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Many Urge Next Leader of China to Liberalize

Posted: 23 Oct 2012 12:13 AM PDT

Despite his mastery of keeping low profile and toeing the party line, China's president-in-waiting Xi Jinping has recently sent out possible signals of political reform, while a chorus of voices urges him on. The New York Times' Edward Wong discusses the likelihood of during Xi's reign, possibly along the lines of Singapore's "flexible authoritarianism":

Those close to Mr. Xi who are urging reform go well beyond the usual liberal intellectual voices. They include active and retired officials, childhood friends from China's "red nobility," army generals and even a half-sister, Xi Qianping. Mr. Xi and his allies have dropped a few hints recently that Mr. Xi is at least open to hearing new ideas.

[…] Analysts say that Mr. Xi faces great political risks in taking on the nation's many vested interests and possibly repudiating Mr. Hu's policies. Moreover, the authority of the top office has become more diffuse with each generation, and Mr. Xi would need to marshal powerful alliances to push through changes. Another obstacle to change is the way that Mr. Xi's own circle has profited from the current system: Bloomberg News reported in June that some members of Mr. Xi's family had amassed fortunes totaling at least several hundred million dollars.

[…] And even among his supporters, there are some who question whether any adopted reform mantle would be more show than substance. "No matter whether Xi actually reforms China or not," said a member of a prominent military family, "he has to entertain reforms, for the sake of the reformists and the public."

Calls for reform and the extent of Xi's inclination and ability to answer them were also discussed recently by Chris Buckley at Reuters (via CDT).

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China’s Next First Lady a Challenge for Image Makers

Posted: 22 Oct 2012 11:24 PM PDT

As a famous singer and goodwill ambassador for the World Health Organisation, Peng Liyuan might seem a perfect first lady to China's next president . But this picture is complicated by an AIDS scandal involving incoming prime minister Li Keqiang and a tradition of women, from Daji through Jiang Qing to Gu Kailai, being seen as a corrupting influence over powerful men. From Julie Makinen at The Los Angeles Times:

She has a resume that would make U.S. political consultants drool: A renowned soprano who's performed for troops serving the motherland, opera fans at Lincoln Center and ordinary Chinese watching annual TV variety galas, she's also a goodwill ambassador in the fight against tuberculosis and HIV.

[…] "As a new leader, you always should give some kind of freshness to the public. You need to uplift the public confidence, and it's really quite low in the wake of the scandal and the economic slowdown," said Cheng Li, a China expert at the Brookings Institution. "Xi needs to do a lot himself, but with a beautiful, popular first lady, this kind of image could be very helpful."

[…] Johanna Hood, a postdoctoral fellow at Australian National University who has studied Peng's public health work, noted that activism around in China can be seen as both supporting the government and implicitly criticizing its response to the disease.

"I imagine it became a bit awkward with the rise of Xi Jinping. If you look at her language, how she talks about it — she says 'it appeals to my motherly instincts; my child had such a good upbringing, and so I must do something' — that rounds off some of the political edges of it," Hood said. "But just being involved in is a political statement, and I imagine that the people who deal with her public image are grappling with that."

John Garnaut dug into Xi's own background and career at Foreign Policy (via CDT) last week, while on Sunday CDT's Mengyu Dong examined women's standing in college admissions, at state-owned enterprises and soon, perhaps, on the Politburo Standing Committee. For a glimpse of Peng's star power, see her rendition of the classic Red Song, Laundry Song, via High Peaks Pure Earth:

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China Web Users Push Out Official

Posted: 22 Oct 2012 10:23 PM PDT

Chinese netizens expressed outrage when it was exposed that Cai Bin, a local official in Guangzhou, and his family owned more than 20 homes. Cai has now been detained and is under investigation. From the Wall Street Journal:

Cai Bin, who formerly ran the city's urban management bureau in the district of Panyu, served as its political commissar and was its deputy chief of police, is suspected of bribe-taking, the state-run agency quoted Mei Heqing, a local discipline official, as saying.

Mr. Cai and local officials couldn't be reached for comment.

Earlier this month, online activists and local media reported Mr. Cai's family owned more than 20 homes. The value of those homes wasn't immediately clear, though Xinhua has quoted estimates saying the homes possibly were worth as much as 40 million yuan ($6.4 million). Mr. Cai earned about 10,000 yuan monthly in his official work, Xinhua said.

Mr. Cai is suspected of concealing most of his family's real estate, Xinhua reported, previously disclosing only two family homes. reported Monday that he had been placed under shuanggui, a form of investigative detention for cadres.

Cai is the second local official to be ousted in the past month following online anger over their excessive wealth. In Shaanxi, a local official, Yang Dacai, was photographed wearing numerous luxury watches, which he would not have been able to afford on his salary alone. Netizens began questioning the source of his wealth, and he was later removed from his position.

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Report: Proposed Amendment Would Strengthen CCP Rule

Posted: 22 Oct 2012 09:55 PM PDT

The Communist Party may discuss an amendment to its constitution at next month's that would strengthen one-party rule, according to state mouthpiece . From Reuters:

"The meeting stressed the importance of making a draft amendment to the CPC (Communist Party of China) that conforms to the needs of the CPC's theoretic innovation, practice and development and will also promote the CPC's work and strengthen its construction," Xinhua said, citing a statement from the meeting of the .

The party "constitution" is less a legal document and more an organizational guide and compilation of the ideological justifications that China's Communists have accumulated – and often quietly shelved – in their evolution from a party of Mao Zedong and mass revolution to one of mass markets and dynamic growth.

Cheng Li, an expert in Chinese politics at the Brookings Institution think-tank in Washington, told Reuters the amendments could include new language on the rule of law and intra-party democracy.

While vague about its contents, Xinhua reported that president Hu Jintao presided over a Monday meeting of the Communist Party's Politburo and heard comments about the amendment as well as a discussion on the draft report that will be made to the congress by the 17th Central Committee. BBC News has more on the draft report:

Regional and local papers like the Beijing Times and Guangzhou's Southern Metropolis Daily also carry the Xinhua report, while highlighting in their headlines that some "important theories" set out in the report will be written into the party constitution.

Hong Kong's South China Morning Post says: "While highlighting several guiding tenets of party doctrines by President , and Deng Xiaoping, one key term missing from the Xinhua report was 'Mao Zedong thought', an absence that led some China watchers to wonder whether the party might be moving to play down the philosophy of its late patriarch in the 18th national party congress."

The Global Times' bilingual editorial says: "The 18th National Congress of CPC is being held to showcase China's potential and problems to the entire Party and the people, as well as conduct a frank discussion with the world."

"The world has a lot of questions for China and the Chinese people also have issues with the domestic situation. The 18th National Congress needs to reply to all these questions."

See also additional CDT coverage of the 18th Party Congress and China's upcoming leadership transition.

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Photo: Dafen Art Village, from the BBC World Service

Posted: 22 Oct 2012 09:21 PM PDT

Dafen Art Village

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Jiang Zemin Emerges Ahead of Party Congress

Posted: 22 Oct 2012 09:13 PM PDT

Bloomberg News calls attention to former Chinese president , the party elder who in 2011 was declared dead by a Hong Kong television station but is now back in the headlines of the Chinese press ahead of next month's :

On Oct. 19 the official People's Daily reminded readers that late paramount leader Deng Xiaoping once called Jiang, 86, a "qualified" Communist Party leader. The paper's website the next day reported Jiang met university officials in Beijing and included a picture. Agency said Oct. 21 he congratulated his old middle school on its 110th anniversary.

Jiang's appearances less than three weeks before the start of the Communist Party Congress signals to fellow cadres that he is healthy and involved in negotiations over who will run China for the next decade, according to analysts including John Lee of the University of Sydney. The reports may be aimed at projecting stability during a transition that's been roiled by the ouster of member and heir-apparent 's two- week public absence in September.

"His public appearances are probably calculated to advance both his presence and the standing of his preferred candidates within the party," said Lee, an adjunct professor at the university's Centre for International and Security Studies. "The involvement of elders is seen by the Party as a stabilizing rather than destabilizing factor since the psychological factor of continuity rather than radical change is much more comforting."

Late last week, sources close to the top leadership told Reuters that Jiang had forged a consensus with current president and his expected successor, Xi Jinping, on the candidates to fill openings on the . The South China Morning Post also reported on Sunday that Jiang's appearance "coincides with reports of his renewed involvement in key party decisions".

See also additional CDT coverage of the 18th Party Congress and China's upcoming leadership transition.

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China Questions for Third Obama-Romney Debate

Posted: 22 Oct 2012 11:09 AM PDT

Though China has already featured in the U.S. presidential debates, the focus on foreign policy in Monday's performance is set to bring the most direct discussion yet. David Sanger posted a field guide to the debate at The New York Times' Caucus blog:

If the moderator, Bob Schieffer of CBS News, has his way, it will be the most substantive of the debates. He has outlined several topics: America's role in the world, the continuing war in Afghanistan, managing the nuclear crisis with Iran and the resultant tensions with Israel, and how to deal with rise of China.

[…] CHINA Perhaps the most important long-term subject of the debate. Mr. Romney promises a hard line, saying he would declare China as a from Day 1 of his presidency. But he has not said much about Day 2, or Year 2. This is the moment for each candidate to describe how he would counter China's growing claims in the and other disputed territories, how he would handle trade tensions, and how he would manage a world in which the , for better or worse, is going to be reliant on Chinese in American debt for years to come. And it is the moment for each to give his view of the leadership change under way in China, where three-quarters of the top political posts are about to change hands.

South China Morning Post's John Kennedy also looked at what the candidates would have to say about China, while The Guardian's Tania Branigan examined Chinese reactions to getting caught in the American crossfire. (For some responses to the first debate, see our earlier post on CDT.)

At the Council on Foreign Relations, Elizabeth Economy proposed four China-focused questions for the candidates, on China's "fair share" in addressing global challenges, the effects of its expected rise to become the world's largest economy, Obama's pivot towards the Asia-Pacific and the existence or otherwise of a credible "" for other developing countries. She concludes:

Frankly, I am glad that unlike the Middle East, China is not reeling from one crisis to another, while the United States struggles to find effective policy tools. China does not provide safe haven for terrorists and it did not trigger the global financial crisis. For the purposes of the presidential debate on foreign policy, that makes China appear a second tier issue.

Still, China may well pose a far more serious strategic challenge to the United States and the global system. Chinese officials have called for the world to move away from the dollar as its reserve currency, challenged U.S. notions of good governance throughout the world, and blocked U.S. initiatives to address crises in Syria and Iran. All of this makes China an issue of paramount importance for the presidential debate. Let's hope that Mr. Schieffer can push the candidates to take the issue and the American people seriously enough to aim for profound rather than petty.

Foreign Policy's list of fifty questions from contributors, readers and outside experts naturally included several on China. Among them:

President Obama, given how much money the United States borrows from China each day, how can your administration expect to persuade the Chinese government to do anything it wouldn't otherwise do? — Ian Bremmer, Eurasia Group

Governor Romney, you've argued repeatedly that China has manipulated its currency to obtain an unfair trade advantage. While that might have been true in the past, the latest data suggest that China halted this activity in 2012. Do you still plan to label China a currency manipulator on day one? — Daniel Drezner, Tufts University

President Obama, you have dramatically increased the targeted killing of suspected terrorists with unmanned drones […]. What if other countries, say China or Russia, asserted the same power to kill their enemies across the world? — Kenneth Roth, Human Rights Watch

Would you endorse a law prohibiting American Internet companies from participating in any Chinese censorship efforts? — Kenneth Roth, Human Rights Watch

If moderator Bob Schieffer does add these to the script, however, there may not be time to get through them all. Also at Foreign Policy, Daniel Drezner notes that China has been allocated a mere 15 minutes of the 90 minute debate, to be shared with the vague catch-all "Tomorrow's World".

So two-thirds of the debate will be about the Greater Middle East. Two-thirds. Schieffer has generously allowed that China and Tomorrowland the entire Pacific Rim should get fifteen minutes […].

[…] I'm not saying the Middle East isn't important — we have lost blood and treasure there, some of it very recently. But I simply do not believe that the region is so important that it should occupy 66.7% of a foreign policy debate.

But the Middle East-focused Andrew Exum of the Center for a New American Security offered some advice:

All of you Asia hands complaining politicians don't focus on your region enough should be damn careful what you wish for.

— Andrew Exum (@abumuqawama) October 21, 2012

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CDT Money: Time to Call the Bottom?

Posted: 22 Oct 2012 08:51 AM PDT

A breeze of cautious optimism wafted into the Chinese economy this week despite a seventh consecutive quarter of slowing GDP growth, as better-than-expected September data signaled that the world's second largest economy may have begun to stabilize heading into next month's . Overseas shipments for the month rose nearly twice as much as expected, the money supply grew at its fastest pace since mid-2011, and inflation cooled to its lowest level in two years. Steel and output also increased in September.

More importantly, as The Economist points out, consumption (55%) topped investment as the country's biggest driver of growth during the first three quarters of 2012. While it remains to be seen whether such a trend is sustainable, The Financial Times' Simon Rabinovitch puts that data point into perspective:

This is exactly what everyone from Wen Jiabao, China's premier, to the World Bank has said is necessary to make for a more sustainable economic model. In recent years, investment has accounted for nearly half of China's total economic output, a record for a major economy in peacetime.

The ghost cities, empty apartment buildings and unused convention centres that dot the country are the physical manifestations of this excessive investment, and investors remain concerned that much of it will translate into bad debts for the banking sector.

So increasing consumption is unambiguously good news for China.

Nevermind that September's purchasing managers index (PMI) remained in contractionary territory, or that non-manufacturing PMI fell nearly 3 points, or that growth in electricity consumption slowed for a second consecutive month. The balance of positive news boosted Asian stocks, according to Bloomberg, and Reuters reports that 's benchmark index neared its 2012 high. Chinese stocks extended their rally into today, rising to a six week high, and even the much-maligned cohort of U.S.-listed Chinese companies saw their longest stretch of gains since April. Today, ratings firm Fitch issued a report claiming that China's economy would avoid a hard landing.

The People's Bank of China also reversed course during the past week, according to The Wall Street Journal, withdrawing approximately US$35 billion from the banking system after injecting funds for three straight weeks. The move suggests that the central bank sees a smoother road ahead, one paved with sufficient liquidity and a more stable growth trajectory. The China Daily reported that premier Wen Jiabao took part in economic talks last weekend and similarly expressed confidence that China would achieve its full-year economic goals, but he also warned that the effects of the global financial crisis had yet to subside and reiterated his call for reforms to facilitate balanced growth.

As The Wall Street Journal's Tom Orlik and Bob Davis write, however, China's incoming leaders face a dilemma over whether to "take a risky political bet on reforms" that may create more pain in the short term:

The traditional methods of kick-starting growth—cutting interest rates and boosting investment—would risk exacerbating economic imbalances, increasing investment returns at the expense of salaries and spending money for households.

Spreading the gains from China's growth means challenging some of the most powerful groups in the country's body politic: local officials who benefit when their governments flip land bought on the cheap from farmers, and whose low taxes translate into less money for welfare programs. The winners in such a gamble would be China's lower and middle-income households, which are increasingly looked to as the source of future growth.

Revamping the state-owned sector so the firms operate in a more commercial fashion could cost as many as four million jobs as the companies slim down and shed political tasks and subsidies, said Minxin Pei, a China expert at Claremont McKenna College. "It wouldn't be privatization; it would be departyization," Mr. Pei said.

Despite the risks, will the new leaders heed Wen's advice? Reuters reports that the has tasked policy think-tanks to draft "their most ambitious economic reform proposals in decades" and spoke to five policy advisers involved in the process. According to their sources, policy priorities include curbing the privileges of state-owned enterprises, overhauling China's tax code, and moving towards a more market-based system of lending and resource allocation.

Domestic companies have long felt squeezed out by massive state-owned enterprises, but lately foreign companies have also grown increasingly frustrated with their lack of fair access to the Chinese market. Earlier this month, The Economist explored the foreign pressure mounting on the Chinese government to level the playing field:

One of the biggest complaints lodged by the multinationals is that they are largely frozen out of government procurement—a market estimated to be $1.3 trillion in size. China promises to join WTO accession protocols that would bring its rules in this area in line with global norms, but has been dragging its feet for years. Strikingly, the EU Chamber has issued a thinly veiled threat on reciprocity: if China does not open up soon, the relatively free access its firms enjoy to the EU's market may become "untenable".

The American Chamber of Commerce is more diplomatic, but its political system is not. A congressional committee is investigating Huawei and ZTE, two Chinese telecoms firms, for alleged links to the Chinese army (its conclusion is due on October 8th), and President Obama has just upheld a ban on a Chinese firm owning wind farms in America on security grounds.

It is revealing that the heavyweights of global business have chosen this moment to speak out on reform. One reason, to be sure, is to play to domestic audiences: China-bashing is always popular during American elections, and the euro crisis has turned Europeans sour on China too. But China also gets new leaders soon, and making noise is sure to get their attention.

A broad consensus for reform may exist within the Chinese government, but it remains to be seen who will push any such changes through after China's next generation of leaders takes the helm following the 18th Party Congress. And while the Party's power brokers may have agreed on the expected promotions for vice-president Xi Jinping and vice-premier Li Keqiang, the other members of the will have a large say about what shape any reforms will take. The New York Times reported today that , a favorite of the international community and the man probably most qualified to have day-to-day control over China's economy, may have to settle for a lesser role on the Standing Committee and cede the reins of economic policy to the younger and less experienced Li.

Capital Flight – Fact or Fiction?

China does not report on capital inflows and outflows, but that has not stopped some analysts from trying to piece together a picture of its fund flows from available information. A closer look at the investment data, both into China from abroad and by the Chinese elsewhere, seems to support claims that China is suffering from capital flight. The China Daily reported on Saturday that foreign direct investment dropped in September for the 10th time in the last 11 months, declining nearly 7 percent year-on-year as investors shied away from rising costs and a shrinking number of opportunities. On the flipside, The China Daily also reported that investment from China into the reached a record high through the first nine months of this year:

During this year's first three quarters, Chinese businesses invested $6.3 billion in the US, according to a report released on Thursday by New York-based Rhodium Group, which tracks Chinese investments.

The deal pipeline is strong, with major acquisitions pending in the aviation, auto parts and energy sectors, according to Thilo Hanemann, Rhodium Group's research director.

"While energy and advanced manufacturing continue to land the most investment dollars, 2012 deal flow suggests that Chinese investors are increasingly interested in US service firms, including entertainment, hospitality, finance and information technology," he said.

The Wall Street Journal also looked at the case of Yan Shuling, who was convicted of money laundering in 2009 and later exonerated, as an example of how Hong Kong has become the gateway for Chinese looking to dance around the mainland's capital restrictions and move their money abroad. One data trend that does not mesh with the theory of capital flight, however is the recent performance of the yuan against the dollar. The Financial Times' David Keohane notes that China's currency has nearly completely rebounded from its summertime plunge, and questions whether any perceived capital outflow has already reversed.

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