Economy, Talking Point

Politics as usual

Analysts detect signs of strain as the Party Congress approaches

China's President Xi Jinping and China's Premier Li Keqiang arrive for the third plenary session of the National People's Congress, in Beijing

So who is that “authoritative figure” speaking to the People’s Daily?

It has been a fractious few months in the political world even if some of the bitterest exchanges have been erupting among colleagues rather than across party lines.

In the United States Donald Trump is at loggerheads with the Republican establishment, which has been lining up to label him as a moron and a fraud.

In the United Kingdom the Conservative Party is tearing itself apart over the vote to leave the European Union. Prime Minister David Cameron has been scathing about the conduct of his colleague Boris Johnson, for instance, and Johnson has fired back, describing Cameron’s warnings against Brexit as “totally demented”.

The Chinese political class does things rather differently: disagreements are kept away from the public realm and feuds are settled behind closed doors.

But even they have had their moments of drama this month, including unusual warnings about “cabals and cliques” from President Xi Jinping and calls that “careerists and conspirators” be eliminated from the ruling Communist Party.

Sure, the tone is hardly going to turn Trump-like. But the mood still seems unsettled, with another round of coded messages on the direction of economic policy last week.

What could be behind the rise in the political temperature?

Option one: disagreements over the economy

This is one of the interpretations, following a high-profile People’s Daily interview with an “authoritative figure” which quoted concerns that China had to stop using bursts of credit to bolster its economy.

Boosting growth with increases in lending was like “growing a tree in the air”, the unnamed person warned.

Because the commentary was plastered across the front page of the country’s most politically prominent newspaper, it could only have come from a big-hitter in the government goes the thinking. Mainland media doubted that the author was one of the country’s leaders – but many observers agree that the views wouldn’t have been published without the approval of Xi, the leader of the Party.

Only a few hours later a statement appeared on the State Council’s website, quoting Li Keqiang, China’s prime minister, as saying that the government had held back from “strong stimulus” in its recent initiatives and that it continued to be focused on structural reforms.

You don’t see the Party-run People’s Daily and the State Council’s government website debating with each other every day. This sparked speculation that Li was defending his position and that there was disagreement at the heart of the Beijing leadership.

The action continued the next morning with another front-page feature in the People’s Daily – this one penned by Xi himself – reiterating his determination to drive through painful changes, especially in closing down ‘zombie’ enterprises in the steel, coal and metals industries. “Some comrades told me that they didn’t fully understand supply-side reform… I need to talk about this issue again,” he explained, saying it was really about eliminating overcapacity and promoting innovation.

As we reported in WiC322, the latest round of policy stimulus has spurred a spike in commodity prices, encouraging some of the zombie firms to restart production.

It has also created confusion around the direction of economic policy at a time in which the government is supposed to be intervening less. In fact, the authorities gave the green light for a record Rmb4.6 trillion ($700 billion) of new bank credit in the first quarter, more than the amount pumped through the economy at the start of 2009 in response to the global financial crisis.

“There are so many policy signals flying around these days,” Li Weisen, a professor at Fudan University in Shanghai, told the South China Morning Post last week. “One big voice is criticising stimulus… and then another big voice is denying any stimulus – it’s all quite puzzling and we have to wait and see.”

Option two: a case of Xi versus Li

The 20,000-word piece from Xi Jinping last week was taken from a speech made to provincial officials back in January. For many, the timing of the article was a further demonstration of Xi’s political authority, and a sign of how Li Keqiang has been pushed to the fringes of policymaking.

Traditionally the Chinese premier, as head of the government, takes on the operational responsibility of running the economy, and with a doctorate in economics at the prestigous Peking University, Li seemed well suited for the role (studying part-time, Xi also got a doctorate in law from Tsinghua). Within a few months of Li taking office there were widespread references to ‘Likonomics’ – i.e. an end to juicing up the economy with state spending and lending, even if it meant some short-term pain (see WiC204). Li was also portrayed as a man who wanted to get things done, with accounts of high-level meetings in which he banged the table in frustration at the slow pace of change (see WiC241).

His reputation today is less commanding after a series of reversals, including a stock market meltdown (see WiC293) and a widely criticised devaluation of the remminbi (see WiC292).

The setbacks have also undermined some of the Party’s reputation for competent management, with Xi’s January speech warning that performance had to improve in general.

“You shouldn’t pay your tuition in vain, you have to learn from mistakes and avoid making the same mistake again and again,” he urged.

Li’s supporters counter that he is being made a scapegoat, especially in a situation in which many of the most important policies are being thrashed out in commissions like the Leading Group on Economic and Financial Affairs (which is chaired by Xi), and not by the State Council.

Indeed, Li’s marginalisation is said to be significant enough that he could even be demoted as part of a major reshuffle next year, which would be a break with the tradition of giving a premier two terms of office.

Certainly, the international press has been wondering about the relationship between two of China’s most powerful men for months, even though the signs of tension are subtler than the political rows in countries like the UK and the US.

In one of the more recent reading of the runes, the Nikkei Asian Review pointed to rival photo opportunities for Xi and Li last month.

In the first case Li made high-profile visits to two leading universities including his alma mater, Peking. Accompanied by other senior officials, he posed for photos with students, many from the Communist Youth League, a political powerbase for the premier, and Xi’s presidential predecessor, Hu Jintao.

Less than a week later Xi was featured in a photo opportunity of his own doing a tour of an army command centre in Beijing. One interpretation is that he wanted to highlight his backing from the country’s soldiers, a few days after Li had made his pitch to its students. The president even donned camouflage gear for dramatic effect, something that his predecessors have avoided.

Option three: wider tension over Xi’s strongman style

Like Hu Jintao before him, Xi is head of the Chinese Communist Party, the commander-in-chief of the armed forces, and (perhaps least importantly) the country’s head of state. But he has also been accumulating other roles as the head of new commissions covering core areas of public policy from economic reform to state security and the internet.

That has led to allegations that Xi is moving away from the post-Mao Zedong model of consensus-based rule in which a handful of leaders share decisionmaking authority.

He has also broken the mould with his unrelenting campaign against graft. In 2015 alone investigators said they had punished 336,000 bureaucrats. Indeed, the anti-corruption drive has terrified the public sector ranks, serving as another source of potential tension with some of Xi’s colleagues.

His critics see the anti-graft campaign as a technique to dislodge his rivals, for instance, although Xi has denied that it is “a House of Cards-style power struggle”.

Indirectly the campaign may have made it harder to drive through some of the changes in the economy, because officials are too frightened to do anything that might attract the attention of the graft-busters.

Xi is pressing ahead with the clean-up effort nonetheless, although his strongman style has also led to allegations that he has come close to encouraging a personality cult (a claim The Economist made with one of its recent cover images).

That’s a particularly sensitive claim in a year that marks the 50th anniversary of the Cultural Revolution, which is why a concert at the Great Hall of the People at the start of May triggered another bout of political theatre, with analysts struggling to decipher what was going on behind the scenes.

The tribute night included a rendition of Sailing the Seas Depends on the Helmsman, which the Global Times describes as the “theme song” of the Cultural Revolution era. During the song the backdrop shifted from images of a beaming Mao to footage of Xi on a field trip, surrounded by cheerful rural folk.

Other slogans at the show were suitably retro too, including exhortations that, “The whole world must unite to defeat American invaders and their running dogs”.

“This red song, Party-praising concert is an innovative review of the ‘main theme’ of art, in line with what Party General Secretary Xi Jinping told us – that artists should hold the banner of core socialist values high,” Xinhua reported approvingly in its review of the ‘red’ event.

But the media coverage turned more critical after indications that the central government wasn’t all that pleased. On Tuesday the People’s Daily published a harsh editorial in which it categorically stated: “History has proven that the Cultural Revolution was a complete mistake, it is not and could never be a revolution or social progress in any sense. We won’t and will never allow a mistake like the Cultural Revolution to happen again.”

Prior to the concert the authorities had tried to ignore the May 16 anniversary marking the start of the Cultural Revolution and some of Xi’s supporters were convinced that the Maoist event was malevolent, sensing a smear campaign.

“This is a political trap to frame the top leader,” warned an open letter from Ma Xiaoli, the daughter of a Party veteran, blaming “anti-Xi” factions for staging the celebration.

The company behind the show then ran for cover, claiming to have been duped by sham officials posing as propaganda bosses.

“It’s not that simple. No one is allowed to enter a venue like the Great Hall without permission from top officials,” Ma fired back. “These organisers are the ones who manipulate… where did they get their approval? We must get to the bottom of this.”

Option four: the Party Congress beckons

All of this manoeuvring makes more sense in the lead-up to the 19th Party Congress, which meets next year to confirm the selection of the small group of Politburo elite that will govern the country for the next decade.

When Xi took the top role in the 18th Party Congress in 2012 (see WiC170) he wasn’t directly affiliated with either of the two main factions in Chinese politics: the Communist Youth League (led by then incumbent Hu Jintao) or the Shanghai Gang (made up of acolytes of the previous president, Jiang Zemin). In fact, he prospered by steering a line between the two groupings, although he benefited too from his background in a third faction: the Princelings, or children of the first-generation Party leaders.

Xi’s predecessor Hu is closely linked to the Youth League and observers believe Hu tried to position his own protégés in the Politburo for the period after his presidency. But the former leader’s influence was diminished by an investigation into Ling Jihua, a key aide, who was brought down by a series of events that began with the death of his son in a high-speed car crash.

(Earlier this month it was announced that Ling will face trial in Tianjin on charges of corruption, bribe-taking and treasonous activity. For more on the investigation, see WiC265).

Ling’s downfall was crucial because it weakened the Youth League at a time when the horse-trading for the top jobs was intense. Li Keqiang made it into the final grouping but other Hu picks did not.

More recently Xi has turned up the heat on the Youth League. Following a two-month inspection into the league, the Central Commission for Discipline Inspection blasted its bosses for being “aristocratic and entertainment-oriented”. The Youth League responded in February by pledging that its executives would “deeply study and grasp the spirit” of Xi’s leadership.

This loss of standing has undoubtedly damaged Li Keqiang and members of the wider Politburo with Youth League connections.

The broader question is what all this politicking might mean for Xi Jinping’s second term as president. One response is that he wants to deepen his power base before delivering the sweeping changes that the economy needs. Crucially, five of the seven members of the Standing Committee will reach the retirement age of 68 by next year. That gives Xi an opportunity to push for the promotion of his own men. Another rumour is that Wang Qishan – a close ally of Xi and head of the anti-graft effort – could hang around beyond retirement age and replace Li as premier.

By packing the Standing Committee with his loyalists Xi will not only have a greater sense of security but carte blanche to push policies with a decade-long time horizon (something not many Western leaders could ever hope for). Those who remain optimistic about Xi reckon this would finally see him unleash the market-based reforms that SOE bosses and vested interests in the Party fear. The view among economists is that such reforms would be good for China in the long haul, but could trigger some short term economic pain.

The counter argument is that Xi’s objectives are more political, and that Xi’s primary focus is revitalising the Party’s authority and reining in some of the competing influences in Chinese society.

If the former outcome promises a greater role for market forces, the latter wants to protect the Party’s guiding hand. Xi may believe that the two goals can be achieved together, of course, and he was back to the message of pushing ahead with economic reform at a meeting of the Leading Group on Financial and Economic Affairs this Monday.

“Don’t wait because of the heavy burden, or waver because of the extreme difficulties, or hide because of the risks, or hesitate because of the pain,” he urged.

Ironically, some may well be waiting – to see the outcome of the Party Congress next year.

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