xi Jinping has set out to be a transformative leader. While he is, in his own words, no Gorbachev, he is equally committed to breaking free of the Brezhnevian stagnation that many Chinese feel characterized politics under Hu Jintao. In his speeches and in the official decisions of November’s Third Plenum (reported to have been prepared under his close guidance), he has promised to establish a “decisive” role for market forces—under the guidance of the Party. Doing so, by his own analysis, requires overcoming and controlling “vested interests” which stand in his way.

As his concept of the “China Dream” explains, Xi aspires to restore China to its rightful place among the world’s nations—and restore the Chinese Communist Party to its own rightful place as the vanguard of the nation. Like his predecessors, Xi aspires to revamp China's political economy not to weaken the Communist Party, but to strengthen it and the nation it rules by “rectifying the relationship between markets and the state.”

Debate about the Xi leadership has, until recently, focused on the question of whether or not it was serious about reform. Since coming to power in November 2012, the Xi administration has answered this question by laying out a bold agenda for economic change which would, if carried out, profoundly alter the role of the State in the Chinese economy.

This vision will not always be attractive to outsiders. It will likely mix markets with robust nationalism and a reinvigorated state-owned sector. What is now clear, however, is that it will represent a significant break with the status quo. For Xi and those around him, the easy part is over. Having laid out their agenda, they must now focus on implementing it.

Delivering effective reform won’t be easy. As Americans can testify, achieving change is difficult in any political system. In order to make ambitious changes, Xi will have to overcome an array of ideological, bureaucratic and industrial groups with stakes in maintaining the status quo. This challenge appears to be much on his mind: He has repeatedly spoken of the threat posed to reform by “vested interests,” a poorly defined but important combination of government ministries in Beijing, local governments and state-owned enterprises (SOEs).

Over the last decade, the structure of the Chinese political system has offered vested interests multiple avenues to resist change. In short, power was diffuse and interests varied wildly. Decision-making at the top levels of the Communist Party was driven by consensus, often resulting in a lowest common denominator approach to policy-making. Central ministries in Beijing amassed significant power over the economy and were not eager to give it up. Powerful local governments were frequently responsible for implementing policies and focused on short-term growth rather than long-term reform. And managers of state-owned enterprises were able to leverage political clout in both Beijing and the provinces to preserve the status quo.

In facing these challenges, Xi has some natural advantages. As the son of Xi Zhongxun, one of China’s revolutionary elders, Xi is better connected and—to some extent—enjoys more natural legitimacy in the Party system than his immediate predecessors. He also has several close allies on the Politburo Standing Committee, especially China’s top antigraft official Wang Qishan and former Shanghai Party Chief Yu Zhengsheng, many of whom share a common patron with Xi in former President Jiang Zemin, as well as ties to his native Shaanxi province. More importantly, however, after a year in office he is also proving himself to be a gifted political strategist in his own right.

As it shapes its own approach to promoting reform, the Xi leadership is drawing on strategies employed by previous generations of Chinese leaders who have succeeded in effecting change. While much has been made of Xi’s Maoist language over the last year, he has also taken tips Mao’s political playbook. This makes sense. Whatever his flaws, Mao knew a thing or two about political leadership. In less than three decades, Mao turned China’s economy, as well as its political and social structure, on its head.

In looking to undo Mao’s damage, the Deng and Jiang leaderships set themselves equally ambitious goals, and largely achieved them, in the face of strong resistance from powerful entrenched interests. They did so not by fiat, but by deploying sophisticated political strategies that weakened existing interest groups, created new ones with a stake in reform, and created opportunities for many insiders to profit by taking part in market reforms.

Below we outline seven emerging strategies for implementing reform. These strategies are still taking shape, a process made more complex by the fact that, despite Xi’s strong leadership, China’s reformers are not a cohesive bloc. They, like the “vested interests” they seek to overcome, are divided along personal, ideological and factional lines, meaning that different people favor different strategies for reform. This is also proving to be a process of trial and error, as the leadership figures out which approaches are most likely to gain traction and which are best left by the wayside.