As 2016 draws to a close, The Cipher Brief revisits its feature on the architect of China’s most recent and expansive policies, Xi Jinping.
One of the few remaining legacies of Hua Guofeng, the Chinese leader who briefly held power following the death of Mao Zedong and the demise of the Gang of Four, are his titles. Hua was simultaneously the head of the State, head of the Party, and head of the military—and he was the first Chinese communist leader to ever hold all three simultaneously.
Hua’s ouster, Deng Xiaoping, took none of those titles, and instead established a loose system of decision-making based on the consensus of eight senior party members—the “Eight Immortals”—among whom Deng was the most powerful. Deng wanted to avoid the extremism of the Cultural Revolution for which he, in part, blamed rule by fiat from a populist leader.
But when Deng looked to secure his own legacy against the fluid dynamics of party allegiances, he reestablished Hua’s titular monopoly on power in someone of his own choosing. As a result, Jiang Zemin inherited a system of governance where official power was almost entirely within his grasp, and yet practical power remained rooted in consensus and coalition building.
Throughout the 1990s, this balance between consensus decision-making and consolidated authority served the Party well. This was primarily because, relatively speaking, Beijing only needed to make decisions that were generally well-liked. Even when Jiang and his Premier Zhu Rongji pushed through reforms that left millions unemployed, they unleashed liberalizations that allowed for incredible and immediate returns on investment. Party leaders and state-owned enterprise (SOE) managers earned millions of RMB (the Chinese currency) by giving up direct control. And for every almost-pensioner who lost their job at a shuttered SOE, there was a son or daughter who found lucrative employment in the factories of Shenzhen or Wenzhou.
But Deng’s consensus-based model of decision-making among eight elders had, by the end of the 2000s, shifted towards a bureaucratic regime defined by a hyper-consensus approach, in which decision-making power was neutered by the need to consult with a multitude of stakeholders. Only as long as the economic pie continued to grow at an astronomical pace, and as key stakeholders and vested interests never needed to be told “no,” did the system work.
Xi Jinping’s China exists in a fundamentally different environment. China is wealthier, its wages are higher, and its middle class larger. Meanwhile, China’s growth is slowing and returns on investment are far lower. Stakeholders have more to lose and less to gain from a change in the status quo.
Simultaneously, the Party’s problems are bigger too: environmental degradation now serves as an existential threat to regime stability, the middle class finds corruption increasingly repulsive and, fundamentally, the middle-income trap looms large after 25 years of Party leadership building its political legitimacy upon economic performance. Reform is as critical now as it has ever been.
Facing ever larger problems and fewer stakeholders willing to compromise, President, Party General Secretary, and (as of April) Commander-in-Chief Xi Jinping firmly believes—and rightly so—that the calcified consensus-building model is no longer an efficient mechanism to expedite changes needed for the regime to keep a stable grip on power. In response, he has leveraged his full titular power to seize practical power away from the government and assume it under the Party, and by extension his, direct control.
Xi Jinping’s consolidation of power has been comprehensive. Most prominently, his anti-corruption campaign has brutally targeted the entrenched interests that might resist his total accumulation and exercise of power. This has included key people and their supporters, such as Zhou Yongkang, and entire industries, such as the energy and extractives sector. As it has progressed, the campaign’s targets have evolved accordingly. Most recently, in June, China’s anti-corruption czar launched an investigation into Li Yunfeng, the former right-hand-man of Vice President Li Yuanchao, a protégé of Hu Jintao’s.
But Xi has not relied solely on his anti-graft campaign to capture powerful positions held by his rivals. Notably, of Xi’s triumvirate titles, he lacks an important one: head of government. That title is Li Keqiang’s, the Premier and head of China’s State Council and various government agencies and ministries. Not by accident, over the last two years, Xi Jinping has marginalized Premier Li Keqiang at the annual “Two Sessions” of the National People’s Congress and its advisory body, the People’s Political Consultative Conference. Li, who officially leads the Two Sessions, still gives the official work report, but Xi has seized the media narrative and used the occasion to raise his own personal profile.
More systematically, Xi Jinping has changed the decision-making process in China’s government to ensure his own grasp on power, moving policy formulation away from the government and under the auspices of the Party. Take the regulatory environment governing the tech industry, which until 2014 was almost entirely managed by the Ministry of Industry and Information Technology (MIIT) and the Ministry of Commerce (MOFCOM). Xi Jinping has effectively transferred the policy-making decisions away from these two agencies, both under the State Council, to the Leading Small Group for Internet Security and Informatization (chaired by Xi Jinping) and its associated Cyberspace Administration of China (headed by Lu Wei, who was hand-picked by Xi Jinping).
International businesses rely on governments that are efficient, and as a result, there was hope that as Xi reformed to correct the trend of calcification, the commercial environment in China would improve. Instead, the environment for foreign companies has deteriorated rapidly.
In his opening remarks at the recent U.S.-China Strategic & Economic Dialogue (S&ED), U.S. Treasury Secretary Jacob Lew frankly stated, “foreign businesses [are] confronting a more complex regulatory environment and questioning whether they are welcome in China."
This feeling among foreign businesses is not simply a result of a “New Economic Normal.” Rather, it is because Xi Jinping’s systematic accumulation of power has made policymaking less transparent. Outside stakeholders—foreign governments, NGOs, and multinational companies alike—even when stymied by the snail’s pace of consensus decision-making under Jiang and Hu, at least found the landscape navigable. Consensus-led policymaking allowed for, even in China’s closed environment, a degree of open conversation on major political and regulatory decisions.
Xi Jinping’s administrative and political changes have shifted the regulatory regime into the opaque environment of Leading Groups, Party General Offices, and his own inner-circle. In turn, major projects and investments are now subject to the whims of Beijing’s inside-baseball politics. And as a result, China’s political and economic risks are actually rising.
One of the most prominent deliverables from the Strategic and Economic Dialogue (S&ED) was a commitment from China to improve its reporting of economic data and financial regulations. This agreement, however small, represents the kind of progress in transparency China desperately needs to advance. Otherwise, it risks further deviating from the path of becoming a leader in the global commercial community.
