{"id":5163,"date":"2013-11-22T05:39:30","date_gmt":"2013-11-21T16:15:34","guid":{"rendered":"http:\/\/chinaworker.info\/?p=5163"},"modified":"2013-11-30T04:23:51","modified_gmt":"2013-11-29T20:23:51","slug":"chinas-third-plenum-more-market-more-dictatorship","status":"publish","type":"post","link":"https:\/\/chinaworker.info\/en\/2013\/11\/22\/5163\/","title":{"rendered":"China\u2019s Third Plenum: More market, more dictatorship"},"content":{"rendered":"

Xi Jinping\u2019s shift from dictatorship-by-committee to new \u2018paramount leader\u2019 is a high-risk strategy<\/strong><\/p>\n

Editorial statement from chinaworker.info<\/p>\n

\u201cMore market, less freedom, and much more power to Xi Jinping\u201d \u2013 this was the verdict of Beijing-based journalist Ola Wong, on the decisions of the recently concluded third plenary meeting of the CCP\u2019s 18th Central Committee. Third Plenum meetings have a special status in China\u2019s authoritarian system, because of the key 1978 meeting (11th Central Committee\u2019s Third Plenum), which sealed the triumph of Deng Xiaoping over Mao Zedong\u2019s designated heir Hua Guofeng and launched the Chinese Communist Party (CCP) onto the path of pro-capitalist \u201creform and opening\u201d. Expectations among the capitalists in China and globally have accordingly been high.<\/p>\n

Since Xi Jinping and the current CCP leadership were installed a year ago, they have staked enormous political prestige on their commitment to achieving \u2018painful\u2019 and \u2018urgent\u2019 economic reforms (CCP-speak for neo-liberal capitalist policies). Their aim is to rebalance the world\u2019s second largest economy by raising domestic consumption. This shift is forced upon them by a combination of factors that signal the exhaustion of the current high-investment growth model \u2013 above all because of the potentially disastrous debt crisis this has created. Xiao Gang, the chairman of China\u2019s banking watchdog CSRC, recently divulged an incredible statistic: In 64 years of CCP rule, China\u2019s banks have issued a total of 70 trillion yuan (11.5 trillion US dollars) worth of loans, of which 40 trillion yuan (6.6 trillion US dollars) was extended in the past four years. Unofficial shadow banking entities have issued loans for a further 20 trillion yuan (3.3 trillion US dollars), Xiao pointed out. China\u2019s credit machine is out of control in other words, and is also producing smaller and smaller returns. According to Morgan Stanley, five years ago it took\u00a0one yuan of credit to generate one yuan of gross domestic product (GDP), but nowadays it costs four yuan of credit to create a yuan of GDP.<\/p>\n

While promoting market liberalisation, the new leaders and especially Xi Jinping have dispelled any speculation that they might relax the state\u2019s political controls. Far from it, Xi\u2019s first year in power has seen a sharpening of media censorship and state repression against regime critics, outspoken bloggers, and national minorities such as the Tibetans and Uighurs. Xi Jinping\u2019s mission is to reform and refine the CCP\u2019s dictatorial \u2018state capitalist\u2019 model, to better serve the new super-rich elite, rather than to abolish it. Accordingly, he has ruled out \u201cWestern\u201d democratic reforms and taken measures to increase the dictatorship\u2019s powers. While it cannot be ruled out that Xi may later ease repression and possibly make some peripheral concessions such as releasing some dissidents, on the core issue of maintaining one-party dictatorship his stance is clear.\u00a0\u201cFor sure, Xi will not be China\u2019s Gorbachev,\u201d noted China expert\u00a0Robert Lawrence Kuhn referring to the last leader of the USSR.\u00a0As socialists have repeatedly stressed in contradistinction to the liberal political reform camp with their endless illusions, only mass struggle from below can achieve democratic change, not doomed appeals to the CCP tiger to change its stripes.<\/p>\n

\"Third-Plenum\"<\/a><\/p>\n

Markets happy<\/strong><\/p>\n

While initially liberal and capitalist commentators were dissatisfied with the outcome of the plenum and its \u201clack of specifics\u201d, their mood improved dramatically once the regime published a more detailed reform blueprint. Some commentators speculate the release of this document (on Friday 15 November, three days after the plenum closed) outlining some 60 specific proposals was done deliberately to reverse the negative reaction on financial markets. The 20,000-word document, dubbed by the media as \u201creform 2.0,\u201d\u00a0\u00a0included key phrases such as \u201cThe core issue is to handle the relationship between government and the market\u201d and \u201cvigorously develop a mixed-ownership economy.\u201d The reaction to this from China\u2019s left-wing circles expressed in a flood of internet comments from socialists, Maoists and other anti-capitalist layers, is rightly very negative. A word search of the document is highly instructive: \u201ccommunist\u201d is used zero times, \u201cworkers\/working class\u201d zero times, \u201cmarket\u201d appears 80 times. The credit rating agency Moody\u2019s said the change in the CCP\u2019s language was \u201csymbolic of a deeper shift in China\u2019s governance philosophy.\u201d<\/p>\n

Global capitalism is clearly impressed. This is shown by big gains on the stock markets in Shanghai, Hong Kong, and across Asia. The World Bank\u2019s President Jim Yong Kim hailed the plenum\u2019s proposals as \u201cextremely positive,\u201d while Bloomberg said the meeting \u201cwent way beyond most expectations.\u201d The Economist called the plenum document,\u00a0\u201cthe\u00a0most striking plans for reform in two decades.\u201d\u00a0In the view of Arthur Kroeber, writing for the US think tank Brookings, \u201cthe reform program reveals Xi Jinping as a leader far more powerful and visionary than his predecessor Hu Jintao.\u201d<\/p>\n

Before we look at the specific policy proposals to come out of the meeting and discuss how likely or not is their actual implementation, we must first realise these are not the most significant outcome of the plenum meeting. They are overshadowed by the shift of power within the regime that the plenum signifies, concentrating much more power in the hands of Xi Jinping and, at least in outline, reining in the powers of local governments. Specifically, this concerns the setting up of two new bodies that could mark a decisive departure from the past.<\/p>\n

First is the \u2018leading group for overall reform\u2019 tasked with overseeing what the state-run China Daily described as \u201cthe revolution of reform.\u201d Second is the establishment of a \u2018state security commission\u2019 modelled on the US National Security Council, citing rising tensions with Japan (the Japanese government had only recently discussed setting up a similar committee) and increased threat of terrorist attacks, pointing to October\u2019s Tiananmen Square suicide attack. While the exact make-up and leadership of the new bodies is yet to be announced, they will ultimately be under Xi\u2019s control, allowing him to override existing government bodies and structures. These new committees focus on two key elements of Xi\u2019s governance agenda: increased nationalism playing on perceived threats from \u201canti-China forces,\u201d and his desire to push forward neo-liberal economic reforms in the face of resistance at different levels of the state, especially in the regions.<\/p>\n

With this development, Xi is departing from the practice of the past 20 to 30 years and attempting to re-centralise, by transferring key areas of control from the regions, where most economic policies are actually enacted, back to the central CCP leadership. Within this recentralisation, a key element is the concentration of ever greater powers in Xi\u2019s own hands. \u201cPut all this together and it indicates that Xi Jinping now controls the military, the police, public security, discipline [i.e. anti-corruption], foreign affairs and the economy,\u201d noted Oliver Barron of Forbes magazine. \u201cThis means that Xi Jinping has now consolidated all relevant power bases in China, drawing parallels to former Chinese leaders Deng Xiaoping and Mao Zedong, as well as his Russian counterpart, Vladimir Putin.\u201d [Forbes Asia, 13 November 2013]<\/p>\n

Bonapartism<\/strong><\/p>\n

This represents a major power shift within the Chinese state, a process that began with the intense power struggle leading up to last year\u2019s 18th CCP Congress, as we have analysed previously on chinaworker.info (see our article What changes can we expect from Xi Jinping?<\/em><\/a>\u00a0) The congress concentrated more power in Xi\u2019s hands, producing a smaller Politburo Standing Committee, while also shifting representatives of the princelings (the heirs of former CCP leaders), including Xi himself, into key positions. Xi has set about consolidating his position by balancing between the different power blocs and factions within the CCP. One factor, which he has exploited to his advantage, is the fear within all factions of \u2018mutually assured destruction\u2019 and the collapse of the state if the internal power struggle is allowed to rage unchecked.<\/p>\n

This shifting balance of power is now further confirmed by the outcome of the Third Plenum. Xi is breaking from the \u2018collective leadership\u2019 model of his predecessors and attempting to impose a more personal Bonapartist style of rule. \u201cMr Xi is trying to short circuit a system that has been corroded by perverse incentives and rampant corruption,\u201d commented Jamil Anderlini, the Beijing bureau chief of the Financial Times. This path is fraught with political dangers, however, underlining the seriousness of the internal crisis within the Chinese state and regime. As we explained on chinaworker.info in 2011, describing the previous internal status quo:<\/p>\n

\u201cChina manifests a peculiar form of \u2018Bonapartism\u2019 \u2013 by committee, rather than in the person of a \u2018strongman\u2019. This too is not accidental. The experience of Mao\u2019s rule and also Deng Xiaoping\u2019s, with erratic swings and accompanying social upheavals, produced the current \u2018compromise\u2019 system, in which the powers of the leading group are subject to \u2018checks and balances\u2019, realised through an exhaustive process of negotiations and trade-offs between factions, provincial governments and business-based clans.\u201d [China: Repression or \u2018reform\u2019?<\/em> 11 July 2011]<\/p>\n

This collective leadership model reached its highest expression during the Hu Jintao era, 2002-12, characterised by Hu\u2019s cautious style. But Hu is now regarded as a weak, indecisive leader, and his rule is scornfully known as the \u201clost decade\u201d. During this time the CCP-state suffered a form of political \u2018gridlock\u2019 \u2013 not completely unlike the notorious dysfunction of Washington\u2019s institutions, but of course with \u2018Chinese characteristics\u2019. The Hu years are also seen by the economic reform camp, which includes Xi and the new CCP leaders, as a period when the pro-capitalist \u2018structural adjustment\u2019 agenda slowed and even went into reverse. Xi wants to break this stalemate by concentrating more power at the centre, to crack the whip over recalcitrant regions, unilateralist economic sectors, and so-called \u2018vested interests\u2019 that are seen as blocking reform. Whether this can be achieved remains to be seen. When capitalist economists predict a \u201cbumpy ride\u201d for China\u2019s economic reform programme they focus on the economic headwinds (such as slower growth, rising defaults, and factory closures), but inter-regional tensions and conflicts with the centre will also become more intense.<\/p>\n

As we have explained, Xi\u2019s anti-corruption campaign, targeting some top \u2018tigers\u2019 and not only low-level \u2018flies\u2019, is part of this political strategy to impose greater discipline on an increasingly anarchic and unwieldy governmental apparatus. Similarly, his pseudo-Maoist \u2018mass line\u2019 and \u2018self criticism sessions\u2019 for regional leaderships (described as \u2018self-praise sessions\u2019 by astute bloggers) are aimed at reasserting the centre\u2019s control. Xi has spoken of \u201cputting power in a cage.\u201d A few Maoist rituals are being revived, but crucially these avoid Mao\u2019s habit of leaning on the masses to go around the state bureaucracy when this suited him. Xi\u2019s aim is to strengthen the party-state\u2019s monopoly over politics, and to this end he is clamping down on possible challenges, for example by jailing independent anti-corruption campaigners and \u2018whistleblowers.\u2019<\/p>\n

\"Xi<\/a><\/p>\n

Beijing versus the regions<\/strong><\/p>\n

\u201cChina is mostly run by the Mayors,\u201d a top Chinese banker explained, referring to provincial, city and local CCP leaders. The vast majority of decisions on industrial development and infrastructure are taken in the regions. This is a key factor behind the rapid GDP growth of the past decades, but has also fuelled monumental corruption and a debt crisis that could ultimately lead to a banking meltdown and threaten the CCP\u2019s rule.<\/p>\n

Unprecedented levels of industrial overcapacity are also tied to the refusal of regions to follow orders to close unnecessary or inefficient plants. Widespread economic protectionism exists between provinces and regions, which prioritise and protect their own industries rather than submitting to national decisions. When Bo Xilai was in charge of Chongqing, all the local organs of state power such as the police, courts and propaganda department, were answerable to him, and were even used to bug the phone calls of national leaders. It was this development of a semi-autonomous power base, recalling China\u2019s warlord past,\u00a0and his\u00a0refusal to toe the central government\u2019s line, which landed Bo a life sentence, as a warning to other provincial leaders not to challenge the centre. Here there are some parallels with what Xi is now doing and the crackdown on Russian oligarchs launched in the early years of Vladimir Putin\u2019s rule.<\/p>\n

There is no originality in the policies of Xi Jinping. His first year in office shows a pattern of recycling the policies and methods of previous leaders (even borrowing a few tricks from Bo Xilai). This is the case with his tributes to Mao, which do not contain an iota of \u2018leftism\u2019. This pseudo-Maoism is about defending the system of one-party rule against calls for change. In a speech earlier this year Xi declared, “to completely negate Mao Zedong would lead to the demise of the Chinese Communist Party and to great chaos in China.” More than Mao, Xi has borrowed from Deng Xiaoping who combined a decisive turn to capitalist polices with a steadfast defence of dictatorial rule. \u201cChina\u2019s President Xi Jinping is assuming the mantle of Deng Xiaoping, who oversaw both huge economic changes and the Tiananmen crackdown,\u201d commented the South China Morning Post.<\/p>\n

Xi has even recently been compared to another princeling, Chiang Ching-kuo, the son and successor to Chiang Kai-shek. But whereas Chiang the younger presided over a dismantling of the Kuomintang dictatorship in Taiwan, this is not Xi\u2019s agenda. Chiang Ching-kuo did however launch a campaign to bring down corrupt \u2018tigers\u2019 in the final years of Kuomintang rule in China. This campaign was abandoned on the orders of his father, and as we know that regime could not be saved.<\/p>\n

The tug-of-war between the centre and regions is a key factor behind the setting up of the special \u2018leading group\u2019 on economic reform. This is clearly intended to bypass the National Development and Reform Commission (NDRC), China\u2019s main planning body, which is seen as being too beholden to local government interests. For years, liberals have criticised the NDRC as an obstacle to economic reform.<\/p>\n

Through the new committee Xi seems to want authorship of the main economic reform measures, effectively demoting Premier Li Keqiang, who formally is the leading official in charge of economic policy. Li is officially number two in the CCP\u2019s hierarchy, and the leading representative of Hu Jintao\u2019s non-princeling tuanpai<\/em>\u00a0faction. Significantly, the official Xinhua report of the plenum\u2019s final document named Xi 21 times, for leading the task force that drafted the document (assisted by Liu Yunshan and Zhang Gaoli), but it did not mention Li Keqiang at all. This has sparked speculation about Li\u2019s fate and a possible power struggle over economic policy between the two senior figures in the regime. Whether or not this is the case remains to be seen. But it is a fact that every previous leadership constellation over the past two decades has contained an influential premier in charge of the economy \u2013 Hu had Wen Jiabao, Jiang Zemin had Zhu Rongji, and even Deng in the 1980s delegated much of the economic management to Zhao Ziyang.<\/p>\n

Unchartered territory<\/strong><\/p>\n

Xi\u2019s establishment of a state security commission achieves something that former leader Jiang Zemin tried and failed to do, due to resistance especially from the military. The new commission\u2019s aim is to unify and better coordinate what today is a fragmented system by bringing defence, intelligence, diplomacy and internal security under one roof. This also shows the CCP leadership is preparing for the twin scenarios of war and revolution. The commission will include sub-groups overseeing Tibet and Xinjiang, where a state of de facto martial law has existed for the past 4 to 5 years, as well as\u00a0Taiwan and Hong Kong, where the CCP is also preparing for major confrontation. Above all, the threat of workers\u2019 and peasants\u2019 struggles developing from localised protests into a nationwide challenge is the regime\u2019s\u00a0biggest fear.<\/p>\n

Many commentators are now judging Xi the \u2018strongest leader\u2019 since Deng.\u00a0\u201cChina has not seen a leader who has allocated so much power to himself since Deng Xiaoping,\u201d said Hong Kong-based liberal commentator Willy Lam. \u201cWe are seeing a departure from the collective leadership under Hu and Jiang and a return to the strongman politics under Deng. In fact, Xi is looking like a really power-hungry person.\u201d<\/p>\n

But Xi\u2019s \u2018strength\u2019 has yet to be tested outside the elitist power structures of the CCP. This process shows that the Chinese regime and economy have entered unchartered territory. The cautious approach that characterised the Hu era has given way to Xi\u2019s \u201cbold measures\u201d \u2013 but these involve high risks and a much bigger possibility of reversals that can shake the regime and it\u2019s leader\u2019s authority.<\/p>\n

As we have explained, the economic reform \u2018cure\u2019 could prove worse than the \u2018disease\u2019. Accelerated financial reform heightens the risk, as the June liquidity crisis showed, of the very banking failures the regime hopes to forestall. Other aspects of the reform plan can also backfire spectacularly. If neo-liberal remedies are the answer, why are the US and European economies in such a deep crisis? The centralisation of power also increases the risks of social explosions \u2013 such is the law of all Bonapartist regimes \u2013 with new movements of the working class, rural poor and oppressed minorities dovetailing with increasing tensions within the ruling elite and the state. The concentration of personal power within the CCP dictatorship is a symptom of deep crisis, reflecting the build-up of explosive social tensions. The leaders of the regime, haunted by the spectre of regime collapse, and pressured by a faltering economy, are putting their hopes in a \u2018strongman\u2019 to deliver them from this crisis. Like the other changes signalled by the plenum this decision could blow up in their faces.<\/p>\n

Below we look at some of the specific reform proposals to emerge from the Third Plenum.<\/p>\n

Banking sector reform<\/strong><\/p>\n

This is one area that especially delights global capitalism. The plenum agreed to speed up the process whereby interest rates are set by market forces rather than government fiat. With the increased risk that some, especially smaller regional banks, could collapse, there will be a new deposit insurance scheme similar to existing schemes in Western economies. New rules will allow private and foreign-owned banks to play a bigger role in China. The aim is to make the pricing of capital more efficient by using market pressure, ending the era of cheap credit and shrinking the current dangerous debt burden.<\/p>\n

But this will translate into less investment, lower economic growth rates, and falling profits as companies, including the major state-owned corporations, pay higher interest rates. The new deposit insurance scheme will replace \u2013 in a more restricted form \u2013 today\u2019s de facto all-inclusive insurance scheme where savers assume that as the state owns the banks their savings are \u201csafe\u201d. Although this is not spelt out to the general public, the new scheme is therefore a preparatory step, in order to avoid bank runs, to allow a number of heavily exposed smaller banks and shadow entities to collapse as part of an unavoidable banking sector shakeout. In this process the government will concentrate on shoring up the largest \u201ctoo big to fail\u201d\u00a0financial institutions. The opening to foreign capital is to allow these investors to pick over the leftovers from this banking sector shakeout.<\/p>\n

One-child policy<\/strong><\/p>\n

As we predicted on chinaworker.info, the Third Plenum announced a small relaxation in China\u2019s strict birth control polices. While this may be followed by further relaxation, the current proposals are so limited that the National Population and Family Planning Commission has disputed the use of the term \u201crelaxation\u201d. Couples will be allowed to have a second child if one partner is an only child. This only applies in cities as rural couples can already have a second child if their first-born is a girl. The change affects around 15-20 million women in China, of which around half are thought likely to want a second child. The cost of raising a child in China\u2019s cities, especially school fees and housing costs, is astronomical. A study by Renmin University found that more than 90 percent of rural couples in Jiangsu province favour having only one child. The new rules will be phased in and are likely to start in wealthier eastern regions where the birth rate is lowest.<\/p>\n

This measure enables Xi to win some easy popularity \u2013 to sugar the pill of an otherwise toxic pro-business reform plan.\u00a0The economic rationale for a higher birth rate is to stimulate consumption and to correct a demographic trend whereby China\u2019s working age population has begun to fall, from 75.5 percent in 2011 to 74.4 percent in 2012. A shrinking labour force increases the bargaining power of workers, and complicates the reformers\u2019 plans to introduce greater wage competition and increased exploitation. But the effects of the rule change will not be felt for many years. Despite this, when the news was announced there was an immediate rush by speculators into the stocks of Chinese companies making baby formula and diapers.<\/p>\n

In a second part of this statement we will look at the proposals for land privatisation, urbanisation, abolition of the laojiao<\/em> labour camp system and currency controls.<\/p>\n","protected":false},"excerpt":{"rendered":"

Xi Jinping\u2019s shift from dictatorship-by-committee to new \u2018paramount leader\u2019 is a high-risk strategy Editorial statement from chinaworker.info \u201cMore market, less freedom, and much more power to Xi Jinping\u201d \u2013 this was the verdict of Beijing-based journalist Ola Wong, on the decisions of the recently concluded third plenary meeting of the CCP\u2019s 18th Central Committee. Third […]<\/p>\n","protected":false},"author":33,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"tdm_status":"","tdm_grid_status":"","footnotes":""},"categories":[132,124],"tags":[],"class_list":{"0":"post-5163","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-china","7":"category-news"},"yoast_head":"\nChina\u2019s Third Plenum: More market, more dictatorship - China Worker<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/chinaworker.info\/en\/2013\/11\/22\/5163\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"China\u2019s Third Plenum: More market, more dictatorship - China Worker\" \/>\n<meta property=\"og:description\" content=\"Xi Jinping\u2019s shift from dictatorship-by-committee to new \u2018paramount leader\u2019 is a high-risk strategy Editorial statement from chinaworker.info \u201cMore market, less freedom, and much more power to Xi Jinping\u201d \u2013 this was the verdict of Beijing-based journalist Ola Wong, on the decisions of the recently concluded third plenary meeting of the CCP\u2019s 18th Central Committee. 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