Thoughts from the Chairman: Strong Political Crosscurrents in Beijing Sharpening Focus on Fall Plenum

Freeman Report l Issue 10 l May 2013

These are humbling times for those of us engaged in the enterprise of prognosticating on the future trajectory of China’s political and economic development. This month alone, we have seen several conflicting signals regarding the overall policy direction of the newly-installed administration of President and Chinese Communist Party (CCP) General Secretary Xi Jinping. Depending on which of these signals one chooses to focus on, and how one interprets them, it is entirely conceivable to form one of several equally defendable judgments concerning the current state-of-play in the Middle Kingdom.

For example, is what we are seeing simply part and parcel of a well-crafted strategy—“top-level design” in CCP propaganda parlance—by the senior Chinese leadership to navigate the substantial domestic impediments to embarking on a new wave of (at least economic) reform? Or are we instead witnessing genuine “pushback” from some in the system who do not want to see the country chart a more reformist course? If the latter, who are these more orthodox forces, and more importantly, does their resistance campaign suggest the potential for policy discord within the top leadership ranks going forward?
Regrettably, the normal rhythms of the Chinese political cycle, along with the black box of Chinese leadership decisionmaking, suggest the chances are quite high that answers to these questions likely will remain elusive in the coming months and the picture may become murkier still. Fortunately, however, the Third Plenum of the 18th Central Committee, expected sometime this fall, will act as a forcing function to clarify the situation in important ways. This does not mean we should necessarily be anticipating grand revelations—or even watershed decisions—at the plenum because the leadership still calculates it has time to play the long game. But we can expect the meeting to provide more reliable clues, if not solid answers, concerning certain fundamental questions about the new leadership team and its intentions.
Before exploring those questions it is useful to take stock of developments that are either overtly visible or are in wide circulation after presumably being leaked from somewhere inside the system. In the latter category, several accounts have appeared in both Western and Chinese media indicating that the leadership has formed what amounts to a task force to prepare a blueprint for reform to be adopted at the Third Plenum. The group reportedly is headed by Liu He, who serves as a vice chairman of the powerful National Development and Reform Commission and also manages the day-to-day workings of the CCP’s policy-shaping Central Financial and Economic Leading Group. In addition, Liu gained some international notoriety with his role in crafting the “China 2030 report” with the World Bank, which advocated the acceleration of market-driven change.
According to the media accounts, Liu is consulting with other prominent Chinese economists to focus on seven major priorities for consideration at the plenum: financial reforms aimed at interest and exchange rate liberalization, fiscal reforms designed in part to stabilize local government finances, changes to China’s problematic land practices, promoting urbanization through a revamp of the “hukou” residency permit system, reducing the rural-urban income gap, eliminating cumbersome administrative approval procedures, and marketizing prices for key industrial inputs, especially energy. If accurate, such a plan reflects a truly remarkable agenda. Still, notably absent from the list is any mention of the elephant in the room—the role of state-owned enterprises (SOEs)—which apparently has been deemed too sensitive to even attempt. Avoiding the SOE problem entirely would seem to seriously hinder the prospects for meaningful reform in several of the above areas, as SOEs are key stakeholders on many of the issues Liu’s group is trying to tackle. 
Premier Li Keqiang may have had such concerns in mind when delivering a speech to a nationwide teleconference on May 13 in which he emphasized the role of the market, as opposed to additional government-led stimulus, in spurring fresh economic growth. The Chinese government followed up in less than a fortnight by issuing a set of broad policy proposals that call for private businesses and market forces to play a larger role in the economy. They include taking modest steps to allow bank interest rates to increasingly be determined by market forces and developing policies to “promote the effective entry" of private capital into finance, energy, railways, and telecommunications, all sectors Li identified in his speech as being subject to an “administrative monopoly” by state-run firms that must be broken.
However, almost in tandem with these developments, the CCP appears to have launched a comprehensive effort to tighten control in the ideological sphere. Paralleling the combination of leaked internal information and public messaging witnessed on the economic front, stories began circulating the week of Li Keqiang’s teleconference speech concerning a secret directive from the CCP General Office—the Party’s administrative nerve center—warning officials to combat corrosive Western values and other perceived ideological threats to CCP rule. Of note, the document instructed teaching staff in universities to avoid mention of seven specific topics, the same number of reform priorities being studied by Liu He’s working group. The directive banned any discussion of universal values, freedom of the press, civil society, civic rights, past mistakes of the Communist Party, elite cronyism, and judicial independence.
A second, more public salvo emerged later in the month, with several CCP-affiliated publications running missives condemning calls for “constitutional rule” in China. Some CCP liberals have seized on the concept of constitutional rule to promote the advancement of basic human rights guaranteed in the Chinese constitution, or even to use it as cover for promoting broader political reform. The orthodox articles attacked such notions as the hapless musings of “a group of misled intellectuals,” dismissing them as instruments of “capitalism and bourgeois dictatorship” and “not suitable for socialist countries.”
So what can we say lies behind the CCP’s borderline schizophrenia in recent weeks? Two principal explanations have emerged in mainstream media and analytic commentaries discussing this phenomenon. One school maintains that the new leadership is simply falling in line with the CCP’s longstanding approach to managing reform—“economics yes, politics no”—while the other posits that the thought crackdown merely reflects the ideological insulation required for the leadership to embark on disruptive reforms before ultimately easing up politically.
However, neither of these assessments appears to muster sufficient explanatory power to accurately depict the current dynamic. The former misses the seeming earnestness of Xi’s and Li’s commitment to reform while also discounting the possible flexibility Xi may have gained with his comparatively rapid consolidation of power. The latter fails to fully take into account Xi’s staunch commitment, as a literal “son of the Party,” to maintaining the CCP’s unquestioned primacy.
How then might the plenum help shed greater light on some of these issues? First, we can expect the meeting’s communique to convey in the most authoritative terms thus far whether or not the Xi-Li administration sees any correlation between economic and political liberalization. Presuming that Xi is indeed in the driver’s seat politically, the plenum may help clarify Xi’s personal stance on some of these controversies as he uses the powers of the party chair to persuade his senior colleagues to “unify thinking” around consensus positions that reflect his priorities to the greatest degree possible. Though much more difficult to discern, the high-stakes nature of these debates suggests the plenum’s outcome may also help tease out any policy daylight among senior leaders, and most particularly between Xi and Li. Against this backdrop, the fall conclave is likely to be one of the more consequential plenums in recent years, whether for what it achieves on reform or for what it reveals about the level of stagnation within the CCP.

Bonnie S. Glaser