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China’s Plenum Test

Mareeg.com-11 November 2013 – TOKYO – There is something odd and disturbing about the conventional wisdom
surrounding the upcoming Third Plenum of the 18th Central Committee of the Chinese
Communist Party (CCP). As the November 9-12 conclave draws near, the international
community’s attention seems to be focused mainly on technocratic policy changes
deemed essential to restructuring China’s state-dominated economy and reenergizing
growth.

Will the government liberalize interest rates or loosen capital controls? How will
the fiscal system be revamped? Will land reform be part of the package?

The list of such questions goes on. Outside China, the prevalent view among business
leaders is that President Xi Jinping’s new administration has consolidated its power
and acquired enough authority to push through far-reaching economic reforms. He and
his colleagues need only to get the specific policies right.

On the surface, such thinking may seem reasonable. In China’s top-down political
system, a unified leadership is seen as fully capable of forcing the bureaucracy to
comply with its wishes. With Xi’s anti-corruption campaign in full swing, and the
example of Bo Xilai’s imprisonment serving as a warning to the new president’s
adversaries (no matter how senior they are), Chinese officials at all levels, it is
widely believed, are likely to toe the line.

Unfortunately, this view is both too sanguine and naïve. It overestimates the
effectiveness of anti-corruption campaigns in contemporary China (there have been
many in the last three decades), and it overlooks the political sources of the
country’s economic slowdown. While Xi’s efforts to cleanse the rot inside the
Chinese party-state should be applauded, it is no less important to recognize their
limits.

So far, Xi’s campaign has remained a conventional affair involving selective
prosecution. Given the central government’s well-known inability to enforce its
policies at the local level and the prevalence of tight-knit patronage networks in
Chinese provinces and cities, it is unrealistic to expect that the current
anti-corruption drive will produce significantly better results than in the past.

Indeed, the fight against corruption is at war with itself, because Xi is
simultaneously seeking to buttress one-party rule. But it is precisely the absence
of effective checks on the exercise of power that encourages and sustains rampant
corruption in the first place.

Optimism about the CCP’s ability to push through market-oriented reforms also
ignores the real obstacles to future growth and prosperity, which do not include a
lack of economic ideas or policy expertise; on the contrary, it is well known – even
obvious – what kind of economic reforms are needed.

What prevents China from pursuing these reforms is a combination of opposition from
powerful entrenched interest groups – state-owned enterprises, local governments,
the economic-policy bureaucracy, and family members of political elites and
well-connected businessmen – and flawed political institutions. Unless Xi and his
colleagues demonstrate their resolve to overcome such opposition and launch
comprehensive reforms, their chances of success are not high.

Compared with the two previous breakthroughs in reforming China’s economy, in 1978
and 1992, Xi faces a different environment and a much tougher challenge. Opponents
of Deng Xiaoping’s reforms were ideologically driven; they had no personal stake in
the Maoist political economy. Defeating them required building a winning coalition
within the party, discrediting the communist ideology, and rallying public support,
all of which Deng did.

Today, by contrast, members of the ruling elite benefit directly and immensely from
the state-dominated economy. Market-oriented reform, by leveling the competitive
playing field, would hurt their interests and reduce their privileges, making fierce
opposition likely. Only by mobilizing pressure outside the party-state can these
insiders be forced to accept some of the decentralizing and liberalizing reforms
that China’s economy needs.

At that point, China will have a better chance of improving its legal institutions,
increasing political accountability, strengthening protection of private property
rights, and making the government genuinely – in Mao’s words – “serve the people.”
Without real and significant political change, technocratic reform proposals will
treat only the symptoms of China’s economic malaise, without addressing its
underlying institutional causes.

In assessing the outcome of the Third Plenum, what observers should really be
looking for is evidence of a bold strategy for political reform. If Xi and his
colleagues produce no credible sign of such a commitment, everything else will be
eyewash – and skepticism about China’s fate under their leadership eventually will
be vindicated.

Minxin Pei is Professor of Government at Claremont McKenna College and a
non-resident senior fellow at the German Marshall Fund of the United States.

Project Syndicate, 2013.

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