September 19, 2012

WITH 80 million members implanted in key positions in government, the military, business and the media, China's Communist Party (CCP) strives to exert tighter control over events--and the perception of events--than any other national ruling group. Yet the past year has provided reminders that the party is often trying to catch up with developments beyond its control.

The CCP, for example, has tried to make the choice of new party leadership into a tightly scripted affair, brokered by various factions, with important appointments decided long in advance. Party elders decided five years ago that Xi Jinping, a protégé of former president Xiang Zemin, would become party secretary this fall, heading up the crucial Standing Committee of the CCP's Politburo.

But the ouster in March of Chongqing's popular party secretary Bo Xilai, who seemed destined to join the Standing Committee, cast doubt upon who would end up on the body, while raising fears that the purge could start a factional war inside the party.

Xi Jinping speaking in New Zealand (Luci Harrison)

Party leaders have worked for months in secret to establish a new consensus on personnel questions, but even if the elevation of a new standing committee comes off without a hitch in October, the party faces daunting economic challenges in the short and long term, as well as sharpening conflicts with regional neighbors over the control of offshore islands.

China's increasingly aggressive assertion of sovereignty over islands also claimed by Vietnam, the Philippines and Japan is a sign of China's development as a rising power. Aside from the possible benefits of exploiting underseas resources, China's offshore push is also an implicit challenge to the power that really exerts naval control over the area's shipping lanes--the United States.

At the same time, the current escalation of a conflict over the Diaoyu Islands, which the Japanese call the Senkakus, may go farther than the Chinese intended just now. The timing isn't perfect for a leadership that's been navigating an internal conflict or for Xi Jinping, the president-to-be, who disappeared from sight for two weeks with an "exercise-related back injury."

For about a year, Chinese leaders have tried to outdo each other with tough nationalist rhetoric as the leadership transition approaches. What's more, as the Financial Times noted in August, a turnover in military leadership coincides with the party transition. Generals and military think tanks have competed, like the politicians, to go on record as super-nationalists.

So if the conflict over the Diaoyus/Senkakus does escalate beyond the control of China's rulers, it's partly the unintended consequence of their own competition for career advancement.

CONSIDERING THE CCP's tight connection to Chinese business, you might think that the economy would be one thing that Xi Jinping could succeed in controlling. After all, the state does control the "commanding heights" of the economy--the banks, utilities, telecommunication, mining, steel production, etc.

The party hires and fires the executives of state enterprises, and party committees are set up to influence the major privately held companies. The heads of CCP factions represent not only the peaks of political power, but also control billions of dollars of capital--gained through the party's intimate connection with private and state enterprises.

Nevertheless, China's export-led growth has depended on foreign demand, which is clearly not under Beijing's control. By the mid-2000s, the current President Hu Jintao recognized the need rebalance the economy and base future economic growth more on the domestic market and less on exports--a plan that would direct more of China's total product toward boosting Chinese living standards and less toward reinvestment in ever more productive capacity.

His "scientific development" plan would thus promote a "harmonious society" that narrowed a widening income gap and bought off rising workers' and peasants' struggles with the promise of higher wages and generous social benefits.

Despite the rhetoric, the economy under Hu produced an explosion of exports, an orgy of overinvestment, a still-widening gap between rich and poor, and a surge of strikes, riots and demonstrations that now number in the neighborhood of 200,000 per year.

The Chinese stimulus in response to the 2007-08 financial crisis only cemented the economy's reliance on exports, accelerated the overbuilding of infrastructure and precipitated major speculation in property. Since then, the central government has reined in access to credit in an attempt to cool down the economy and deflate the property bubble as gently as possible.

The new administration will soon face another economic challenge, not from the world economy but from its own officials. Beijing controls the career paths of party chiefs at the provincial, municipal or lower levels, but it does not directly control their economic decisions.

In fact, Beijing provides incentives for lower party officials to overinvest, since advancement in the party hierarchy requires lower officials to maximize economic growth. When a new generation of higher officials takes office, so will a new generation of lower officials--who are planning massive investments to put themselves in a good light. According to the Financial Times:

Already, provincial and municipal governments have unveiled spending plans that total more than $1.6 trillion...[E]ven if the exact targets are not realized, the flurry of announcements highlights the deeper political forces that are at work in China's economy, no matter how much it has developed over the last three decades. "It is like the central government is running a tournament among the local governments based on their GDP figures. Whoever can deliver the best GDP growth will get a promotion later on. So the incentive to invest is definitely there," says Huang Haizhou, chief strategist at...one of the country's top investment banks.

The party's job-performance standards for lower officials could thus thwart the current national goal of moderating growth--only one example of a party machine that has so many "moving parts" that a touch of the levers in Beijing often produces unexpected consequences.

XI JINPING'S control over events will also be limited because he will inherit a Five Year Plan that was drawn up last year. This kind of constraint on individual power is a deliberate attempt to consolidate the party, or at least its top leadership, as a cohesive collective body.

Party analysts concluded in the 1990s that the personal sway of Mao Zedong, or of his immediate successor, Deng Xiaoping, over party policy constituted a danger to the stability of CCP rule. The immediate spur to this conclusion was the collapse of the USSR and the Russian CP following the rise of Mikhail Gorbachev, according David Shambaugh's China's Communist Party: Atrophy and Adaptation.

Hu Jintao and Xi Jinping may seem colorless in comparison to their predecessors--and hemmed in by responsibility to an anonymous top collective--but that's by design.

In this light, we can see that the pretext for the fall of Bo Xilai may be his ethical breaches, but the real reason was his breach of the party's ethos of self-effacement.

Bo was flamboyant and popular, and he used his popularity as leverage against officials who obstructed his policies and power. Since the nightmare of China's Cultural Revolution (1966-1976) under Mao, party officials have tried to keep struggles "inside the family" and avoid appealing to the public over the heads of their peers.

Some commentators see the purge of Bo Xilai as a blow against his "left" policies. As party secretary of Chongqing, a combined urban-rural "municipality" of nearly 30 million, he did spend $15 billion on public housing. He issued 3 million hukou, certificates of family registration that allowed new urban residents access to social services. His ruthless "smash black" campaign apparently cut down on street crime, and he planted thousands of trees.

Bo could also turn a populist phrase. In a widely broadcast debate last year with Wang Yang, the party secretary of Guangdong province, Wang said about distribution of wealth: "One must bake a bigger cake first before dividing it." Bo replied: "Some people think...that one must bake a large cake before dividing it; but this is wrong in practice. If the distribution of the cake is unfair, those who make the cake won't feel motivated to bake it."

Bo's leftist credentials, however, are overstated. He presided over Liaoning province when the first major post-Tiananmen workers' struggles broke out in 2002. He moved to crush the demonstrations, arrested the leaders and had them tortured in jail. Before that, he had made his bones as a loyalist of Jiang Zemin when Jiang launched a brutal crackdown on practitioners of Falun Gong meditation.

Even the "smash black" campaign against organized crime in Chongqing was a selective operation that brought down business people and party members who weren't connected to his own circle. Given the endemic nature of corruption in the Chinese system, any prominent official is vulnerable to prosecution, so "crime-fighting" in China is often simply synonymous with faction fighting.

Bo used his popularity to back up his campaigns against business and party rivals, going so far as to sponsor public sing-alongs of Cultural Revolution "fight songs." Officials in Beijing had to wonder whether he'd be doing the same thing to them and their friends once he got on the standing committee.

THE BREAK in the case of Bo Xilai came when his police chief sought refuge last February in the U.S. consulate in nearby Chengdu. When he emerged into the custody of Chinese officials, the Chinese media publicized his charge that Bo Xilai's wife, Gu Kailai, had murdered a British businessman, Neil Heywood, in November and enlisted Wang in a cover-up.

The international nature of the incident--involving Wang's appeal to U.S. officials, plus the murder of a British citizen--forced the hand of the CCP's top leadership. Their first act was to suspend Bo from his party positions and take him and his wife into custody. Bo has not been seen in public since March. Gu confessed to murder after being held incognito for months, receiving a suspended death sentence in a one-day trial last month. Wang goes on trial this week.

Beijing officials have so far sought to contain their investigations within a narrow scope because the exposure of high officials damages the party's legitimacy--and raises the danger that the accused will retaliate with exposures of his prosecutors. Wang is rumored to have bugged the phone calls of members of the standing committee.

It's not clear whether Bo himself will face criminal charges beyond his internal party punishments. Even if officials hold back on a public trial for Bo, the interrogations of Gu and Wang are sure to have turned up enough dirt on Bo to discourage him from ever trying to make a comeback or counterattack.

Such was the fear of uncontrolled bloodletting inside the party that President Hu Jintao declared last spring that investigations into Bo Xilai's case would touch only Bo and his closest associates. The new party secretary for Chongqing is a former lieutenant of Bo's. And Bo's closest patron in the standing committee, Zhou Yongkang, is keeping his job until the turnover.

What's more, the party sought to display its inner harmony by providing public appearances for aging patriarchs of the various factions. These including Li Peng, who presided over the crackdown in Tiananmen Square in 1989 and was pushed aside in the mid-1990s, and Jiang Zemin, who was president from 1992-2002 and a close associate of Bo Yibo, Bo Xilai's father.