Xi Jinping's historic power grab in China

[Double Edge]

the Chinese leadership has a very long track record of identifying problems early on, coming up with solutions and then implementing those solutions in a timely manner.

i agree with the above if one goes by the last three decades. There has been progress.

But what are the current problems and proposed solutions ?

My critique of this topic is so far the commentary is superficial. Second guessing without basis.

Your last post reads like a who's who. I don't know these people well enough to appreciate why so and so is better at this post over another.

Consolidation here and there. Re-centralisation or just a re-org

[hboGYT]

Regardless of what anyone (including me) thinks of the actual actions they take, the Chinese leadership has a very long track record of identifying problems early on, coming up with solutions and then implementing those solutions in a timely manner.

I respect you for your vast knowledge. So please, ELI5.

[DOR]

Wow, suddenly, I have more confidence that they know what they're doing.

Regardless of what anyone (including me) thinks of the actual actions they take, the Chinese leadership has a very long track record of identifying problems early on, coming up with solutions and then implementing those solutions in a timely manner.

[hboGYT]

China has provinces much as America has states. And, like in the US, these sub-national bodies carry out much of the work of governing. But, unlike the US, provincial officials are appointed by the central government and – if they perform well – may be promoted to higher office. The prospect of promotion serves as an inducement to follow central guidelines. But, sometimes the leash has to be pulled a bit tighter, and this is one of those times.

Periodically, the top leadership will allow provincial elites to experiment with new policy initiatives. Deng Xiaoping’s famous cat was allowed to catch mice regardless of color, so long as it accomplished that goal. Failing to take initiative can be seen as either resistance to the central leadership, or incompetence.

The most notorious examples of radical decentralization were the Great Leap Forward of the late 1950s and Mao Zedong’s Great Proletarian Cultural Revolution a decade later. Both led to extreme excesses that had to be reined in from the top. This was only possible when those who initially supported the movements – including Mao himself – were weakened by failure.

In the early reform era, provincial leaders such as Wan Li (Anhui) and Xi Zhongxun (Guangdong; the father of Xi Jinping) experimented with radical ideas such as family farms and businesses. Because they were protected by powerful allies at the highest levels, they were safe from attack on charges of reversing socialism and abandoning previous practices. Success provided the proof that the approach favored by Deng and his allies was the better choice.

At some point, power shifts and someone on top decides it’s time to rein in the provinces and recentralize power. This most often happens when there is a change in power relationships at the top. The mechanics of recentralization are well known, and generally involve bureaucratic restructuring and personnel adjustments. Work teams may be sent down from on high to examine local conditions and directly interfere with provincial and even municipal operations.

Reining in the lower levels is an opportunity to remove officials and replace them with people more in tune with the new thinking. This is an excellent time to purge one’s opponents’ loyal underlings and promote friends and close allies. Deng and Hu Yaobang used this technique to great effect in the late 1970s. At the time, provincial revolutionary committees had a dozen or more vice chairman, mainly incompetent radicals. By reorganizing the revolutionary committees into provincial People’s Governments, Deng and Hu were able to dismiss scores of radicals by reducing the number of Vice Governors, and filling those slots with their allies.

The 21st Century version
Under Xi Jinping, much of the work of reining in the provinces has been finished, and it is now time to turn to the central government and major economic sectors. The first major reshuffle was in the armed forces, where powerful regional commands were transformed into theatre commands. Other silos, such as the Second Artillery Force (rockets and nuclear weapons) were split in two. Purging top generals such as Xu Caihou and Guo Boxiong opened the path for promoting his own men. Zhang Youxia, a new Military Affairs Committee vice chair, was the big winner among the men in uniform.

Next on the list is finance, and Xi is now completing his consolidation of the financial regulatory and anti-corruption regime. In the past, these functions have been managed by the Premier or Executive Vice Premier, but Premier Li Keqiang, the 7th man to hold the post, is the weakest since the founding of the People’s Republic of China nearly 70 years ago. The major reform program announced in late 2013 was, for example, designed by Central Party School President Liu Yunshan and [then] Executive Vice Premier Zhang Gaoli, without significant input from Premier Li.

Xi’s point man on the economy is Liu He, and he is likely to be the most powerful economic czar since Zhu Rongji. Or, rather he will be that candidate until he surpasses Zhu’s power. With President Xi no longer bound by tenure traditions, it is likely that Liu will be free to remain on top of the economy for as long as he can do the job effectively.

Liu He comes from a National Development and Reform Commission (NDRC) background, and prior to that, State Planning. He has a Masters of Public Administration from Harvard, an undergraduate degree in industrial economics, and has proven that he knows what he’s doing. First on the list of chores is gutting his old bureaucracy and redistributing parts of it to other organs. The NDRC will shed influence over healthcare, antitrust, agriculture, ‘key national projects’ and environmental matters. Portions of the Commerce Ministry will similarly be relocated to other bureaucracies. In particular, a national market supervision management bureau will be oversee price controls and anti-monopoly law enforcement.

He Lifeng will take over the emasculated NDRC, and offer no challenge to Liu He’s authority. Similarly, Liu Kun, the new Finance Minister, is also a weak policy implementer. Liu Kun's background in Guangdong at a time when Xi Zhongxun (Jinping’s father) ran the province echoes He Lifeng’s experience in Fujian.

The highly respected People’s Bank of China (PBoC) Governor, Zhou Xiaochuan, has been able to put his protégé, Yi Gang, into the top central bank position. This may be partly due to Zhou’s great competence running a part of the economy that is not well understood by generalists. Yi’s background as head of the State Administration of Foreign Exchange (SAFE) and the PBoC Monetary Policy Department shouldn’t cause too much investor concern. Another central banker to watch is Pan Gongsheng, the current SAFE chief. He spent time at Cambridge and Harvard, and is the closest thing China has to a crypto-currency specialist.

Financial sector oversight will be consolidated under China Banking Regulatory Commission Chair Guo Shuqing. Guo is expected to pick up new responsibilities with the merger of other regulators into his balliwick, including insurance. He has a team of anti-corruption experts keeping an eye on things that includes Zhou Liang, Du Jinfu and Xu Jia’ai.

Finally, there’s the new National Supervisory Commission which will be run by politburo member and former Discipline Inspection Commission Deputy Secretary, Yang Xiaodu. Yang is clearly Vice President Wang Qishan’s man, and as such will enjoy very strong political support for his work. His new body extends the party’s anti-corruption work into the non-party sector. Under China’s curious legal structure, party members cannot be tried in court until they have been stripped of party membership. Yang will be in charge of making that call.

(Wang is the second consecutive Vice President to not be a member of the Politburo Standing Committee.)

Wow, suddenly, I have more confidence that they know what they're doing.

[DOR]

The Great Political Centralization Reshuffle

China has provinces much as America has states. And, like in the US, these sub-national bodies carry out much of the work of governing. But, unlike the US, provincial officials are appointed by the central government and – if they perform well – may be promoted to higher office. The prospect of promotion serves as an inducement to follow central guidelines. But, sometimes the leash has to be pulled a bit tighter, and this is one of those times.

Periodically, the top leadership will allow provincial elites to experiment with new policy initiatives. Deng Xiaoping’s famous cat was allowed to catch mice regardless of color, so long as it accomplished that goal. Failing to take initiative can be seen as either resistance to the central leadership, or incompetence.

The most notorious examples of radical decentralization were the Great Leap Forward of the late 1950s and Mao Zedong’s Great Proletarian Cultural Revolution a decade later. Both led to extreme excesses that had to be reined in from the top. This was only possible when those who initially supported the movements – including Mao himself – were weakened by failure.

In the early reform era, provincial leaders such as Wan Li (Anhui) and Xi Zhongxun (Guangdong; the father of Xi Jinping) experimented with radical ideas such as family farms and businesses. Because they were protected by powerful allies at the highest levels, they were safe from attack on charges of reversing socialism and abandoning previous practices. Success provided the proof that the approach favored by Deng and his allies was the better choice.

At some point, power shifts and someone on top decides it’s time to rein in the provinces and recentralize power. This most often happens when there is a change in power relationships at the top. The mechanics of recentralization are well known, and generally involve bureaucratic restructuring and personnel adjustments. Work teams may be sent down from on high to examine local conditions and directly interfere with provincial and even municipal operations.

Reining in the lower levels is an opportunity to remove officials and replace them with people more in tune with the new thinking. This is an excellent time to purge one’s opponents’ loyal underlings and promote friends and close allies. Deng and Hu Yaobang used this technique to great effect in the late 1970s. At the time, provincial revolutionary committees had a dozen or more vice chairman, mainly incompetent radicals. By reorganizing the revolutionary committees into provincial People’s Governments, Deng and Hu were able to dismiss scores of radicals by reducing the number of Vice Governors, and filling those slots with their allies.

The 21st Century version
Under Xi Jinping, much of the work of reining in the provinces has been finished, and it is now time to turn to the central government and major economic sectors. The first major reshuffle was in the armed forces, where powerful regional commands were transformed into theatre commands. Other silos, such as the Second Artillery Force (rockets and nuclear weapons) were split in two. Purging top generals such as Xu Caihou and Guo Boxiong opened the path for promoting his own men. Zhang Youxia, a new Military Affairs Committee vice chair, was the big winner among the men in uniform.

Next on the list is finance, and Xi is now completing his consolidation of the financial regulatory and anti-corruption regime. In the past, these functions have been managed by the Premier or Executive Vice Premier, but Premier Li Keqiang, the 7th man to hold the post, is the weakest since the founding of the People’s Republic of China nearly 70 years ago. The major reform program announced in late 2013 was, for example, designed by Central Party School President Liu Yunshan and [then] Executive Vice Premier Zhang Gaoli, without significant input from Premier Li.

Xi’s point man on the economy is Liu He, and he is likely to be the most powerful economic czar since Zhu Rongji. Or, rather he will be that candidate until he surpasses Zhu’s power. With President Xi no longer bound by tenure traditions, it is likely that Liu will be free to remain on top of the economy for as long as he can do the job effectively.

Liu He comes from a National Development and Reform Commission (NDRC) background, and prior to that, State Planning. He has a Masters of Public Administration from Harvard, an undergraduate degree in industrial economics, and has proven that he knows what he’s doing. First on the list of chores is gutting his old bureaucracy and redistributing parts of it to other organs. The NDRC will shed influence over healthcare, antitrust, agriculture, ‘key national projects’ and environmental matters. Portions of the Commerce Ministry will similarly be relocated to other bureaucracies. In particular, a national market supervision management bureau will be oversee price controls and anti-monopoly law enforcement.

He Lifeng will take over the emasculated NDRC, and offer no challenge to Liu He’s authority. Similarly, Liu Kun, the new Finance Minister, is also a weak policy implementer. Liu Kun's background in Guangdong at a time when Xi Zhongxun (Jinping’s father) ran the province echoes He Lifeng’s experience in Fujian.

The highly respected People’s Bank of China (PBoC) Governor, Zhou Xiaochuan, has been able to put his protégé, Yi Gang, into the top central bank position. This may be partly due to Zhou’s great competence running a part of the economy that is not well understood by generalists. Yi’s background as head of the State Administration of Foreign Exchange (SAFE) and the PBoC Monetary Policy Department shouldn’t cause too much investor concern. Another central banker to watch is Pan Gongsheng, the current SAFE chief. He spent time at Cambridge and Harvard, and is the closest thing China has to a crypto-currency specialist.

Financial sector oversight will be consolidated under China Banking Regulatory Commission Chair Guo Shuqing. Guo is expected to pick up new responsibilities with the merger of other regulators into his balliwick, including insurance. He has a team of anti-corruption experts keeping an eye on things that includes Zhou Liang, Du Jinfu and Xu Jia’ai.

Finally, there’s the new National Supervisory Commission which will be run by politburo member and former Discipline Inspection Commission Deputy Secretary, Yang Xiaodu. Yang is clearly Vice President Wang Qishan’s man, and as such will enjoy very strong political support for his work. His new body extends the party’s anti-corruption work into the non-party sector. Under China’s curious legal structure, party members cannot be tried in court until they have been stripped of party membership. Yang will be in charge of making that call.

(Wang is the second consecutive Vice President to not be a member of the Politburo Standing Committee.)

[DOR]

citanon,

The state still controls the majority of assets and investment. Some of the state controlled firms are nominally mixed asset firms. Others are joint ventures with a large state interest. Yet still others, such as local retailers and real estate investment companies, are really partly controlled by local governments. Many of these latter mixed types of firms are operating with heavy state influence, to the extent that they are arguably private sector extensions of the state command economy. Thus, the state's hand is in every sector of the economy, even if its tendrils are diffuse and hidden.

Derek Scissors probably didn’t deliberately set out to deceive, but if you look to the American Enterprise Institute for analysis of how much of China’s economy is state-owned, well don’t be surprised if the data is twisted in a way that delivers an “us good, them bad” kind of message.

Dr Scissors (whom I’ve met, briefly) uses data from the China Statistical Yearbook, and by following his links you get to the 2014 edition. Change the URL to 2017 and you can find the data below. (I’m using the term “non-private” to signal that it’s everything that isn’t strictly private. You’ll want to do your own calculations.)

2016 Urban employment (Table 4-1)
Non-private 23.7% _ _ _ Private 76.3%

2016 Total investment in fixed assets (Table 10-1)
Non-private 31.4% _ _ _ Private 68.6%

2016 Retail corporations (Table 15-1)
Non-private 5.6% _ _ _ Private 94.4%

2016 Retail employment (Table 15-1)
Non-private 11.4 _ _ _ Private 88.6%

2016 Retail purchases (Table 15-1)
Non-private 13.5% _ _ _ Private 86.5%

2016 Retail sales (Table 15-1)
Non-private 5.5% _ _ _ Private 94.5%

http://www.stats.gov.cn/tjsj/ndsj/2017/indexeh.htm

[Double Edge]

I have two guesses but I don't know if they cover the whole extent of the situation.

1: part of Xi's support comes from the unprecedented economic challenges China is currently facing. It's possible that many in the CCP foresee the need for a stronger leader in the next 5-10 years as China attempts to transition from a middle income economy to a developed economy with an extraordinary debt burden saddling the economy.

2: I think a personal motivation for Xi may be that he has ridden the tiger and cannot get off. He has made so many enemies in his anti-corruption campaign and power consolidation that should he exit now, his own clique might be in the firing line for the next round of purges. He needs to further consolidate his power base to ensure this doesn't happen.

What debt burden ? Isn't China the only country in the black these days ? what about those savings rates

What i mean is too much is being made of removing term limits. That's the only thing people are focusing on.

All stories you read use that as the starting point and then go on to extrapolate the future usually in negative terms.

Removing term limit is but one amendment. Need to get the fuller picture about the other amendments made.

eg. Going from Socialist rule by law to Socialist rule of law

If this means going from govern by law (authoritarian) to rule of law (laws can be challenged) that in itself will be significant. The result will be the exact opposite of what we hear, instead of tightening up further, could a controlled loosening be in the offing? If the cooker is about to blow turn the heat down not up. The space for dissent isn't shrinking, it might be expanding ever so slowly. Look at the Saudis, if oil prices aren't going to rise near term maybe its better to loosen up a little.


We have to see

Local program on the subject

[citanon]

Great discussion on these issues from CSIS event this week:

[citanon]

Agree with what you said but have to wonder whether we're missing something and that something is pretty damn big.

Xi is no tinpot dictator that decided to become emperor for life for personal advancement, he's done so for the singular goal of taking China to the very top. That he has been allowed to do so means he has support.

So why has he settled on this particular course of action as the best way to achieve that goal. Makes little sense but is there something here that we're missing

I have two guesses but I don't know if they cover the whole extent of the situation.

1: part of Xi's support comes from the unprecedented economic challenges China is currently facing. It's possible that many in the CCP foresee the need for a stronger leader in the next 5-10 years as China attempts to transition from a middle income economy to a developed economy with an extraordinary debt burden saddling the economy.

2: I think a personal motivation for Xi may be that he has ridden the tiger and cannot get off. He has made so many enemies in his anti-corruption campaign and power consolidation that should he exit now, his own clique might be in the firing line for the next round of purges. He needs to further consolidate his power base to ensure this doesn't happen.

[tbm3fan]

For those that didn't see this video clip it is pretty funny. A reporter throws a 44 second soft ball question about Xi being President for Life, during the NPC gathering, and the reporter next to her looks her over, turns her head as in you've got to be kidding and finishes off by rolling her eyes. Went viral and then the Chinese censors went into overdrive. On the serious side I wonder what happens to the reporter?

https://www.cnn.com/2018/03/14/asia/...ntl/index.html

[Double Edge]

putting party aparratus into every company is the opposite of removing entrenched interests. they just introduce the party as a very disruptive entrenched interest in every organization.

also, China is not a market economy. it is a command economy with market characteristics. the vast majority of economic power is still under state control or attached to state controlled entities.

this is actually the current model already, and
this worked well when infrastructure investment was the primary and productive mode of economic output. infrastructure was really the Chinese Chinese Apollo project.

but today the infrastructure side is over invested and China needs nimble private companies to take the lead.
however, party penetration into private companies has a detrimental effect on nimbleness. the companies better hope the ccp will not push the party organization thing too far.

china has been supporting the development if high technology companies at home and pushing infrastructure development abroad as the prescription for the next phase of economic development, but with this growing xiest cult of personality and a clamp down in free expression and increasingly rigid social controls, those high tech enterprises enterprises are going to suffer.

Agree with what you said but have to wonder whether we're missing something and that something is pretty damn big.

Xi is no tinpot dictator that decided to become emperor for life for personal advancement, he's done so for the singular goal of taking China to the very top. That he has been allowed to do so means he has support.

So why has he settled on this particular course of action as the best way to achieve that goal. Makes little sense but is there something here that we're missing

[tantalus]

That was a very popular line of thinking in the 1980s, and again from around 1993 or so. From the first date to the second, real family incomes roughly quadrupled, but “too soon.”

From the mid-1990s to now, ... quadrupled ... “too soon.”

Give it another 20 years or so, and we’ll see if it’s still too soon.

Ya for sure, I see your sentiment. But what happens when the trend that is expected to stimulate democracy is the same one that depresses it. Clearly nuance is lacking.

I'll admit, I do not feel overly dissuaded by the past predictions and perhaps I should be suspicious of my intuition given the last 40 years. Some trends we will be waiting for ever like malthus's prediction of overpopulation. It may be that the predilection for an economic theory of the emergence of chinese democracy is similarly proven to be false. It would be great if the chinese would allow a pew survey :-).

Iam curious, to what extent have wealthy chinese simply left the country over the last 40 years?

[citanon]

The party chief in a company tends to be head of HR, and/or the union.

Which is a powerful entrenched interest. These roles may well become more prominent during the on coming years. In the 80s, the party secretary and the party apparatus operated more like the supervisory board or executive board. The party secretary was more like the chairman of the executive board or the the supervisory board. A spread of such systems to private firms would be highly disruptive.

Not for about 20 years now. The state keeps close control over media, less so over utilities and finance, and has pretty much given up on production, agriculture, retailing and other services.

The state still controls the majority of assets and investment. Some of the state controlled firms are nominally mixed asset firms. Others are joint ventures with a large state interest. Yet still others, such as local retailers and real estate investment companies, are really partly controlled by local governments. Many of these latter mixed types of firms are operating with heavy state influence, to the extent that they are arguably private sector extensions of the state command economy. Thus, the state's hand is in every sector of the economy, even if its tendrils are diffuse and hidden.

http://www.eastasiaforum.org/2016/05...have-us-think/

I can’t think of an economy — current or past — with too much infrastructure.

You could always build more infrastructure, but the return on investment plummets beyond a certain point. China's economy has reached beyond that point. Hence, from an investment perspective, many economists believe that China is over invested in infrastructure, and getting efficient return on that investment is becoming very difficult. See, for example:

http://carnegieendowment.org/chinafi...lmarkets/75355

Be careful not to confuse domestic and foreign activities

My point was that truly private Chinese companies will see their activities hampered by more rigid social controls. Thus, the domestic piece of China's economic development, which depends on nurturing high technology private companies, is going to suffer. The external infrastructure activities associated with Belt and Road are already undertaken by SOEs, and are unlikely to be affected.

[DOR]

putting party aparratus into every company is the opposite of removing entrenched interests. they just introduce the party as a very disruptive entrenched interest in every organization.

The party chief in a company tends to be head of HR, and/or the union.

also, China is not a market economy. it is a command economy with market characteristics. the vast majority of economic power is still under state control or attached to state controlled entities.

Not for about 20 years now. The state keeps close control over media, less so over utilities and finance, and has pretty much given up on production, agriculture, retailing and other services.

this is actually the current model already, and
this worked well when infrastructure investment was the primary and productive mode of economic output. infrastructure was really the Chinese Chinese Apollo project.

but today the infrastructure side is over invested and China needs nimble private companies to take the lead.
however, party penetration into private companies has a detrimental effect on nimbleness. the companies better hope the ccp will not push the party organization thing too far.

I can’t think of an economy — current or past — with too much infrastructure.

china has been supporting the development if high technology companies at home and pushing infrastructure development abroad as the prescription for the next phase of economic development, but with this growing xiest cult of personality and a clamp down in free expression and increasingly rigid social controls, those high tech enterprises enterprises are going to suffer.

Be careful not to confuse domestic and foreign activities

[DOR]

Like

The CCP may be giving it a better shot than anyone else managed and also better than most imagined but they are still juggling and you can't juggle forever.

Personal wealth can clearly decrease people's desire for accountability and democracy, yet since progress in personal wealth seems intrinsically tied to technological advancement, and that advancement is also supposed to facilitate a desire for democracy its hard to see the trend. I think we have overestimated the link between technology and democratic values spreading. People do not inherently value democracy, they have to learn it. They do inherently value wealth, they don't need to learn that.

In the medium term It may be very difficult for the CCP to provide the wealth as expectations explode once people reach a certain standard of living. Only major breakthroughs in various fields of technology can lead to a major increase in the standard of living that can meet that explosion in expectation. And they may get those breakthroughs. They are certainly very aggressive on ai, computing, solar. They will clearly need to clean up their environment like the US did with regulation in the past to keep their swelling middle classes happy.

If the CCP can continue doing a job better than anyone else managed or most imagined, external trends may interact to continue to allow the CCP to ride a new economic wave generated by breakthrough tech that allows them to survive for a long time to come.

That was a very popular line of thinking in the 1980s, and again from around 1993 or so. From the first date to the second, real family incomes roughly quadrupled, but “too soon.”

From the mid-1990s to now, ... quadrupled ... “too soon.”

Give it another 20 years or so, and we’ll see if it’s still too soon.