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.