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China: Too Big To Fail?

China: Too Big To Fail?

China's governing system—not just its leaders—need to change after the upcoming party congress.

The seventeenth National Congress of the Chinese Communist Party, 2007.The financial crisis that still plagues the world has taught that banks deemed too big to fail may also be too big and complex to manage efficiently. Consider the London office of JPMorgan Chase that ran up a $6 billion loss when no one at headquarters was watching closely or enforcing its own rules.

Something similar may apply to China. Its huge economy won’t fail even though it clearly is slowing down to an unknown pace. But as Chinese society becomes more modern, complicated and troubled, Beijing’s leaders are finding it increasingly difficult to govern effectively—at least by the ruling system they have in place. Despite insistent warnings from inside the country that failure to reform may lead to a national crisis, so far they resist making needed changes that might also put at risk their own great power and privileges.

A test will come next month when, two days after the U.S. election, the ruling Communist Party begins once-per-decade leadership changes at the party’s eighteenth national congress. (Similar government revisions will follow early next year.) The 2,270 carefully selected delegates—including twenty-six migrant workers, a twenty-one-year-old Olympic swimming champion and a ninety-seven-year-old former Beijing mayor—will follow the official script to name a new ruling-party politburo and, more importantly, the smaller standing committee that makes all crucial policy decisions for China’s opaque system. Fourteen of the twenty-five current politburo members are expected to retire; seven of them also belong to its nine-man standing committee. The outgoing members include president and party chairman Hu Jintao and Premier Wen Jiabao (there are no women at the top).

The standing committee holdovers are Xi Jinping, who will replace Hu as party chairman and eventually as China’s president, and Li Keqiang, expected to become the next premier. After that, who knows? There is great speculation about the other names, what duties they may have (each committee member oversees an important policy sector) and what quarreling party factions they represent. It’s not even certain how large the standing committee will be; there is no fixed rule and many analysts believe membership will be cut to seven, further narrowing decision-making authority. The entire politburo presumably will stay near the twenty-five-member mark.

In some ways, it doesn’t matter. China’s real problem isn’t who gets what job but the governing system itself—however much the final personnel choices may affect policies substantially, if not always predictably. For example, President Hu was touted as a reformer when he took office a decade ago, and those who have met him in private insist he displays a realistic grasp of China’s serious problems. But he has almost never said anything interesting in public, and his tenure seems marked more by intellectual stagnation than policy innovation. It has also brought more corruption, nepotism and other cronyism, with repression on the rise. These days some claim incoming President Xi will bring a new approach to the job, but no one really knows for sure. Pressure to prolong the self-serving status quo that the ruling elite finds so comfortable remains strong and perhaps overpowering, no matter how unsuited to addressing the key challenges.

Yet change is needed. The nation faces increasingly grave problems, and so far there are no clear signs of what party leaders plan to do about them to prevent more serious trouble from erupting. And, increasingly, the calls for reform are coming from within, not only from foreign analysts who distrust China’s Leninist political structure and its authoritarian ways. Citing “a potential crisis,” a paper aimed at the leadership by Strategy and Reform, a Beijing think tank, issued this warning: “The next decade might be the last opportunity for actively pursuing reform, and we should treasure this last chance.” Deng Yuwen, editor of a newspaper published by the influential Central Party School, has lamented the failure of Hu and Wen to initiate reforms, writing that “the next two or three years, and at most the next [ten-year] political cycle, will be a crucial period for China’s development.” (That such criticism can be published proves China already is changing significantly; it would have been impossible when Mao Zedong was in charge.)

Reform can have many meanings, and the party’s many critics are not united behind any single plan. Serious efforts to organize, in fact, would almost certainly land them in jail. And only the most naive dissidents believe some kind of instant democracy is either possible or desirable. Chinese society is only now developing the stabilizing civic structures needed to make a truly representative political system credible. Beyond that, however much the ruling party might modify its governance, its first priority is to retain power. In any case, most domestic critics don’t want it to self-destruct anytime soon for fear chaos would follow—a point the party emphasizes to justify its own continued rule.

But there are certain themes that many critics do support. One is for more “democracy” inside the party and at local governmental levels. The former would require less cloistered debate about policy choices—now generally held in great secrecy by a small group—plus a more tolerant attitude toward those who disagree with top leaders. The goal would be to have more extensive and realistic public discussion of policy choices, leading to broader support for the final decisions. It would also give the eighty-five million party members a greater role in deciding who represents them in higher party circles. At present, they basically ratify choices handed down from above. But asking party leaders at any level to risk being voted out may be asking too much. Still, a more open system would reduce the disdain and cynicism that many citizens in this age of the Internet have for their party leaders, especially at the lower levels.

Allowing credible elections for village and other local government officials also would help, many Chinese analysts believe. At present, local party, government and business interests too often are intertwined to the public’s detriment. For example, officials frequently seize property occupied (but not owned) by farmers for resale to developers; the displaced residents may get little compensation, but officials can pocket hefty bribes or some of the proceeds. If the farmers protest, they’re frequently beaten by police or hired thugs in what are officially called “mass incidents.” Beijing no longer releases national figures, but some estimates suggest these now total some two hundred thousand annually from various causes. Having popularly elected officials in charge could reduce that figure and improve the image of both party and government.

 

Economic reforms also are on many critics’ lists. After three decades of rapid growth—unmatched elsewhere—China is officially expected to slow down to a 7.5 percent rate this year, though that may be too optimistic. Forecasts, like most Chinese statistics, are all a bit dodgy, but some economists predict a rate of 5 percent or even much lower for the near future. The party claims sustained economic gains legitimize its monopoly on power; if the economy faltered, that rationale would suffer. Yet for many reasons, economic policy changes are needed. Among other things, China has a real-estate bubble, problems in foreign markets, inefficient state enterprises that gobble up resources and stifle both innovation and more productive private companies, a financial system that wastes deposits and makes dud loans to the party’s favorite borrowers, and—before long—a shrinking labor force. Under-regulated industrial growth has fouled the air and water to a dangerous degree. There is also social unrest caused by a widening gap between rich and poor while welfare programs remain inadequate.

Endemic corruption is also high on reformers’ wish lists. The entire economic and political system is riddled by—even relies upon—payoffs, nepotism and other favoritism, and the public grows increasingly jaundiced. For example, citizens often have to bribe doctors to get medical attention or pay someone in authority to get a job. Food, drink and drugs can be adulterated because laws about safety standards are ignored. The entire legal system can be unreliable, with the cops as crooks and judges selling decisions to the highest bidders. Social media spread such tales with complaints and mockery, creating information-control problems the party has not faced previously. All this feeds popular contempt for the law and those who are supposed to apply it.

 

Finally, Beijing has foreign-policy problems that could get out of control. Territorial disputes over remote islands, newly valuable due to their fishery and energy resources, could bring violent clashes with Japan and others unless cooler heads prevail. A more nationalistic military seems to be edging toward potential confrontation with the United States in Asian waters (loose talk in the American electoral campaign doesn’t help). Rising protectionism is bringing serious trade disputes with the United States, Europe and others. Issues of global cyber sabotage need to be addressed before grave problems arise, and the list goes on. So far, however, Beijing’s leader has not been able to override nationalistic pressures at home, some of it officially spawned for domestic political reasons, to seek useful compromises.