China: Reform May Not Be Coming

Econintersect:  The South China Morning Post has reported that conservatives, following the leadership of former president (1993-2003) Jiang Zemin, will be in firm control of the new Politburo Standing Committee in the government reorganization taking place later this month.  It had been widely assumed that reformers would have significant influence in the new ruling structure.  The Post says that a consensus reached over the summer among current and retired party leaders  has been scrapped because of “rifts within the leadership.”

Ambrose Evans-Pritchard, in The Telegraph, called what is reported to have happened to be “the greatest turn-over of top cadres since Mao’s revolution.”  Evans-Pritchard has the following precise assessment:

From leaks so far, it appears that Guangdong party leader Wang Yang and the national party organisation chief Li Yuanchao have been struck from the Standing Committee.

These were the two rising stars annointed by outgoing President Hu Jintao to carry through the great economic reform, averting the “middle income trap” that lies in wait for any catch-up nation that relies too long on cheap exports, imported technology, and indiscriminate state credit.

Their defeat looks like a triumph for status quo hardliners who claim that tight party control of banks and key industries shielded China from the global capitalist heart attack of 2008-2009. Whether they really believe this — or merely aim to safeguard vested interests — it is arrant nonsense.

There were questions about possible leadership and succession problems in September when the presumed next president, Vice President Xi Jinping, disappeared for more than two weeks without explanation.  After he reappeared unofficial sources indicated he had been resting because of a back injury.

If the conservatives have displaced the reformers from influence in the new government  there may be economic problems for China, according to GEI contributor and China resident and expert Michael Pettis.  Pettis has been saying that rebalancing reform is needed to prevent China from having a Japan-like bubble collapse.  Pettis says this can be avoided if China increases wages and internal consumption and reduces the high level of investment and dependance on exports.

John Lounsbury

Sources:

• Conservatives dominate latest line-up for new Communist Party leadership (Shi Jiangtao Beijing, South China Morning Post, 02 November 2012)

• China’s economic destiny in doubt after leadership shock ( Ambrose Evans-Pritchard, The Telegraph, 07 November 2012)

• China’s next president appears in public for first time in two weeks after mystery over disappearance (Daily Mail Reporter, Mail Online, 15 September 2012)

• Articles on China (Michael Pettis, GEI Analysis)

Hat tip to Roger Erickson.