Xi Jinping’s Pure Party

LONDON – Mareeg.com-China’s annual growth rate has recently increased from below 6% at the start of 2014 to around 7.5% in the second quarter, helped by a series of stealth stimulus measures. But the growth spurt is unlikely to last – and may reverse – as China seeks to control excessive credit expansion. And achieving longer-term sustainable growth will also depend on political factors – particularly the impact of President Xi Jinping’s anti-corruption campaign, aimed at “purifying” the Chinese Communist Party (CCP).

Xi’s campaign is being carried out on a scale rarely witnessed in China’s recent history. So far, some 45 senior CCP officials, or “tigers,” have been disciplined or are under investigation. Aside from former Chongqing Party boss Bo Xilai, who is now serving a life sentence, Zhou Yongkang, a former head of internal security and member of the Politburo Standing Committee, and General Xu Caihou, a former vice president of China’s Military Commission, have also been targeted.

More high-profile heads almost certainly will roll. The CCP’s Central Commission for Discipline Inspection, whose secretary, Wang Qishan, is a Xi ally, is now investigating former President Jiang Zemin’s Shanghai network, whose protégés include Bo, Zhou, Xu, his successor Hu Jintao, and Xi himself. Corruption charges have already been brought against people close to Jiang and Hu.

Xi’s campaign is aimed at combating systematic corruption, which he claims is jeopardizing the CCP’s very survival. Even before becoming President, he spoke at length about the Marxist-Leninist concept of “Party purity” in an address to the Central Party School in Beijing in March 2012. The Party, he insisted, can command respect and maintain the legitimacy of its rule only if cadres are obedient, set an example of incorruptibility, and place the nation’s interests above their own. Without a “pure” Party, he said, China’s economic reforms would not succeed.

Two weeks later, Bo was removed from office, marking the start of Xi’s anti-corruption campaign. After becoming CCP leader later that year, Xi told a Party meeting in Guangdong that China must heed the lessons of the Soviet Union’s collapse, particularly its failure to maintain Leninist discipline, which had allowed “political rot, ideological heresy, and military disloyalty to undermine the governing party.”

The anti-corruption campaign reflects the CCP’s apparent determination to rid itself of vested interests. At its 2013 Third Plenum, the CCP announced 60 goals for economic and governance reforms. Many hope that these changes will help the CCP become more effective, strengthen the role of the market, and avoid the so-called middle-income trap that has ensnared many emerging countries.

However, the Party’s rhetoric reveals little about how these goals will be achieved. Indeed, there are worrying signs that the principal architect of the reform agenda, the respected free-market economist Li Keqiang, is already being sidelined. Xi has blocked or revised many of Li’s initiatives concerning debt management, urbanization, the Shanghai Free-Trade Zone, and reform of local government.

The problem facing the government is how to maintain strong economic growth while pursuing Xi’s anti-corruption campaign. Weaning the economy off state-dominated institutions, shifting the economy away from credit-fueled investment growth, and focusing more on services, innovation, education, and entrepreneurship will take time – and will upset many key people in the process. Given the difficulty of boosting economic activity while confronting political obstacles, a more realistic medium-term forecast for annual GDP growth is probably around 4%. But the longer the Party shies away from taking the tougher, reformist road, the greater the risk of an even sharper downturn.

Though Xi’s efforts to clean up the CCP are a welcome development, the Party itself is part of the problem. Substituting one elite for another will do little to eliminate systemic corruption. The true test of change will be whether the CCP is prepared to subordinate itself to new, inclusive institutional arrangements that are conducive to economic transformation.

When the CCP’s Fourth Plenum meets in October to discuss legal reforms, it will likely focus on how to improve the efficiency of the courts and weaken the power of obstructionist local party officials. It will not, however, seek to establish a properly functioning rule of law. No Party official seriously questions the CCP’s authority over the legal system. Indeed, last year, university lecturers were instructed to avoid classroom discussion of universal values, press freedom, civil rights, the CCP’s historical errors, crony elites, and judicial independence.

Xi’s remarkable anti-corruption campaign may enhance the Party’s legitimacy, especially in the eyes of China’s rising middle class. The campaign may even improve some aspects of economic and environmental policy. But so long as fundamental weaknesses and contradictions stemming from the CCP’s monopoly on power remain unchallenged, China’s economy will not be able to achieve the long-term growth that its leaders and citizens desire.
George Magnus, an independent economist, consultant, and commentator, is a senior economic adviser at UBS.

Project Syndicate