Written by Matthew Gertken and Jennifer Richmond
Meanwhile, the Chinese economy has maintained a furious pace of credit-fueled growth despite authorities’ repeated claims of working to slow growth down to prevent excessive inflation and systemic financial risks. The government’s cautious approach to fighting inflation has emboldened local governments and state companies, which benefit from rapid growth.
Yet the risk to socio-political stability posed by inflation, expected to peak in springtime, has provoked a gradually tougher stance. The government thus faces twin perils of economic overheating on one side and overcorrection on the other, either of which could trigger an outburst of social unrest — and both of which have led to increasingly erratic policymaking.
These security and economic challenges are taking place at a time when the transition from the so-called fourth generation of leaders to the fifth generation in 2012 is under way. The transition has heightened disagreements over economic policy and insecurities over social stability, further complicating attempts to coordinate effective policy. Yet something deeper is driving the Communist Party of China’s (CPC’s) anxiety and heavy-handed security measures: the need to transform the country’s entire economic model, which carries hazards that the Party fears will jeopardize its very legitimacy.
Former paramount leader Deng Xiaoping is well known for launching
The first was economic pragmatism, allowing for capitalist-style incentives domestically and channels for international trade. Deng paved the way for a growth boom that would provide employment and put an end to the preceding decade of civil strife. The CPC’s legitimacy thus famously became linked to the country’s economic success rather than to ideological zeal and class warfare.
The second pillar was a foreign policy of cooperation. The lack of emphasis on political ideology opened space for international maneuver, with economic cooperation the basis for new relationships. This gave enormous impetus to the Sino-American detente Nixon and Mao initiated. In Deng’s words,
The third pillar was the primacy of the CPC’s system. Reform of the political system along the lines of Western countries could be envisioned, but in practice would be deferred. That the reform process in no way would be allowed to undermine Party supremacy was sealed after the mass protests at Tiananmen, which the military crushed after a dangerous intra-Party struggle. The People’s Liberation Army (PLA) and the People’s Armed Police would serve as Deng’s “Great Wall of steel” protecting the Party from insurrection.
For three decades, Deng’s model remained mostly intact. Though important modifications and shifts occurred, the general framework stands because Chinese-style capitalism and partnership with the
Hu’s policies have not differed widely in practice from Deng’s. China’s response to the global economic crisis in 2008 revealed that Hu sought recourse to the same export- and investment-driven growth as his predecessors. Hu’s plans of boosting household consumption have failed, the economy is more off-balance than ever, and the interior remains badly in need of development. But along the general lines of Deng’s policy, the country has continued to grow and stay out of major conflict with the
Unprecedented challenges to Deng’s model have emerged in recent years. These are not challenges involving individuals; rather, they come from changes in the Chinese and international systems.
First, more clearly than ever, China’s economic model is in need of restructuring. Economic crisis and its aftermath in the developed world have caused a shortfall in foreign demand, and rising costs of labor and raw materials are eroding China’s comparative advantage even as its export sector and industries have built up extraordinary overcapacity.
Theoretically, the answer has been to boost household consumption and rebalance growth — the Hu administration’s policy — but this plan carries extreme hazards if aggressively pursued. If consumption cannot be generated quickly enough to pick up the slack — and it cannot within the decade period that
Not coincidentally, movements have arisen that seek to restore the Party’s legitimacy to a basis not of economics but of political power. Hu’s faction, rooted in the Chinese Communist Youth League (CCYL), has a doctrine of wealth redistribution and Party orientation. It is set to expand its control when the sixth generation of leaders arrives. This trend also exists on the other side of the factional divide. Bo Xilai, the popular Party chief in
The second challenge to Deng’s legacy has arisen from the military’s growing self-confidence and confrontational attitude toward foreign rivals, a stance popular with an increasingly nationalist domestic audience. The foreign policy of inoffensiveness for the sake of commerce thus has been challenged from within. Vastly more dependent on foreign natural resources, and yet insecure over prices and vulnerability of supply lines,
In recent years,
And third, Deng’s avoidance of political reform may be becoming harder to maintain. The stark disparities in wealth and public services between social classes and regions have fueled dissatisfaction. Arbitrary power, selective enforcement of the law, official and corporate corruption, and other ills have gnawed at public content, giving rise to more and more frequent incidents and outbursts. The social fabric has been torn, and leaders fear that it could ignite with widespread unrest. Simultaneously, rising education, incomes and new forms of social organization like non-governmental organizations and the Internet have given rise to greater demands and new means of coordination among dissidents or opposition movements.
In this atmosphere, Premier Wen Jiabao has become outspoken, calling for the Party to pursue political reforms in keeping with economic reforms. Wen’s comments contain just enough ambiguity to suggest that he is promoting substantial change and diverging from the Party, though in fact he may intend them only to pacify people by preserving hope for changes in the unspecified future. Regardless, it is becoming harder for the Party to maintain economic development without addressing political grievances. Political changes seem necessary not only for the sake of pursuing oft-declared plans to unleash household consumption and domestic innovation and services, but also to ease social discontent. The Party realizes that reform is inevitable, but questions how to do it while retaining control. The possibility that the Party could split on the question of political reform, as happened in the 1980s, thus has re-emerged.
These new challenges to the Deng approach reveal a rising uncertainty in
These emerging trends have not become predominant yet. At this moment,
The country is continuing to pursue the same path of economic development, even sacrificing more ambitious rebalancing to re-emphasize, in the 2011-15 Five-Year Plan, what are basically the traditional methods of growth. These include massive credit expansion fueling large-scale infrastructure expansion and technology upgrades for the export-oriented manufacturing sector, all provided for by transferring wealth from depositors to state-owned corporations and local governments. Modifications to the status quo have been slight, and radical transformation of the overall growth model has not yet borne fruit.
Finally, the security crackdown under way since February — part of a longer trend of security tightening since at least 2008, but with remarkable new elements — shows that the state remains committed to Deng’s general deferral of political reform, choosing strict social control instead.
The Deng model thus has not yet been dismantled. But the new currents of military assertiveness, ideological zeal and demand for political reform have revealed not only differences in vision among the elite, but a rising concern among them for their positions ahead of the leadership transition. Sackings and promotions already are accelerating. Unorthodox trends suggest that leaders and institutions are hedging political bets to protect themselves, their interests and their cliques in case the economic transition goes wrong or foreigners take advantage of
As the jockeying for power ahead of the 2012 transition has already begun in earnest, signs of vacillating and conflicting policy directives suggest that the regime is in a constant state of policy adjustment to try to avoid an extreme shift in one direction or another. Tensions are rising between leaders as they try to secure their positions without upsetting the balance and jeopardizing a smooth transfer of power. The government’s arrests of dissidents underline its fear of these growing tensions, as well as its sharp reactions to threats that could disrupt the transition or cause broader instability. Everything is in flux, and the cracks in the system are widening.
One major question is how long the Party will be able to maintain the current high level of vigilance without triggering a backlash. The government effectively has silenced critics deemed possible of fomenting a larger movement. The masses have yet to rally in significant numbers in a coordinated way that could threaten the state. But the regime has responded disproportionately to the organizational capabilities that the small Jasmine protests demonstrated, and has extended this magnified response to a number of otherwise-familiar spontaneous protests and incidents of unrest.
As security becomes more oppressive in the lead up to the transition — with any easing of control unlikely before then or even in the following year as the new government seeks to consolidate power — the heavy hand of the state runs the risk of provoking exactly the type of incident it hopes to prevent. Excessive brutality, or a high-profile mistake or incident that acts as a catalyst, could spark spontaneous domestic protests with the potential to spread.
Contrasting Deng’s situation with Hu’s is illuminating. When Deng sought to step down, his primary challenges were how to loosen economic control, how to create a foreign policy conducive to trade, and how to forestall democratic challenges to the regime. He also had to leverage his prestige in the military and Party to establish a reliable succession plan from Jiang to Hu that would set the country on a prosperous path.
As Hu seeks to step down, his challenges are to prevent economic overheating, counter any humiliating turn in foreign affairs such as greater U.S. pressure, and forestall unrest from economic left-behinds, migrants or other aggrieved groups. Hu cannot allow the Party (or his legacy) to be damaged by mass protests or economic collapse on his watch. Yet, like Jiang, he has to control the process without having Deng’s prestige among the military ranks and without a succession plan clad in Deng’s armor.
More challenging still, he has to do so without a solid succession plan. Hu is the last Chinese leader Deng directly appointed. It is not clear whether
"China and the End of the Deng Dynasty is republished with permission of STRATFOR."