- Observer.co.uk,
- Sunday November 17, 2002
Since 1978 when the economic reforms began, the CCP has overseen huge restructuring of the economy. Gone are the agricultural communes and tens of thousands of state-owned enterprises (SOEs). Only price controls for essential foodstuffs and utilities like gas and water remain. The private sector accounts for anywhere between 30% and 60% of the economy, depending on the definition one uses, and the country's trade regime is already impressively liberal. For better or worse KFC is the fast-food of choice of the large middle class in Beijing and Shanghai. China will likely attract more foreign direct investment (FDI) this year than any other country, some $55 billion.
The chief task of Mr Hu and the new boys will be to carry on these reforms without tripping up and sending China into crisis. This will be tricky. The four state banks are insolvent, huge swathes of SOEs are still trying and mostly failing to become globally competitive, and huge sums of capital leaves China illegally each year. In fact, despite the headline FDI figures more capital leaves China now that enters it. That is not a sign of economic strength.
Sorting out such issues is a huge challenge. Are Hu Jintao and his eight colleagues up to it? Fortunately, much of what they are going to do to the economy is pre-ordained by two things: China's membership of the World Trade Organisation (WTO) and the government's growing debt problem.
WTO membership locks China into lowering tariff barriers and dismantling many of the current restrictions on foreign investment over the next four years. Multinationals will soon be soon be investing in everything from telecoms to financial services, from goods distribution to film production.
This is a good thing: the multinationals will make a profit and at the same time there will be more jobs created.
Second, the government needs money. It already has huge liabilities. For instance, the government will have to recapitalise an insolvent banking sector. That is likely to cost anywhere between 20% to 50% of GDP, a huge amount. It also has to fund a national pensions system - from scratch. Pressures on the purse means that it will be forced to sell off more of its assets, including more of its SOEs, and land too in a few years time. As it does so, it will withdraw further from the economy.
But while the direction of change appears set, the pace of reform is up for grabs. And the new line up in the Politburo, the all-powerful committee that runs China, does not encourage confidence that economic reform is going to accelerate, as it needs to do. There are three reasons for this.
First, government by committee is usually bad government. This Politburo is larger than the previous one, and there is now no clear leader to stamp his fist on the table and take a decision. General Secretary Hu does not have that authority.
Second, Hu's Politburo is full of Jiang Zemin's supporters. While Jiang has stepped down from the party leadership he retains control of the military, and foreign policy. And many of his supporters, including Zeng Qinghong, his right hand man, Huang Ju, the former Party chief of Shanghai, and Jia Qinglin, the former head of the party in Beijing, are now in key positions.
This is a problem because Hu Jintao is now going to have a hard time consolidating his power. Rivals will be circling, and any mistake on Hu's part will be pounced on mercilessly. A period of political instability right at the top of the party is likely.
Third, and most worryingly, most of the new Politburo is made up of men chiefly known for their upright political behaviour-they follow the party line above all else. Any thoughts of movement on political reform can be safely shelved. Not only that but a serious concern is that most of them lack expertise in economic matters. None have not displayed any vision at all for what needs to be done.
One notable exception is Wen Jiabao, the man likely to be succeed Zhu Rongji as premier in March next year. Known to be immensely competent, he has much hard-won experience of pushing through positive changes in both the industrial and financial sectors. The danger, however, is that he will find himself a lone voice at a Politburo table crowded with those who want party dominance above policies that would help the economy.
Stephen Green is Head of the Asia Programme, The Royal Institute of International Affairs
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