How China’s Economy Must Change

China sailed through the global economic downturn. But with its export strategy now in jeopardy, China’s leaders must make push through reforms to maintain growth.

Siva Yam & Paul Nash, 05/16/12

Mao Zedong, China’s “Great Helmsman,” was a keen student of history. It was for this reason, perhaps, that he was able at times to prognosticate with uncanny accuracy. He once predicted that “the natural forces of capitalism are about to stir among China’s farmers. If these forces go unchecked, society will become polarized. In the end, both the poor and the newly rich will become discontent.”

Mao was speaking, of course, about an economic dynamic transferring from one class to another, for capitalism was then, as it is now, nothing new to China. It has been part and parcel of Chinese culture for centuries, carrying the Celestial Empire through the cycles of production and consumption over several dynasties. It continued into the Communist era with only a relatively short, but very turbulent, interruption.

After Mao’s attempts to curtail private, for-profit ownership turned disastrous, his successor, Deng Xiaoping, set about to revive it under the equivocal epithet “Socialism with Chinese characteristics.” Deng allegedly proclaimed that “to get rich was glorious.” He felt that a socialist state could safely harness the benefits of capitalism, and that communism might work if everyone first got wealthy together. But what he failed to realize – and what Mao understood – was that unchecked capitalism produces social division.

After decades of headlong growth inaugurated by Deng’s reforms, a question once thought consigned to the pages of history after the Great Leap Forward and the Cultural Revolution has come back to haunt China’s communist leadership. Are capitalism and socialism really compatible, especially in a country with a colossal population and comparatively few resources? The answer seems to be emerging with alarming clarity as the gulf between China’s “classes” grows wider and more pronounced.

The most recent global financial crisis hasn’t helped. Throughout it, China has played a stabilizing role in the global economic system, thanks to the concerted effort of a centralized government willing to stay a pragmatic course. While some economists boldly predict that China’s growth engine will pick up and continue as before, there are signs that it may be running out of steam. If it does, the Chinese “economic miracle,” and those carried by it, including millions of poor migrant workers from China’s countryside who rely on factory jobs for income, are about to drift into uncharted waters.

For decades, China has built its economic strategy based on four pillars: exports, foreign direct investment (FDI), fixed-asset investment and domestic consumption. Of these, exports are central. They draw in FDI and support investment in fixed assets and domestic consumption. But exports have slowed dramatically and there’s mounting evidence that a fundamental change is under way.

China has long been inclined to regard itself as self-sufficient. This attitude frustrated British merchants when, in the 18th century, they made early attempts to establish trade and diplomatic relations with Beijing on an equal footing. The Qing court liked to believe that Western nations had little, if anything, to offer that China needed; it held the view that it granted trading rights only as a mark of favor to tributaries. China today has comparatively limited natural resources to support a population of its size. Foreign trade on a large scale, once regarded with distain by Qing mandarins, has become vital to China’s well-being, if only to sustain its massive importation of food, energy and raw materials.

To keep exports moving to its biggest customers – North America and Western Europe – China knows that two basic conditions have to be in place.

First, Chinese goods must be cheap.

Second, Western consumers must have disposable wealth to buy them.

To render its goods affordable, China helps its manufacturers minimize costs, at least initially. It offers them land, tax holidays, lax enforcement of labor and environmental laws, rebates on exported manufactured goods, and reduced import duties on equipment used to produce exports. It also encourages manufacturing that exploits the comparative advantage of the country’s immense labor pool. Companies that employ more labor receive favorable treatment. Accordingly, they break down the manufacturing process into components, each requiring many workers with few skills or little training.

When China embarked on its industrial export drive in 1976, it had little capital, technology or experience. It also had few foreign distribution channels and virtually no money for R&D. It therefore turned to one of its biggest untapped assets: Chinese who had emigrated to Europe, the United States and Southeast Asia. They had both the experience and the wherewithal needed to help China develop markets overseas. For its part, the government dispatched itinerant trade ministers to lure foreign manufacturers, big and small, to China’s coastal regions, where the cost of building infrastructure was significantly lower than in the interior.

Chinese manufacturers quickly came to rely on a strategy known as the “Three Supplies.” Foreign companies supplied materials, samples or parts; Chinese companies processed, copied or assembled.

This strategy allowed China to build capital quickly and cheaply. It minimized R&D expense and created millions of jobs in China, even though most paid less than $100 a month, with few added benefits.

To nurture overseas demand for its goods, China created wealth, whether real or perceived, for its customers. It did so by keeping global interest rates low. Cheap Chinese products flooded the world market, dampening inflation and putting downward pressure on rates. At the same time, the Chinese government reinvested its gains in U.S. Treasury securities to bolster the U.S. dollar, sometimes without heed to the cost, forcing rates even lower. Coupled with innovative financial engineering by institutions in the United States, Western consumers saw the value of their assets appreciate and leveraged their spending in tandem.

China’s export machine pulled in unprecedented FDI as American and European companies hastened to outsource manufacturing to China for fear of being left behind. As exports and FDI escalated, investment in capital assets and infrastructure grew uncontrollably. Land prices skyrocketed as developer’s procured cheap land from the government by promising to foot the bill for infrastructure around their properties. Factories, theme parks, hotels, shopping malls, trophy buildings, toll ways and bridges sprung up all over. Construction cranes became the unofficial “Bird of China.”

The problem, of course, is that many of these projects were undertaken with feeble economic justification, and they have now resulted in significant excess capacity.

To keep their factories running since the global financial crisis, Chinese manufacturers have been cranking out products that aren’t being sold or that are sold at or below cost. Many have been able to report strong earnings by manipulating inflated land values. Some leverage their land’s value by borrowing against it to invest in other real estate projects. All the while, China continues to import enormously to maintain its basic manufacturing sector in the hope it will return one day to its former strength, as well as to support rising domestic consumption.

China’s export machine, however, ground to a halt when the U.S. housing bubble burst and the world plummeted into recession. Built on a strategy that aimed to dominate the global marketplace in low-value-added products, it seems now to have little prospect of returning to its former scale anytime soon. American and European consumers, who are trying to deleverage, are unlikely to resume their old purchasing habits. Moreover, since only a handful of Chinese brands – such as Tsingtao Beer, Moutai Liquor, Haier Home Appliances and Lenovo – are recognized overseas, most Chinese products remain at the mercy of importers, who now leave Chinese manufacturers with very little margin.

Unlike Japan and Korea, which have moved up the value chain, Chinese companies are still struggling to develop their technological and marketing capabilities. Chinese factories have remained complaisant for too long, preferring to chase a quick buck from OEMs rather than invest significantly in R&D or engineering. The thought of making significant investment without guaranteed success or immediate return is still, by and large, foreign to the typical Chinese business model. It is further discouraged by opaque government policy and the country’s history of choppy economic cycles. The long-term consequences are obvious – they are illustrated, for example, by the continued inability of Chinese automakers to sell into the United States.

With American and European companies still struggling and consumer demand soft, FDI into China has dried up. Some FDI still comes from big Western companies with well-established positions in the consumer market, such GM, VW and Samsung. Overseas Chinese in Taiwan, Hong Kong, Singapore and Malaysia continue to speculate in real-estate, buying up prime industrial parcels in places like Guangdong, and forcing foreign companies wishing to enter or expand at a reasonable cost to look to the interior, which is comparatively unattractive.

The other two pillars of China’s economic strategy still stand, at least for the moment. Investment in fixed assets continues, particularly in infrastructure projects funded by the nation’s huge foreign currency reserves. These are spurred on by the catch-word philosophy “If you build it, they will come” or paradoxical slogans about serving the people without paying heed to economic gain. Some have no economic basis, however, and their eventual failure will further impair the Chinese economy over time.

China’s domestic consumption has expanded substantially since 1978. While China now boasts the world’s second largest number of billionaires, 80 percent of its people still earn less than the average person in Bolivia, one of the poorest countries South America. Inflation and rising labor costs are translating into increased manufacturing costs. Although the newly rich spend, they spend largely on foreign goods made by companies like Louis Vuitton, Apple or Mercedes Benz. They send their children abroad to be educated; they go out of country for vacation; and they shop overseas in places like Paris or New York. A large proportion of domestically manufactured goods, apart from those with uniquely Chinese or patriotic appeal, now wind up on the open global market awaiting buyers or disposal.

The Chinese government has responded with new policies aimed at changing this trend. Government officials, for example, are now asked to buy only domestically-made vehicles. But it will take time for these policies to have any real effect, particularly in a society where new-found wealth and status are prized as symbols of progress at the expense of practicality. Besides, foreign goods still represent a level of quality as yet unachieved by Chinese manufacturers generally.

In short, rising domestic consumption has not given Chinese manufacturers as big a boost as expected. If anything, it has made their goods less competitive overseas.

There are signs that the U.S. economy is on the road to recovery, which is clearly good news for China. But China’s trade strategy is overshadowed by unprecedented challenges. Going forward, Chinese manufacturers will find it increasingly difficult to rely on a strong domestic economy, favorable government policies and low-cost labor. Since the country already dominates the world market in low-value-added, commodity-type goods and has little to offer in the proprietary, higher-value-added arena, something will have to change. China’s manufacturing export strategy must, of necessity, enter into a new era.

China sailed through the global downturn on the back of extensive investment in fixed assets, but with its export strategy now in jeopardy, it won’t be able to fund growth indefinitely, even with its large reserves. Chinese companies will have to “go out” to compete, developing their own global brands and technology. They will have to alter their management structure to become true multinational corporations rather than simply OEM contractors.

The government already recognizes that in order to compete internationally the country has to shift to technologically advanced manufacturing. Precision and reliability are essential to many of the new products that China wishes to sell overseas, especially those that must meet stringent safety standards. Branding and R&D activity must also take a step up. Many Chinese companies are unfamiliar with these, particularly the private ones, and unless they catch up quickly they will find themselves at a loss. Most brands are owned, and R&D funded by the government in China. This will have to change. Labor will change too. Humans will have to be replaced with robots and computerized numeric control processes, creating the socially and politically dangerous question of what to do with redundant factory workers.

Chinese society is deeply rooted in relationships. This is reflected to some measure in the country’s current social polarization and poor government transparency. In a society where personal relationships and cronyism carry significant weight and government controls are stricter, the state of the economy has serious ramifications. When it prospers, people tend to be content. When it slows, they become discontent. Those deprived of upward mobility can despair or even become radicalized, often holding the government to blame. And discontent isn’t limited to the poor. For China’s newly rich, money is like an opiate. When it slows, they too become discontent, and discontentment on all sides inevitably leads to instability.

China needs to grow to remain stable. To maintain growth, it will have to adapt to changing conditions. Like America over the course of the past few decades, China too must experience the pains of globalization if it is to change structurally to compete and prosper. The government has to push forward the reform process with renewed urgency – to deepen transparency and foster a stable, consistent legal system. It can’t allow this process to peter out, leaving only a system of changeable laws and arbitrary enforcement. It must also encourage the separation of “guanxi” (personal relationships) from business and demand that decisions be made based on sound economic rationale.

It’s unrealistic, of course, to expect Chinese culture to change overnight. But by taking confident strides towards greater transparency and the rule of law, China will instill confidence, both in its own citizens and in foreign investors. As this happens, it will become easier for China to acquire the skills and non-strategic technologies it needs to carry it to the next stage of development, as well as for U.S. companies to reinvigorate their operations in China. In the end, both countries can only benefit.

Siva Yam is president of the U.S.-China Chamber of Commerce and an advisory council member of the Federal Reserve Bank of Chicago. Paul Nash is an investment analyst in Toronto and editor of China Alert.

http://the-diplomat.com/2012/05/16/how-china%E2%80%99s-economy-must-change/

China’s Latest Reforms Not a Sign of Economic Strength

Samuel Sherraden, 05/10/12

This year, China has announced a flurry of financial liberalization measures that were perceived by many in the U.S. and Europe as a sign of confidence among Chinese leaders about their economy’s growth prospects.

Some analysts, such as Paul Markowski, president of MES Advisers Inc., have argued that these reforms indicate Chinese leaders believe they have avoided a so-called hard landing.

In reality, these measures -- such as widening the trading band on the yuan, allowing greater capital inflows and permitting a domestic pension fund to invest in the stock market-- point to growing Chinese insecurity about the future. They are defensive steps intended to protect the economy from a coming slowdown and possibly to boost domestic asset prices.

China’s economy is slowing because of weaker demand for its exports in Europe and the U.S. and because it is reaching the limits of its investment-driven growth model. Growth in electricity consumption and railway cargo has halved since last year and data show that the transition to consumer-led growth is going slowly. As a result, the outlook for China’s currency has weakened and capital outflows have become an increasing concern.

These signs of weakness are the main reasons why Chinese officials have liberalized the exchange rate and tried to counter outflows by encouraging foreign and domestic investors to put more money into the Chinese stock market.

Widening the Band

The International Monetary Fund and the U.S. applauded China’s decision to increase the trading band of the yuan. Many still see the currency as undervalued and believe exchange-rateliberalization will result in appreciation and a rebalancing of international trade. But Chinese leaders are liberalizing the exchange rate for precisely the opposite reason: They no longer think their currency is undervalued and don’t see a “risk” of further appreciation.

Recently, senior Chinese officials including Premier Wen Jiabao and Zhou Xiaochuan, the governor of the People’s Bank of China, said the exchange rate is near its “equilibrium” level. The central bank said in its statement announcing the wider trading band that the move was to “promote price discovery” and to “enhance the flexibility” of the exchange rate “in both directions.”

You wouldn’t know it listening to leaders in the U.S. and Europe, but weakness in China’s domestic economy has eroded confidence in the yuan.

Since China widened the trading band, the currency has traded toward the bottom of its permitted range. In Hong Kong, where a limited quantity of yuan trades in an open market, 12-month non-deliverable forwards of the currency trade at about 6.35 yuan per U.S. dollar, a discount to the current 6.31 onshore rate. In other words, the market in Hong Kong is confirming that the Chinese currency may actually depreciate in the coming year.

Band widening is a rational policy choice for a Chinese leadership that believes the currency to be fairly valued. Maintaining a narrower band and tighter control over the exchange rate would raise expectations in the U.S. and Europe that the yuan would appreciate further. Widening the band proves to the West that the yuan is near equilibrium and allows forcurrency depreciation in the event the economy deteriorates.

In other words, it’s an insurance policy for growth in the future. Any currency depreciation that followed foreign-exchange liberalization couldn’t be contested by the West.

Boosting Stocks

Chinese leaders have also been trying to mitigate economic weakness by encouraging capital inflows, particularly into the domestic stock market. Guo Shuqing, the chairman of the China Securities Regulatory Commission, which oversees the securities market, announced the expansion of the Qualified Foreign Institutional Investor quota to $80 billion from $30 billion for approved foreign investors to buy mainland-listed Chinese stocks. Many observers were quick to label these decisions as moves toward greater openness, but they are better described as efforts to recover recent equity-market losses.

The attempt to boost China’s stock market isn’t limited to foreign investors. In March, the government announced it would allow the pension fund of Guangdong province to invest in the domestic stock market, a reform that had been prohibited due to high volatility. Only a portion of the 441 billion-yuan ($70 billion) pension fund is expected to be invested in equities. But Guo is being criticized by some in China for trying to inflate the value of the fledgling stock market and not properly considering the risks of investing in opaque Chinese companies. The accusations may have some merit: Guo said at a conference in February that Chinese stocks were an “exceptional value.”

Rather than seeing China’s recent reforms as steps toward greater liberalization, one should see them for what they are: attempts to deal with a weaker economy and a signal of a weaker currency. If China’s broader financial liberalization parallels that of Japan from the 1960s to the 1980s, it will take a long time and suffer many setbacks. We shouldn’t expect reforms to continue in a linear fashion, but to be adopted as needed.

A broad consensus in U.S. politics holds that American leaders should unconditionally push China to liberalize its currency and open its capital account. But we shouldn’t let this view become too entrenched. China’s financial system is relatively weak, and it is approaching a difficult domestic transition to consumer-led growth. Insisting that China completely liberalize before these domestic problems are sorted out could risk triggering a second Asian financial crisis and another recession in the U.S.

The most recent reforms are attempts to stabilize China’s economy, not a signal that China’s leaders are ready for full liberalization or that they are convinced they have achieved a soft landing.

(Samuel Sherraden is the associate director of the Economic Growth Program at the New America Foundation. The opinions expressed are his own.)

To contact the writer of this article: Samuel Sherraden atsherraden@newamerica.net

To contact the editor responsible for this article: Timothy Lavin at tlavin1@bloomberg.net

http://www.bloomberg.com/news/2012-05-09/china-s-latest-reforms-not-a-sign-of-economic-strength.html

The Tentative Rise of China's Reformists

Iain Mills, 04/24/12

As Beijing prepares for a once-in-a-decade change of leadership, the ouster of Bo Xilai and a series of significant financial reforms have been widely seen as signs that reformist elements within the Chinese government are in the ascendency. This analysis may be correct, but it needs to be tempered with a broader look at the Chinese political and policy landscape, which shows that reforms still lag in multiple key areas and that progressive signals are so far limited to the financial sector. The position of the army, a key political constituent, also remains unclear.

The political intrigue surrounding the removal of Bo from the Chinese Communist Party (CCP) and the arrest of his wife on suspicion of involvement in the murder of a British businessman has captivated the global media. As significant, it has been accompanied by a series of encouraging and previously delayed financial market reforms that point to a more progressive position emerging in government.

These reforms include an unprecedented expansion of the Qualified Foreign Institutional Investment (QFII) scheme as well as its renminbi-denominated equivalent, RQFII, which give foreign institutions access to A-share equity markets. There was also a widening of the Chinese yuan's daily trading band currency-market innovations. We have heard comments from senior officials, including Premier Wen Jiabao, in support of ending the state monopoly in the banking sector. Officials have even mentioned moving toward interest-rate marketization, arguably China's most important but potentially disruptive financial reform, given that the guaranteed net interest margin (NIM) -- the differential between benchmark lending and deposit rates, which is fixed under the current system -- accounts for more than 80 percent of Chinese bank profits.

There have also been comments from the traditionally conservative State-owned Assets Supervision and Administration Commission of the State Council about the need to reform the role of state-owned enterprises in the economy.

However, while undoubtedly significant, these reforms still leave China's financial openness lagging some distance behind its level of economic development. The QFII quota accounts for just 1.09 percent of total A-share capitalization, against a global average of 20-30 percent. The yuan is also still subject to very stringent controls, and the People's Bank of China continues to intervene very aggressively in the open market to influence the currency’s value.

Although comments in support of ending the banking monopoly break new ground in what was previously a moot point among cadres, given the importance of the guaranteed NIM to the key strategic banking sector, reform in this area will take at least a decade to implement. The same applies to state-owned enterprise reform.

Moreover, a wider analysis reveals no evidence of progressive momentum in other critical spheres. Official comments at March's National People's Conference, China's most important legislative event, contained only tepid commitments to energy-price marketization, while market expectations that the first step in power-pricing reform -- the implementation of a two-tier pricing mechanism for residential and industrial users -- would be introduced at some point in 2012 have recently fallen after the China Electricity Council said such a move was unlikely.

In social policy and areas of “soft reform,” there has also been very little progress. State media gave prominent coverage to the announcement that the restrictive “hukou” (household registration) system, essentially a leftover from the Maoist years, had been tweaked. But the change dated from last year and makes little material difference to the hundreds of millions of Chinese who have already migrated to urban areas or are planning to do so. Meanwhile, other critical topics such as instituting an independent judiciary, improving the educational system and reducing state control of information in society are not even on the table.

Moreover, the role of the army in the recent political turmoil remains unclear. As rumors about the Bo affair and other reports of political infighting have circulated in recent months, there have been a series of unusual comments from senior leaders, including President Hu Jintao, urging loyalty from the army. These culminated in a front-page editorial in the army mouthpiece, the People's Liberation Army Daily, last week.

These comments would seem to suggest a military coming more into line with the government's position. But the frequency of such public statements in recent months has led some to question whether anti-reform elements in the military may be becoming more restive, necessitating an intensive “loyalty campaign” to head off any disruption at the pass.

In any event, Beijing's hopes of a smooth transition to the fifth-generation leadership have crashed and burned in spectacular style. Amid the wreckage, there have been tentative signs that reformist elements are gaining the upper hand in government -- undoubtedly a significant development. But these changes are coming from a very low baseline, and optimism must be tempered with an acknowledgement that they are currently concentrated in a specific area and do not appear to be mirrored in broader policy approaches.

So far, although under extreme strain, the CCP’s consensus-based system seems to be holding up well. However, with a great deal of politicking left to go before any one faction gains consolidated supremacy in Beijing, China's policymaking bodies will continue to find their powers of mediation being stretched to their limits going forward.

Iain Mills is a Beijing-based freelance writer.

http://www.worldpoliticsreview.com/articles/11879/the-tentative-rise-of-chinas-reformists

陸官媒：政改是整個改革保障

吳貴奉，旺報， 04/11/12

3月14日，大陸總理溫家寶在全國人大閉幕記者會上疾呼要進行政治體制改革，隸屬於中宣部的中共中央機關報《光明日報》，昨日則在頭版發表題為〈堅持改革開放不動搖〉的評論文章指出，政治體制改革是整個改革的保障，沒有政治體制改革，經濟體制以及其他各方面改革成果便會得而復失，而社會已有的活力也會消退。

要積極推進 不應草率

文章指出，改革開放是推動中國經濟社會發展的根本動力。改革開放的過程，是不斷提出問題、解決問題的過程，也是不斷實現體制創新、促進制度完善的過程。改革開放進入新的階段，出現了許多不容忽視的矛盾和問題。過去一些暫時可以擱置或繞過去的體制機制性障礙，現在已無法回避。

文章認為，從社會發展和存在的問題來看，中國在繼續深化經濟體制改革的同時，必須加大政治、文化和社會體制改革的力度。在政治體制改革方面，應著力在解決權力制約和權利保障的問題，也就是說，從制度上保障人民的民主權利、合法權益，從制度上約束國家和社會的公共權力。文章強調，政治體制改革是整個改革的保障。相對於其他方面的改革來說，政治體制改革的任務更重，難度也更大。

文章稱，在這個問題上，既要積極推進，又不能急於求成，更不應草率從事。所有的改革都必須始終從有利於社會穩定發展、和諧進步出發，有計畫、有步驟、有秩序地進行。

這篇評論指出，推動政治體制改革，尤其是建設和發展一黨領導下的民主政治，除借鑒世界其他政黨治國理政經驗，更多需要靠自己探索、積累、創造。

因此，文章最後提到，改革開放不能動搖，不能止步。改革過程需要加強頂層設計和統籌協調，也需要尊重基層群眾的首創精神，保護人民群眾參與改革開放的積極性、主動性。

多家官媒籲深化改革

1978年，中共十一屆三中全會後，大陸在進行社會主義經濟體制改革的同時，也開展了政治體制改革，但政治體制改革卻一直跟不上經濟體制改革的腳步。

近一段時間以來，北京多家官媒發表文章呼籲深化改革。2月23日至4月5日，《人民日報》連續發表「深化改革認識論」4篇系列文章，分別題為：「寧要微詞，不要危機」、「不失時機，攻堅克難」、「重要領域，重點突破」、「立足國情，循序漸進」，引發媒體及公眾強烈關注。

3月14日，大陸國務院總理溫家寶也在北京全國人大閉幕記者會上暢談政改，稱政治體制改革不成功，經濟體制改革也不可能進行到底，而文化大革命的悲劇還可能重演。

《光明日報》10日發表的評論，則闡述政改重要性及方向，應該都是在為十八大舖陳政改的氣氛。

http://news.chinatimes.com/focus/501010911/112012041100124.html

The Bo Xilai Sideshow

Jonathan Fenby, 04/10/12

The dust hasn’t settled on the dramatic Bo Xilai affair in China. Indeed, it may never fully do so despite a report from Beijing that the Communist Party has decided to suspend him and that his wife is in detention. It is 41 years since a previous shooting star of Chinese politics, Mao’s anointed successor, Lin Biao, died in a plane crash after apparently attempting a coup, and we still do not know exactly what happened.

But amid the rumors of an attempted coup and Politburo divisions, along with the murky death of a British businessman in Bo’s former stronghold, important elements are emerging that are likely to have a significant bearing on the way the last major state ruled by a Communist Party evolves.

This year sees the start of a major transition in China’s political leadership as the Communist Party holds its five-yearly congress (probably in October) to select a new Politburo. At least six of the nine current members of the supreme decision-making body, the Standing Committee, will be replaced because of term limits and/or age.

The dismissal of Bo Xilai as boss of the mega-municipality of Chongqing in western China has been portrayed as a bombshell upsetting that process.

In its immediate way it is. Aiming for the Standing Committee, the media-savvy Bo had become the rock star of Chinese politics with populist grand-standing, top-down statist development, social programs, an anti-crime crusade and the evocation of old values as residents were urged to sing “red songs” and Bo had an eight-story statue of Mao put up in the university district.

So the drama of his fall naturally hit headlines. But it could also produce greater stability at the top as the major factions close ranks.

Bo was out of line with the consensus approach practiced by the outgoing party leader, Hu Jintao. His power base in Chongqing, with its 32 million inhabitants, made him resemble a political version of the regional warlords who ran China in the 1920s. He was a high-flying politician waiting to be shot down, and when he allowed a still-mysterious saga involving Chongqing’s former police chief and the dead Englishman to get out of hand, his fate was sealed.

But the Bo affair is, essentially, a sideshow, a distraction from the essential challenges facing China under its changing leadership. Nobody can deny the country’s huge material achievements, and individuals live far better and freer lives than they did under the Great Helmsman. But the economic model is out of date.

China is gripped by a major environmental crisis and an acute water shortage is building up in the north of the country. Beijing lacks a coherent foreign policy. Corruption is rife. Regulation and safety standards are weak. There is a broad lack of trust in institutions. The falling birth rate and increasing longevity mean that the demographics will shift during this decade so that the People’s Republic may become old before it gets rich.

Materialism has trumped both communism and Confucianism. Tibetan monks and nuns are burning themselves to death to protest Chinese rule, and there are recurrent ethnic clashes in the enormous western territory of Xinjiang.

If political and legal reform are subjects too sensitive to invoke in this one-party state, where dissent is harshly repressed and there has been a recent clampdown on bloggers, economic change is easier. Bo’s fall should embolden advocates of change who have been putting their heads above the parapets this year.

There have been too many false dawns for predictions of change to be as convincing as they should be. But a reformist wind does seem to be blowing, with particular gusts directed at the “vested interests” — the big state-owned enterprises and those who have done well from three decades of growth. One irony of this nominally Communist state is that the expansion under Hu has benefited the forces of capital more than the workers.

There is broad acceptance of the need to rebalance the economy’s excessive dependence on investment in infrastructure and real estate plus exports, moving it toward domestic consumption.

Informed sources in Beijing say Vice Prime Minister Li Keqiang, who is expected to take over as head of government next spring, recognizes the need to breathe fresh life into the market and private enterprise. Li told a conference this month that “reform and opening-up” must “continue to lead the way in removing the institutional obstacles that hamper the shift of the growth model.”

The current prime minister, Wen Jiabao, is firmly on the side of reform. Wang Yang, party secretary of China’s richest province, Guangdong, and Bo’s most vocal critic, has been talking about the need for a new model. A Chinese institute cooperated with the World Bank on a report calling for the reduction of the power of the state sector.

I even found myself pulled into the debate in a minor way when editors at China Daily, the state English-language newspaper, read an advance copy of my new book on China and asked me to write an article arguing the need for change. It ran exactly as written.

The reformers face formidable opposition. Wen and Li may talk of change, but the Communist Party is more powerful than the government, and the once-revolutionary movement has become an agent of the status quo. Interest groups are strong. State enterprises exercise monopolies or oligopolies entwined with the political system. Rule by consensus impedes adoption of tough measures.

How this process evolves will determine whether China finds a new future for itself or gets caught in the fallout of its own success. Given its place in the world, the outcome has major implications for the rest of the globe. If Bo’s fall has helped to open the door to change, it will have done some good.

Jonathan Fenby, former editor of The Observer and The South China Morning Post, heads the China team for the research service Trusted Sources. His latest book, about China, is “Tiger Head, Snake Tails.”

http://www.nytimes.com/2012/04/11/opinion/the-bo-xilai-sideshow.html?_r=1

China at the crossroads: are the reformers winning the argument?

ECFR, 04/06/12

China has reached a crossroads. After years of political stability and enviable economic growth, the regime has been facing a stark choice about how the country should move forward. But two crucial recent political events have turned Chinese politics on its head, and are forcing it to decide whether to regress or reform.

Over the last year villagers in Wukan, in Guangdong province, rose up and ousted their corrupt local leaders after months of protest. Meanwhile, Bo Xilai, the Communist Party secretary in Chongqing, who used Maoist rhetoric and violence to push his vision of economic development, was ousted from his post in March.

In a new ECFR essay, ‘China at the crossroads’, François Godement argues that these two events signal that the Chinese government may be choosing the path of legal and political reform, promoting sustainable growth to reduce macroeconomic imbalances and overreliance on the dollar. François argues that:

• With seven of the nine Politburo Standing Committee members due to be replaced this year, there has been a battle for influence with reformers warning that China is facing a ‘success trap’ of an economic and political model unsuited to the current stage of development, and capture by vested interests.
• The Wukan uprising and Bo Xilai’s fall have been followed by a resurgence in debate about economic liberalisation and censorship of nationalist, populist and conservative websites and spokesmen.
• Chinese economic policy began to change from the summer of 2011. Beijing has started to sell US Treasury holdings, cool inflation and slow down investment. Its trade surplus became a $31 billion monthly deficit in February 2012. These figures suggest the voice of reformers is gaining ground.

Click here for a PDF of ‘China at the crossroads’

Click here for a PDF of ‘China analysis: one or two Chinese models’ (2011) which examined the debate over Chinese economic development.

Contact: francois.godement@ecfr.eu

“If the reformers get the upper hand, this may prompt a conservative backlash. But if China does not move quickly forward it will regress to a planned economy run by crony capitalism and Maoism.”François Godement

• Vested interests opposed to reform include the military industrial complex that is used to double-digit budget increases, state-owned enterprises that have formed monopolies, family clans, local bureaucrats and the security/propaganda apparatus.
• The growth of an educated and affluent middle class who demand rights and better social protection has added to calls for reform.
• China has around 550 million internet users and 350 million social media users, who have shown their influence after events such as the Sichuan earthquake and the Wenzhou train crash.
• Between 1978 and 2012 China’s per capita income rose from $278 to $6200 (World Bank).
• Between 1980 and 2010 the number of Chinese below the poverty line (defined as $1.25 a day in purchasing power parity terms) fell from 2/3 of the population to 13%
• For the first time since 1998, from July to December 2011 China started selling US Treasury holdings, bringing the total amount down by 13% from its record high of $1.315 trillion.

This paper, like all ECFR publications, represents the views of its author, not the collective position of ECFR or its Council Members.

http://ecfr.eu/content/entry/china_at_the_crossroads_are_the_reformers_winning_the_argument

China is deeply flawed. Its dominance is not inevitable

Jonathan Fenby, guardian.co.uk, 04/05/12

The country's success will continue only if its elites initiate the political and economic reforms it desperately needs

China's rise is a commonplace of our times. The last major state on earth ruled by a Communist party appears set to dominate the planet, surpassing an anaemic west and owning the 21st century. After the temporary economic downturn of 2008, its growth has soared once more to make it the planet's second biggest economy. Everything about it is huge, starting with its 1.3 billion people. Its Communist party is the planet's biggest political movement; it contains 55% of the world's pigs; its people smoke 38% of the cigarettes consumed on earth.

So it is very easy to be swept away by the apparent inevitability of China's dominance, especially for those who were let down by the Soviet Union's failure to get the better of the United States and now see a new champion in the east.

The reality is that, as it prepares for a wholesale change of leadership starting later this year, the People's Republic faces fundamental tests which will determine if it is able to continue its upwards trajectory or will be caught by the deep flaws in its system – political, economic and social.

The political scene has been enlivened this spring by drama surrounding Bo Xilai, the rock star of Chinese politics, who crashed to earth amid murky events in the mega-municipality of Chongqing, which he had made the launching pad for his ambitions. But the real challenge for the leadership goes far deeper and starts at the very top of the system.

The Communist party's monopoly position means that it and the government which comes under it dominate the economy and society as well as politics. But what is it for? Is it merely a managerial elite relying on growth for legitimacy, defending the status quo on behalf of those who have profited from economic expansion?

Hu Jintao, the Chinese leader who will step down at the next party congress, probably in October, preaches the virtues of a "harmonious society", evoking Confucian virtues. Yet wealth distribution is more unequal than in the west. Materialism rules, epitomised by the young woman on a television dating show who said she would rather cry in the back of a BMW than laugh on the back of a bicycle.

In the opaque world of top-level Chinese politics, we have little idea of what Xi Jinping, Hu's anointed successor as party secretary, stands for. Asked how he got to the top, sources in Beijing reply that everybody is comfortable with him. We know that he belongs to the so-called "princelings group", the offspring of first-generation Communist party leaders, and rose through the party ranks in booming east coast provinces before being elevated in 2007 to the standing committee of the politburo, the supreme decision-making body, in a closed-door process at the five-yearly Communist congress. We know that he has enjoyed the support of the "Shanghai faction", which used to run China and is well-connected with fellow princelings and younger generals in the People's Liberation Army. But nobody knows what his policy preferences are and, I would guess, he has not decided them himself, waiting like the canny politician he is to see the balance of power in China after he takes the top job at the party conference later this year. Hardly the recipe for grappling with the major changes China needs.

The economy is, as the leaders acknowledge, seriously unbalanced, with excessive dependence on investment in property construction, infrastructure and exports. In this nominally Communist state, the share of wages in national income is far lower than in developed capitalist nations; the forces of capital have been the big beneficiaries of growth, not the workers. People are registered to their place of origin and so migrant workers in cities lack the right to education, healthcare or property purchases. An effort is being made to boost blue-collar pay and thereby stimulate consumption as an economic motor, but this will be, as a party school official told me, "a matter of two five-year plans".

China wants to move up the technological value chain, but it is not clear that it has the skills to do so. Training takes time. Top jobs in the huge state sector are decided on political grounds as well as competence. The drive to do everything bigger and faster than anywhere else showed its limitations with the crash of a high-speed train last summer, killing 39 people.

There is a huge environmental crisis. northern China is seriously short of water. Agriculture is hobbled by a multitude of small plots leased from the state that cannot support mechanisation. The "demographic dividend" of young workers is about to fade as the result of the falling birthrate, while improved healthcare means the number of people aged over 60 is equal to the population of Spain – that in a country without a proper pensions net and where the traditional family structure is strained.

Underlying everything is a serious trust deficit. "Only believe something when the government denies it," is a common saying. Corruption is endemic, accompanied by lack of accountability and weak rule of law – judges have just been told to swear a loyalty oath to the Communist party. There are recurrent food scandals; cartons of UHT milk from New Zealand sell for several times the price of domestic milk because people think it is safe.

While individuals are far freer than in the days of Mao Zedong, any form of organised dissidence is ruthlessly crushed – the budget for internal security is greater than that for the armed forces. Still, there are reckoned to be 150,000 popular protests a year, some involving tens of thousands of demonstrators. Society is evolving at breakneck speed. Social media make the control ethos embedded in the party's DNA increasingly difficult to implement.

Despite all these fault lines, China is not going to collapse; it is far too resilient for that. Its growth has made more people materially better off in a shorter space of time than ever before in human history and this breeds loyalty to a system. But two things are clear. It does not provide a model for the rest of the world as its admirers might wish, and the danger now is that, unless Xi Jinping and his colleagues in the new politburo undertake serious reform, China will be stuck in an increasingly outdated groove, out of tune with its needs and aspirations.

Follow Comment is free on Twitter @commentisfree

http://www.guardian.co.uk/commentisfree/2012/apr/05/china-dominance-not-inevitable

Wen Jiabao’s Reform Push More Than Just Political Theater

Russell Leigh Moses, 04/06/12

Is Premier Wen Jiabao taking a run at reform again?

That’s the question that has been rattling around in China-watching circles ever since Wen’s final press conference at the National People’s Congress last month, during which he warned in sharp terms about the dangers of nostalgia over mass movements and insisted that without political reforms “it is impossible to continue economic reform, and the gains we have made may be lost.”

One view is that Wen is not being genuine in his efforts at reform—in other words, that’s he’s Beijing’s consummate actor, wheeling out the rhetoric to burnish his legacy for the history books. Other analyses have portrayed Wen as a lone champion of restructuring, fighting a solitary battle against the dark forces of oppression and hardline gunslingers.

But Wen’s no performer. Nor is he some sort of cowboy. Instead, he is the sharp and public end of a larger reform-minded posse within the Communist Party – a group of cadres who believe short-term stability may have been largely achieved but the long-term legitimacy of the Party remains unsecured.

That legitimacy, in their view, can only be achieved by loosening up the current system – and by preventing the political Left from taking to the streets to force social change.

Thus far, the reformers have been frustrated from moving forward with political experiments. They’ve been thwarted by the hardline emphasis on change within the Party -- those pushing for more morality and better training for cadres, instead of transparency and accountability. “Purity” is the new watchword, with political restructuring pushed aside.

But now Wen and his colleagues have started shoving back. During a recent inspection tour in southern China, Wen was especially blunt about setbacks in China’s economic situation. He noted the hardships caused by “insufficient domestic demand, rising costs of exports, and the downward pressure on businesses generally”. Wen also blasted the monopoly enjoyed by State banks, right on the heels of his sponsorship of an initiative to let Wenzhou experiment with a new type of financing scheme.

China’s number two also took a further step away from State companies, emphasizing the crucial role played by small firms and entrepreneurship.

On one level, Wen’s focus on these issues appears to be in keeping with the current Party line, which calls for an emphasis economic questions over other concerns.

But there’s also ample reason to see Wen’s latest moves in a larger light: as an effort to get his comrades to start reorganizing the economy, in the hope that political reform might then follow. Populist policies that rebalance the economy could then evolve into political restructuring.

By focusing on economic restructuring, reformers pledge loyalty to the Center’s new approach -- talk about economics, not about politics -- while bringing to light what ails the system: State cartels and other vested interests controlling finances and natural resources, stifling innovation and suffocating reorganization. There’s agreement in many circles for the need to weaken State economic control somehow; but previous efforts to do so have miscarried. Wen and his camp seem to be moving to take another shot.

Why is Wen saddling up to move now? To figure out the answer, one can turn editorials and commentaries in the official press, which increasingly are calling for “unity” and “stability” -- indications that neither is necessarily in abundance right now.

The purpose of these essays in mainline Party media is clearly to rally support in the ranks. Evidently, some cadres have been slow in responding.

And then there’s the fast-disappearing article about the meaning of a Communist Party General Secretary in China. The essay appeared with little fanfare some days ago, while President (and Party General Secretary) Hu Jintao was still abroad. Ostensibly a historical review about the origin and evolution about the position and role of a Party leader, the piece spoke of the restricted role of the General Secretary, noting that the “the Party forbids any form of personal worship” and that Party also “ensures that the activities of the party’s leaders fall under the supervision of the party and the people.”

How did such an article get to appear in the first place? Was this a blast by Leftists still irate over the sacking of Bo Xilai? Or did reformers who want to limit Hu’s authority to freeze conversations about political reform sponsor its appearance?

Whatever the case, by yesterday, the essay was getting more difficult to find, with a number of official websites reporting its removal. Meanwhile, local media in South China praised Wen’s visit and advised cadres to study it carefully -- a possible precursor to wider favorable coverage.

Despite some of the rumors floating around in recent weeks, there’s no reason to think that the party is so riven by dissension that it’s ready to implode. In fact, there continue to be brave and healthy debates throughout the state media about everything from spawning “social trust” to different responses to rumor-mongering.

Still, this recent political uncertainty does provide the opportunity for those pushing restructuring to make their case again. Perhaps Wen thinks he might still know the way: to use economic distress to show that political reform is still the solution.

Russell Leigh Moses is a Beijing-based analyst and professor who writes on Chinese politics. He is writing a book on the changing role of power in the Chinese political system.

http://blogs.wsj.com/chinarealtime/2012/04/06/wen-jiabaos-reform-push-more-than-just-political-theater/

Signs of a New Tiananmen in China

Minxin Pei, 04/04/12

Pervasive corruption, lawlessness among the ruling elites, and a sense of a loss of direction permeating all levels of Chinese society. The conditions for another Tiananmen may be there.

The Western media has largely missed the most significant development in Chinese politics these days. It’s not the dramatic downfall of Bo Xilai, although the incident is one of the most important events in elite politics in post-Deng China. Rather, it’s the stirrings that have revived contentious political issues banished from polite society in China since the Tiananmen crackdown more than two decades ago.

Of course, one is unlikely to find the discussion of such sensitive issues in most official publications (although some media outlets affiliated with official publications have been particularly adventurous in carrying articles on these topics in the past few months). The range of issues is wide and diverse. Despite disagreement among participants in this incipient post-1989 Chinese intellectual renaissance, the discussion is fast converging on three critical issues.

First, there appears to be a widely shared consensus among China’s thinking class that the country’s economic reform is either dead or mired in stagnation.

Second, those who believe that economic reform is dead or stuck argue that only political reform, specifically the kind that reduces the power of the state and makes the government accountable to its people, will resuscitate economic reform (some advocate for more radical, democratizing changes, although the consensus on this particular point has yet to emerge).

Third, the status quo, which can be characterized as a sclerotic authoritarian crony-capitalist order, isn’t sustainable and, without a fundamental shift in direction, a crisis is inevitable.

Such signs of an intellectual awakening are worth noting for many reasons. Its timing is certainly significant. Many people would connect this development with China’s pending leadership transition. In China, as in most other countries, pending changes in leadership usually stimulate discussions among the intelligentsia about the future of the country and the accomplishments or failures of the departing leadership. Chinese intellectuals, mostly liberals, may want to seize this once-in-a-decade opportunity to reignite a debate on whether the existing political system serves the country’s long-term needs of economic development, social justice, and national unity.

Another, perhaps more important reason, is that more than two decades after the Tiananmen crackdown (and after Deng Xiaoping famously admonished his colleagues there should be “no arguing,” essentially ending the ideological debate among the ruling elites over whether post-Mao China was embracing capitalism), members of China’s thinking class have come to realize that the post-Tiananmen consensus, which might be characterized as giving economic reform and development a chance to solve China’s political problems (one-party rule and poor governance), has basically broken down. In other words, the post-Tiananmen model, all but intellectually bankrupt, provides no useful guidance in the coming decades.

One may be tempted to dismiss such discussions as idle chatter among marginalized Chinese intellectuals. This would be a mistake. Some of the participants in these discussions are influential opinion makers or advisors to the Chinese government. Their views reflect the thinking of at least some insiders of the Communist Party. So the frustrated tone and anxiety conveyed by their views could suggest that more open-minded elements in the party, some of whom may be in line to assume senior or important positions as a result of the leadership transition, share the same sense of crisis and urgency.

http://the-diplomat.com/2012/04/04/signs-of-a-new-tiananmen-in-china/

A brush with reform

Wu Zhong, China Editor, 亞洲時報, 04/04/12

HONG KONG - Over the past few years, Chinese Premier Wen Jiabao has advocated political reform, but he has been laughed at for "empty talk" without taking any real action.

At last, however, some subtle changes seem to be taking place toward political liberalization, following the downfall of Bo Xilai - said to be the spiritual leader and financial supporter of the anti-reform new leftists or conservatives.

Bo was fired last month from his position as head of the Chinese Communist Party (CCP) in Chongqing, a western interior municipality, apparently over problems with his police chief. He remains a member of the CCP's politburo.

In China's lunar calendar, the Qingming festival (which normally falls on April 4 or 5) is traditionally a holiday for people to pay tribute to their deceased families and ancestors. But in past 30 years, Qingming, also known as the grave-sweeping festival, has become a politically sensitive holiday.

On Qingming in 1976, hundreds of thousands of people flocked into Beijing's Tiananmen Square to mourn late premier Zhou Enlai, who had died three months earlier, and to condemn the "Gang of Four" headed by Mao Zedong's wife Jiang Qing.

Mao, leader of the country from 1949 until his death in 1976, branded the protests as "counter-revolutionary" and ordered a crackdown. Deng Xiaoping - who later became paramount leader of China from 1978 to 1992 - was purged as the "black hand" behind this "Tiananmen Incident". But a couple of years after Mao's death in September 1976, the CCP had to vindicate the protest, calling it a "revolutionary movement", which paved the way for Deng to make his third and last political comeback.

On April 15, 1989, shortly after the Qingming festival, Hu Yaobang, disgraced party general secretary for his open-mindedness, died. The next day, a small-scale demonstration took place in Beijing to commemorate him and demand that the government reassess his legacy.

A week later, the day before Hu's funeral, some 100,000 students marched to Tiananmen Square, leading to the two-month Tiananmen Square protests that were ended by a bloody crackdown on June 4. The then-general secretary of the party, Zhao Ziyang, regarded as a reformist, was purged for tolerating the pro-democracy protests, and replaced by Jiang Zemin, handpicked by Deng.

Since then, the authorities have heightened vigilance at the time of Qingming in fear that protests might take place. The name of Zhao Ziyang has become taboo, not to be mentioned or talked about in public.

This year, Qingming falls on April 4. In the run-up, a number of web sites dedicated to mourn Zhao have emerged in cities such as Beijing, Shenyang, Hangzhou and Hefei, without being blocked by the "Internet police".

Netizens have been able to freely visit these websites and leave messages to mourn and praise Zhao. Even messages calling for the rehabilitation of Zhao and for political reform have not been deleted. Also, more and more people have begun to visit Zhao's native village in Huaxian in central Henan province, without being stopped by authorities, as before, according to Hong Kong media reports. [1]

In major Chinese Internet search engines, "Zhao Ziyang" is now not completely blocked (as of the end of last week, at least). On Baidu.com, China's largest search engine, if one keys in Zhao's name, over a million pages pop up, including many of his speeches, (although some are still blocked).

Many Chinese political analysts say this shows Beijing wants to test the water for pushing for more political liberalization. Their argument is that Zhao was a firm advocate for political reform, so a vindication of his verdict on a public consensus would make it easier to start political reforms.

But some other analysts warn not to over-interpret the relaxation, saying it is probably just timed for Qingming, though they fail to explain why in previous Qingming holidays there has been no such relaxation of control.

It is noted that the relaxation of control took place shortly after Wen reiterated that China needed not only economic reform but also political structural reform, especially reform of the leadership system of the CCP and the government.

Wen warned at a press conference on March 14, a day before the announcement of the removal of Bo, after the conclusion of the annual session of the National People's Congress, that "now reforms in China have come to a critical stage ... Without successful political reform, it's impossible for China to fully institute economic reform and the gains we have made in these areas may be lost, and new problems that popped up in Chinese society will not be fundamentally resolved, and such historical tragedies as the Cultural Revolution [1966-1976] may happen again in China."

Wen said he had addressed the topic of political structural reform in China on many occasions in recent years, giving his views on the topic in full and in detail. He said his long-standing interest in political reforms came from "a strong sense of responsibility". [2]

A week later, the Financial Times of London reported:

According to people close to top-level internal party discussions, Mr Wen was tentatively laying the foundation for a move that would blow apart the established order in China and kick-start the political reform he has agitated for in recent years.

That move would be the rehabilitation and re-evaluation of the 1989 Tiananmen Square student protests and the massacre that followed on June 4, when party elders ordered the People's Liberation Army to open fire on unarmed demonstrators.

To this day the party officially regards the democracy protests as a "counter-revolutionary riot" and the entire episode has been painstakingly scrubbed from the collective consciousness of the nation.

In calling for a re-evaluation of the Cultural Revolution, Mr Wen was in fact signaling his intention to do the same for Tiananmen in order to finally begin the healing.

Mr Wen has already suggested this on three separate occasions in top-level secret party meetings in recent years, according to people familiar with the matter, but each time has been blocked by his colleagues.

One of the most vehement opponents of this proposal was Bo Xilai. [3]

Whether Wen had really formally proposed a revaluation of the June 4 crackdown at "top-level secret party meetings" is yet to be independently verified. However, it is almost certain that Bo would be a strong opponent of such a move and political reform.

Bo's father Bo Yibo, a veteran revolutionary, was known as one of the "eight immortals" in the late 1980s and early 1990s, who held honorary or no official positions but practically ruled the country behind the scenes - their offspring are known as the princelings.

It was said that Deng, leader of the "eight immortals", was urged by the others to purge Hu Yaobang and Zhao Ziyang. After the June 4 crackdown, unconfirmed reports at the time had it that the "eight immortals" reached a secret consensus on a proposal by then-vice president Wang Zhen to let the princelings gradually take key posts in the party and state. Wang reportedly said, "After all, our children are more trustworthy successors to what we have fought for," given the lessons of Hu and Zhao. Bo Xilai's fast rise could be said to have been a result of this decision, if it indeed existed.

Although both Bo and his father suffered during the excesses of the Cultural Revolution, Bo Xilai sought to return to a "worship" of Mao in his rule of Chongqing - launching massive campaigns to crack down on gangsters and sing "Red Songs" (a scene of "singing Red Songs" in Chongqing today is not much different from those of the Cultural Revolution), and practicing some sort of socialism by seeking "common prosperity".

No wonder Bo is regarded by the new leftists, a minority of Chinese intellectuals advocating a return to socialism, as their spiritual leader. It has now been established that Bo spent public funds of Chongqing to support the activities of the new leftists.

Kong Qingdong, a die-hard new leftist and Peking University professor who openly denounced the dismissal of Bo as a "counter-revolutionary coup", admitted in his mini-blog on March 24 that he had accepted $1 million yuan (US$159,000) from the Chongqing government to promote the so-called "Chongqing Model". Detained by secret police for investigation after Bo's dismissal, Kong was released five days later after giving back the money.

Chinese netizens now identify at least two dozen other new leftists who allegedly accepted money from Bo to help propagandize the "Chongqing Model". These claims have not been confirmed.

It would be strange for a person like Bo Xilai to support a re-evaluation of the June 4 crackdown and political liberalization. Hence, his dismissal has removed a big obstacle to the possible rehabilitation of June 4 and political reform.

But Bo was just a highly visible obstacle on the rough road ahead. There are hidden obstacles. In the case of the re-evaluation of June 4, the relaxation of control on people mourning Zhao Ziyang may be a good beginning, but there is still a long way to go.

Some retired leaders who rose after the crackdown, such as Jiang Zemin, or former premier Li Peng, who still retain certain influence, may not be happy to see this happen. Even party officials admit that a major obstacle is the vested-interest groups inside and outside the current political establishment.

At the National People's Congress annual session in March, reform-minded Guangdong party chief Wang Yang, who is tipped to move up to the nine-member Politburo Standing Committee - the power core of the CCP - pointed out that resistance against the deepening of reforms often came from central government departments with vested interest.

"Now enterprises have difficulties, we [Guangdong government] are considering waiving some administrative charges, but relevant central government departments say you cannot take the lead to do this or other provinces will follow. And then 'where can we find money'?" Wang said some effective laws and regulations had also become obstacles to further forms.

Any change to such laws and regulations would need the cooperation of the National People's Congress, but it has become a house of representatives of vested-interest groups. [4]

Wang Yang currently is one of the 25 members of the politburo. If he feels it is difficult to make changes in Guangdong - which is under his jurisdiction and which has always spearheaded reform and opening up - then it is not hard to imagine how strong the resistance against changes is nowadays in other parts of the county. And all he wants to do is push for some economic or administrative reforms - not political reform in the proper sense.

Wen Jiabao may be sincere and eager to push for political reform, and he may have the backing of President Hu Jintao, as many in China believe, but he retires in less than a year and he may not have time to start the process.

However, by addressing the issue repeatedly he seems to have successfully drawn public attention to it. After the removal of Bo, discussions about political reform have become pretty much free, even fashionable, on Chinese media and among people.

In this way, a favorable atmosphere is being created for the new leadership to be endorsed at the party's 18th congress in October to start making some changes.

This certainly will be the first tough challenge to the new leadership to be headed by Xi Jinping and Li Keqiang who are tipped to succeed Hu and Wen as president and premier, respectively.

Notes

1. For instance, click here for a Chinese-language report.
2. Wen says China needs political reform, warns of another Cultural Revolution if without, Xinhua, Mar 14, 2012.
3. Wen lays ground for Tiananmen healing, Financial Times, Mar 20, 2012.
4. NPC: A house of non-representatives, Asia Times Online, Mar 13, 2012.

(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

http://www.atimes.com/atimes/China/ND04Ad02.html