Reform “Job Number One” for China’s Next Leaders

As China’s economic growth slowspresident-in-waiting Xi Jinping faces urgent calls to boldly push through reforms. From Chris Buckley at Reuters:

China heads into next month’s party congress – where Xi is set to take over from Hu Jintao as top leader – with the economy heading for its slowest annual growth rate in at least 13 years, while social stresses, such as ire over corruption, land grabs and unmet welfare demands have stirred protests.

[…] Advocates of reform are pressing Xi to cut back the privileges of state-owned firms, make it easier for rural migrants to settle permanently in cities, fix a fiscal system that encourages local governments to live off land expropriations and, above all, tether the powers of a state that they say risks suffocating growth and fanning discontent.

[…] Xi’s “princeling” pedigree – as the son of a party leader who served alongside Mao Zedong – could make him more comfortable in wielding power than Hu and Premier Wen Jiabao, with their more humble backgrounds and ways.

[… R]ecently, Xi hinted that he understands the calls for him to take a bolder path, even if he wants to also put to rest any expectations he will seek a radical change.

Buckley refers to his own report last month of a meeting between Xi and noted reformer Hu Deping, at which Xi was said to have openly recognised the need “to hold high the banner of reform, including political system reform”. But The Financial Times’ Jamil Anderlini wrote soon afterwards that the “tantalising” vision of Xi as “the Mikhail Gorbachev of China” may be a mirage. Hopes for reform during his term are based largely on second-hand accounts, or on omens such as a wristwatch his father once gave the Dalai Lama. “Looking through the scanty official record of his time as a provincial official in the 1980s and 1990s,” Anderlini writes, “it is impossible to divine his policy preferences.”

At Quartz, James McGregor examines the impending leadership transition, and agrees that “whatever leadership lineup emerges from the ‘Big 18th,’ predicting China’s future policy direction based on the records of the people in that lineup is largely guesswork.” He goes on to discuss the increasing limitations on each generation of leaders’ individual power, and concludes:

Finally, let’s look at a few of the problems piled on leadership desks. The economy is slowing as the current model is running out of gas. Unprofitable but powerful state-owned banks and companies are squeezing out the private sector, which the government says is responsible for 90% of new jobs, 65% of patented inventions and 80% of technological innovation. College graduates—who have risen to 6.5 million annually from 2 million annually a decade ago— can’t find jobs. Those who do are averaging $300 a month, the same as uneducated migrant workers. China is getting old before it gets rich. The worker-to-pension ratio is projected to fall from three to one now to one to two in 30 years.

China also must escape from “the middle-income trap,” which occurs when domestic consumption and innovation must replace export-led fast-growth through cheap labor and foreign technology adoption. Not an easy transition. The World Bank says that of 101 middle-income economies in 1960, only 13 had reached high income status by 2008. Chinese consumption is only 35% of GDP, compared to 71% in the US and 54% in India. Just over half of the Chinese population now lives in cities–the US ratio in 1920. By 2030, some two-thirds of China’s people are expected to be living in cities. This means that an average of 13 million to 15 million rural residents will move to cities each year. The good news, according to China’s top economic planners, is that if China can reform its urban residency requirements and transform these downtrodden migrants into the next wave of urban consumers, they will form a “potential new global market of unprecedented size.”

So, what’s the verdict on the next leadership? No matter who ends up on the Party’s Central Standing Committee—no matter if the final number is seven or nine—reform and regaining the Chinese people’s confidence will be job No. 1.

See more on Xi Jinping, the 18th Party Congress and China’s leadership transitions on CDT. Samuel Wade contributed to this post.