independent

Thursday 17 April 2014

Xi Jinping has good pedigree for reform vital to Chinese economy

TODAY sees the beginning of the election of Xi Jinping as the new Chinese leader. Mr Xi, who visited Ireland earlier this year, is known to many people here but he is still something of an enigma both at home and abroad following many policy flip flops.

Days after Mr Xi became chief of Zhejiang, China's hotbed of private enterprise, he set out on a tour of the province. His message: more capitalism.

Promoted five years later to the party's top policy making body in Beijing, and heir-apparent to President Hu Jintao, Mr Xi lectured students at the Communist Party's main school. His plea this time: more Marxism.

His ascent to the country's most powerful post will put the 59-year-old in a position where he has to reconcile those opposing faces of China's transformation. On one side are businesses and politicians calling for a revival of the market-opening policies pioneered by Mr Xi's father in the 1970s. On the other are powerful state-owned monopolies and local governments that prospered under President Hu and resist change.

"The next administration doesn't have a lot of time to dilly-dally," said James McGregor, author of the book 'No Ancient Wisdom, No Followers: The Challenges of Authoritarian Capitalism', published this month. "To keep this economy going and keep this restive population happy, reform is the only answer."

Mr Xi, scheduled to take over in March, may face economic growth of 7pc in 2013, the slowest in 23 years, according to Pacific Investment Management, which runs the world's largest bond fund. Standard Chartered sees a risk of annual growth slumping to between 3pc and 4pc within 10 to 15 years without market-driven change to introduce more competition for state enterprises.

The slowdown is fuelling unrest in an industrial workforce reliant on migrant labour, with a wealth gap exceeding a level analysts use to gauge potential social unrest. Add to that a rapidly ageing population, a legacy of industrial pollution, widespread corruption and an escalation in territorial disputes with neighbours, and Mr Xi is facing one of the toughest leadership transitions since Deng Xiaoping rose to power in the late 1970s.

"It won't be easy, but I think he has reform in his DNA," said Jon Huntsman, US ambassador to China in 2009-2011. "I've been impressed with his work in the regional areas, in Fujian and Zhejiang, and he understands the marketplace."

Mr Xi's father was a hero of the revolution, who helped Mao Zedong win control of China in 1949 before falling into disfavour in 1962. He regained prominence after Mao's death in 1976, spearheading Deng's opening of the economy as governor of Guangdong province, next to Hong Kong.

"His father was the most democratic person in the whole Chinese leadership," said Sidney Rittenberg Snr, who was a translator for Mao and knew the elder Xi well. "I just hope some of his father rubbed off on him."

The son spent 22 years working in provinces dominated by the private sector on the industrial east coast, where he became known for curbing bureaucracy, encouraging private enterprise and cracking down on corruption.

Even as Mr Xi allowed private companies to prosper during his time as party secretary of Zhejiang from 2002 to 2007, state enterprises there and elsewhere in China still hold most of the advantages, such as access to cheaper capital and land. When Premier Wen Jiabao visited the city of Wenzhou a year ago, after company failures sparked a series of suicides, some entrepreneurs were paying interest of as much as 7pc a month to illegal lenders to try to keep their businesses afloat.

By contrast, state-owned developer Wenzhou Anjufang City Development, set up by the local government, sold bonds to raise 1.2 billion yuan (€150m) earlier this year at 7.65pc annual interest. Private companies are almost completely absent from the bond market. Of the top 50 bond sellers in China this year, 49 are government units or state owned.

To rejuvenate private-sector expansion, Mr Xi would have to implement measures to boost competition and end monopolies that would jeopardise close to 10 million "official sinecures" in state enterprises, regulatory agencies and government, said Minxin Pei, a professor specialising in China at Claremont McKenna College in California.

The public's "very widespread alienation from the leadership" means "a real danger of chaos" if Mr Xi fails to move ahead with market-driven change, said Ezra Vogel, author of 'Deng Xiaoping and the Transformation of China'.

"The new leaders are very aware that their back is to the wall," said Mr Vogel, a professor emeritus at Harvard University. "There's such a strong feeling in the country that they need bold reforms and big changes and to attack corruption. A lot of high officials will have to suffer."

That won't be easy in a system where Mr Xi's power will be limited by consensus-based decision making among the party elite, designed to prevent the nation "galloping off too rapidly in one direction", said US-based Robert Kuhn, an adviser to the Chinese government.

Mr Xi's task is complicated by rivalry within the Communist Party between the factions of Hu Jintao and former president Jiang Zemin, who will continue to wield influence even after Mr Xi takes office, said New York-based Gao Wenqian, author of 'Zhou Enlai: The Last Perfect Revolutionary'.

"When everybody had nothing back in the late 1970s, there may have been ideological resistance to reform but there wasn't personal-property, personal-wealth resistance to reform," Mr McGregor said. "Now you've got a lot of people with millions, tens of millions and even billions of dollars riding on their position."

Mr Xi's own extended family has seen its fortunes skyrocket in the decade since patriarch Xi Zhongxun died. No assets were traced to Mr Xi.

He was not always rich. With his father out of favour, Mr Xi was sent to the countryside to learn from the peasants.

"The experiences from my time in the countryside have left a deep impression," Mr Xi said. "When later I have come across problems, I have never experienced them as big as then."

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