Chinese President Xi Jinping's anti-corruption
campaign is the broadest and deepest effort to purge, reorganize and rectify
the Communist Party leadership since the death of Mao Zedong in 1976 and the
rise of Deng Xiaoping two years later. It has already probed more than 182,000
officials across numerous regions and at all levels of government. It has
ensnared low-level cadres, mid-level functionaries and chiefs of major
state-owned enterprises and ministries. It has deposed top military officials
and even a former member of the hitherto immune Politburo Standing Committee,
China's highest governing body. More than a year after its formal commencement
and more than two years since its unofficial start with the downfall of Chongqing Party Secretary Bo Xilai,
the campaign shows no sign of relenting.
It is becoming clear that this campaign is
unlike anything seen under Presidents Jiang Zemin and Hu Jintao. Both carried
out anti-corruption drives during their first year in office and periodically
throughout their tenures as a means to strengthen their position within the
Party and bureaucracy and to remind the public, however impotently, that
Beijing still cared about its well being. But that was housekeeping. This
appears to be different: longer, stronger, more comprehensive and more
effective.
With this in mind, we ask: What is the
fundamental purpose of Xi's anti-corruption campaign? An attempt to answer this
question will not tell us China's political future, but it will tell us
something about Xi's strategy -- not only for consolidating his personal
influence within the Party, government and military apparatuses, but also and
more important, for managing the immense social, economic, political and
international pressures that are likely to come to a head in China during his tenure. Getting to
the heart of the anti-corruption campaign -- and therefore understanding its
inner logic and direction -- provides insights on the organization and
deployment of political power in China and how those things are changing as the
Party attempts to remake itself into an entity capable of ushering China safely
through the transformation and crises to come.
The Campaign Continues
The announcement July 29 of a formal investigation into retired Politburo Standing Committee member Zhou Yongkang marked something of an end to the first
major phase of Xi's anti-corruption campaign. By all accounts, Zhou was one of
the most powerful men in China throughout the 2000s. During his tenure on the
Standing Committee, Zhou controlled the country's domestic security apparatus,
a pillar of the Chinese government's power. Prior to that, he had served as
Party secretary of Sichuan province, an important inland industrial center and
breadbasket with historically strong regionalist tendencies. And before
Sichuan, Zhou chaired state-owned China National Petroleum Corp., the country's
most powerful energy firm and the direct descendent of the Ministry of
Petroleum. Zhou was known to sit at the apex of at least these three power
bases, and his influence likely extended deep into many more, making him not
only a formidable power broker but also, at least in the case of his oil
industry ties, a major potential obstacle to reform. Certainly, Zhou and
his vast networks of influence and patronage were not the sole targets of the
Xi administration's crackdown, but he and his associates, including former
Chongqing Party Secretary Bo Xilai, widely seen as an early competitor of Xi,
formed its central axis.
Now begins another phase. There are indications that it will center on the military. There are other signs that it will target Shanghai, the primary power base of Jiang Zemin and the locus of financial sector reform in China. Further neutralization of Zhou's allies in energy and public security will likely be necessary, too, as the Xi administration seeks to accelerate market-oriented reforms in the oil and natural gas sectors and to reinforce its internal security footprint in peripheral regions like Xinjiang as well as the Han Core. But ultimately, it is unclear which individuals and networks will anchor the next phase. The possibilities are as numerous as the Xi administration's myriad near- and medium-term policy goals.
The question of who or what will be targeted
next is subordinate to that of why. Not why, specifically, they will be
targeted, but why the campaign must and will continue. This brings us back to
our question regarding the fundamental purpose of the anti-corruption campaign.
It may be impossible to divine, beyond mere speculation, its future on a
tactical level -- that is, what will come in three, five or eight months' time.
But the direction of the campaign so far, combined with other actions by Xi,
such as the formation of a unified National Security Council chaired by Xi
himself and his apparent wresting of the reins of economic and social reform
from Premier Li Keqiang, suggest that some other and deeper shift is underway,
one for which the anti-corruption campaign is at once a vehicle and a symptom.
Stratfor believes this shift involves nothing less than an attempt to rework
not only the way the Communist Party operates but also the foundations of its
political legitimacy.
To understand why, we look first not at Xi and
what he has done thus far but at China and what it will undergo over the next
decade. This will give us a sense of the external constraints and pressures of
which Xi's administration is no doubt aware and to which it has no option but
to respond. These constraints and pressures, more than any other factor, will
shape Xi's actions and the Communist Party's evolution in the years to come.
A World Constrained
Over the next decade, the defining constraints
on China will emanate from within. They are fundamentally economic in nature,
but they cannot be disassociated from politics and society.
China is in the midst of an economic
transformation that is in many ways unprecedented. The core of this
transformation is the shift from a growth model heavily reliant on low-cost,
low value-added exports and state-led investment into construction to one
grounded in a much greater dependence on high value-added industries, services
and above all, domestic consumption. China is not the first country to attempt
this. Others, including the United States, achieved it long ago. But China has
unique constraints: its size, its political system and imperatives, and its
profound regional geographic and social and economic imbalances. These
constraints are exacerbated by a final and perhaps greatest limit: time. China
is attempting to make this transition, one which took smaller and more
geographically, socially and politically cohesive countries many decades to
achieve, in less than 20 years.
The bulk of this work will take place over the
next 10 years at most, and more likely sooner, not because the Xi
administration wants it to, but because it must. The global financial crisis in
2007-08 brought China's decadeslong export boom cycle to a premature close. For
the past six years, the Chinese government has kept the economy on life support
in the form of massively expanded credit creation, government-directed
investment into urban and transport infrastructure development and, most
important, real estate construction. In the process, local governments, banks
and businesses across China have amassed extraordinary levels of debt.
Outstanding credit in China is now equivalent to 251 percent of the country's
gross domestic product, up from 147 percent in 2008. Local governments alone
owe more than $3 trillion. It is unknown -- deliberately so, most likely --
what portion of outstanding debts are nonperforming, but it is likely far
higher than the official rate of 1 percent.
Despite claims that China's investment drive
was and is irresponsible -- and certainly there are myriad anecdotal cases of
gross misallocation of capital -- it nonetheless fulfills the essential role of
jumpstarting the country's effort to "rebalance" to a new, more urban
and more consumption-based economic model. But the problem, again, is time.
China's real estate sector is slowing. Sales, home prices and market sentiment
are falling, even in the face of continued expansion of the overall credit
supply. The days of high growth in the housing construction sector are numbered
and prices, along with overall activity, are on a downward trend -- one that
can and will be hedged by continued high levels of investment and credit
expansion, but not one that can be stopped for long. Real estate and related
construction activity will remain the crucial component of China's economy for
the foreseeable future, but they will no longer be the national economic growth
engines they were between 2009 and 2011.
This means that in the next few years, China
faces inexorable and potentially very rapid decline in the two sectors that
have underpinned economic growth and social and political stability for the
past two or more decades: exports and construction. And it does so in an
environment of rapidly mounting local government and corporate debt, rising
wages and input costs, rising cost of capital and falling return on investment
(exacerbated by new environmental controls and efforts to combat corruption)
and more. Add to these a surge in the number of workers entering the workforce
and beginning to build careers between the late 2010s and early 2020s, the last
of China's great population boom generations, and the contours emerge of an
economic correction and employment crisis on a scale not seen in China since
Deng came to power.
The solution, it would seem, lies in the
Chinese urban consumer class. But here, once more, time is China's enemy.
Chinese household consumption is extraordinarily weak. In 2013, it was
equivalent to only 34 percent of gross domestic product, compared to 69-70
percent in the United States, 61 percent in Japan, 57 percent in Germany and 52
percent in South Korea. In fact, it has fallen by two percentage points since
2011, possibly on the back of the anti-corruption campaign, which has curbed
spending by officials that appears to have been erroneously counted as
private consumption. There is reason to believe that household consumption is
somewhat stronger than the statistics let on, but it is not nearly strong
enough to pick up the slack from China's depressed export sector and depressive
construction industries. China's low rates of urbanization relative to advanced
industrial economies underscore this fundamental incapacity.
Whatever the Chinese government's stated reform
goals, it is very difficult to see how economic rebalancing toward a consumption-
and services-based economy succeeds within the decade. It is very difficult to
see how exports recover. And it is very difficult, but slightly less so, to see
how the government maintains stable growth through continued investment into
housing and infrastructure construction, especially as the real estate market
inevitably cools. This leaves us with a central government that either accepts
economic recession or persists in keeping the economy alive for the sake of
providing jobs but at risk of peril to its reform initiatives, banks and local
governments. The latter is ugly and very likely untenable under the current
political model, which for three decades has staked its claim to legitimacy in
the promise of stable employment, growth and rising material prosperity. The
former is absolutely untenable under the current political model.
The pressures stemming from China's economy --
and emanating upward through Chinese society and politics -- will remain
paramount over the next 5-10 years. The above has described only a very
small selection of the internal social and economic constraints facing China's
government today. It completely neglects public anger over pollution, the
myriad economic and industrial constraints posed by both pollution and pervasive
low-level corruption, the impact of changes in Chinese labor flows and
dynamics, rising education levels and much more. It completely neglects the
ambivalence with which many ordinary Chinese regard the Communist Party
government.
It also neglects external pressures and risks,
whether economic or military. What would another global economic crisis and
recession do to China's already hobbled export sector? What would a prolonged
spike in oil prices -- the result, perhaps, of deepening crises in Russia or Iraq
-- mean for Chinese industry and its change to China's growing army of car
drivers? What impact will structural changes in the East Asian and world
systems, such as Japan's attempt at a national economic and military revival,
have on China's overseas economic and maritime interests, or on Chinese
society's confidence in the strength of its military and government? The
potential risks, many of them of moderate to high probability, are legion. It
takes only one to materialize to dramatically reduce the likelihood that the
Communist Party, as currently constituted, survives China's transformation.
The Old Model Breaks Down
Xi knows this. He and his advisers know China's
virtually insurmountable challenges better than anyone. They know how little
time China has, how fragile the Party's political legitimacy -- its claim to
the Mandate of Heaven -- has become over the past three decades and how great
the consequences of inaction will be. But they also know how much potentially
greater are the consequences of failure. Knowing all these things, they are
acting to reconstitute the Party one cautious step at a time.
The anti-corruption campaign is one of those
steps. It serves many overlapping functions: to clear out potential opponents,
ideological or otherwise; to consolidate executive power and reduce
bureaucratic red tape so as to ease the implementation of reform; to remind the
Chinese people that the Communist Party has their best interests at heart; and
to make it easier to make tough decisions.
Underlying and encompassing these, we see the
specter of something else. The consensus-based model of politics that Deng built in
order to regularize decision-making and bolster political stability during
times of high growth and that effectively guided China throughout the post-Deng
era is breaking down. It can no longer hold in the face of China's
transformation and the crises this will bring. Simply put, now that its
post-1978 contract with Chinese society -- a social contract grounded in the
exchange of growth for stability -- is up, the Party risks losing the public
support and political legitimacy that this contract undergirded. A new and more
adaptive but potentially much less stable modelis being erected,
or resurrected, from within the old. This model is grounded more firmly in the
personality and prestige of the president and more capable, or so Chinese leaders
seem to hope, of harnessing and managing the Chinese nation through what could
well be a period of turmoil.
This does not necessarily mean a return to
Imperial China, nor does it mean a return to the days and methods of the Great
Helmsman, Mao. It doesn't even mean the new model will succeed, even remotely.
What it means will be decided only by the specific interplay of structure and
contingency in the unfolding of history. But it is this transformation that
serves as the fundamental, if latent, purpose for Xi's anti-corruption
campaign.
Editor's Note: Writing in George Friedman's stead
this week is Stratfor Asia-Pacific Analyst John Minnich.
"The End of Consensus Politics in China is republished with permission of
Stratfor.", August 5, 2014
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