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Occasional Notes from China – A New Leadership
November 11, 2007 - Winter officially began in China last week, and temperatures are plummeting throughout the northern and central parts of the country. A two day visit to Harbin last week, capital of Heilongjiang, China's northernmost province in Manchuria just 60 kilometers from the Russian border was a chilly experience – the vast, now brown countryside preparing for a blanket of snow and ultra-cold weather. China's economy is hot, though, with an exploding stock market, and provinces – such as Heilongjiang – offering wonderful opportunities for business and investment. More on that later.
The past month in China has brought with it:
- The culmination of the 17th Party Congress, and a new, younger leadership, as the generation that came to age during the Cultural Revolution of the 1960s joins the senior leadership ranks;
- A new party secretary, Yu Zhengsheng for Shanghai, and a wave of new appointments throughout the country at the provincial and municipal levels. As dynamic officials such as Bo Xilai go to Chongqing and Zhang Gaoli of Tianjin rise, we expect more favorable policies for these cities and rapid economic growth – and hence good investment opportunities;
- China's first lunar launch, as important symbolically as for its demonstration of China's increasing technological prowess in space;
- And, the billion dollar listing of PetroChina on the A-share market, making it the most highly valued company in the world.
A New Leadership
Leadership succession in China, since the founding of the first Chinese dynasty in 221 BC, has not been a simple affair. Qinshihuang, China's first Emperor, appointed his son who was killed shortly thereafter by peasant rebels. Mao's designated successor Lin Piao died in a mysterious plane crash while attempting to escape from China in 1971, after allegedly trying to bomb the Chairman's train, Deng Xiaoping's two designated successors were purged and placed under house arrest, respectively, and Jiang Zemin, Deng's eventual successor was plucked out of Shanghai and anointed as the leader of the "third generation" of Chinese on short notice after the events of June, 1989. As in the imperial period, being a "designated successor" has been a hazardous occupation and leaders generally stayed in power until they died or became incapacitated. With the reforms of the 1990s, all of that has changed. China's top leaders now serve fixed terms of 5 years in office, with a maximum of two terms, successors are no longer designated, and the top leaders have a great deal less power than in the past.
Party Congress. All of that is good news for China. Leadership stability in a time of historic, economic and social transition is critical. At the 17th Party Congress, which was held in Beijing from October 15-21, and attended by 2200 delegates representing the party's elite in Beijing and the provinces, China's top leaders addressed the country and promised a stable transition in power, and new and better policies. At the Congress itself, a new Central Committee was elected. On the day following the closing of the Congress, the Central Committee elected the Politburo and its 9 man Standing Committee. The Central Committee, 204 regular members and 167 alternate members, meets annually to determine major policy directions and ratify the work of the party's stop leaders. The Politburo meets regularly, formulates policy, addresses critical short- and long-term issues, while the Politburo's Standing Committee meets at least weekly, and makes all key policy decisions. At the Party Congress, a new policy orientation was also set out – one that aims to create a more "harmonious," transparent and fair society and polity in China.
Central Committee. The Central Committee represents the central and provincial elite, ideally achieving a balance of the different interests and factions within the Communist Party. This new Central Committee is a 5 year snapshot of a polity in transition. Fifty percent of the Central Committee is relatively young, having been raised after the People's Republic was founded in 1949, and coming of age during the turbulent years of the Cultural Revolution (1967-76). Eighty-eight percent of the alternate members of the Central Committee, who will form the core of the leadership five years from now, are in their 50s or younger. In essence, China's "baby boomers" are now taking their place at the top. Ninety-two percent of the leadership has at least a college degree, and 33 percent have advanced degrees. This stands in sharp contrast to the leadership of the 1970s and even the 1980s, where relatively few officials had received a higher education, much less exposure to the outside world.
Politburo. A microcosm of the Central Committee, the Politburo, if well chosen, represents all facets of the Chinese power structure, including the party and party organizations, the government, military, and industry. Chinese politicians seek a balance of interests, and rarely seek to pack the top levels with their supporters. The Politburo also represents the prevailing factional groupings within the top levels of the party. Today's new Politburo members rose to power through the Communist Youth League, the power base of Party General Secretary Hu Jintao and the so-called "tuan-pai" or Youth League faction; or were the children of former senior leaders; or individuals with outstanding achievements and powerful supporters. Their average age is 61. Of the ten new members of the Politburo, four came from the Youth League (Li Keqiang, Liu Yandong, Li Yuanchao, Wang Yang), three are the children or relatives of former senior leaders (Xi Jinping, Bo Xilai, Wang Qishan), one is a senior military officer (Xu Caihou), one spent his formative years as an executive in China's huge state-owned oil sector and could be considered a "boot strapper" (Zhang Gaoli), and one was a party apparatchik (Wang Gang). While collectively the Politburo is a balance of the power elite within China, its composition clearly reflects the hand of Hu Jintao, and marks a break with the post-1989, transitional leadership of Jiang Zemin and his so-called "Shanghai Gang."
The new Politburo members differ from their predecessors in several respects:
- They were overwhelmingly drawn from the provinces – 7 of the 10 new members of the Politburo were serving as Provincial Party Secretaries at the time of their appointments.
- With one exception, they headed the rapidly modernizing coastal areas, where the middle class, the private sector and foreign investment have played predominant roles.
- More profoundly, they are not the Soviet-trained engineers who ran China in the past. Seven of the 10 have degrees in the humanities, two hold doctorates, one in law (Xi Jinping) and one in economics from the elite Beijing University (Li Keqiang).
- For the most part, the new Politburo members were "victims" of the Cultural Revolution, laboring for up to a decade in remote parts of the country, living with the peasantry, and thus have a deep respect for law, order, a suspicion of ideology and a deep understanding of their country. Wang Qishan, for example, the current Mayor of Beijing and soon-to-be Vice Premier in charge of the economy, spent ten years in desolate Shanxi Province.
Politburo Standing Committee. The nine-man standing committee, which sets policy and whose members head the key institutions of party and government, is also much more Hu's group than Jiang's – though, it too is a balance between different interests within the party. Of the four new members, two are in their mid-50s (Xi Jinping, Li Keqiang) and will likely make the transition from Hu Jintao and Premier Wen Jiabao to their successors, and are highly educated. Of the other two, one, Zhou Yongkang, 65, spent the first three decades of his professional life in the oil business, finally heading the China National Oil and Gas Company for a decade, before becoming Party Secretary of Sichuan, and Minister of Public Security under Hu Jintao's first administration.
What it all means. Clearly, Hu and his team are vastly stronger than they were five years ago, and have sprinkled not only the top leadership, but much of the country with Communist Youth League alumni, as it were. In general, the Youth League's officials have a reputation for openness and for being more liberal than much of the older generation, having grown up under the leadership of former party general secretary and youth league head Hu Yaobang and Hu Jintao. That said, China's leadership faces the overwhelming issues of growing the economy, employing an additional ten million young people every year, spreading the wealth and development of the east coast to the impoverished west, lessening the widening gap between rich (who now really are rich) and the poor (less than one pair of shoes per capita in some areas), improving the environment, and making the transition to a modern economy and society. There are a limited range of choices to be made, and factional politics has little impact on those choices.
For business and investment, we can expect the new leadership to be more sensitive to the needs of the growing private sector and its burgeoning middle class, and more sophisticated in handling foreign capital. The soon-to-be Vice Premier in charge of the economy and trade, Wang Qishan, may have spent a decade in the impoverished northwest in the 1960s and 70s but he also headed the Construction Bank and partnered with Morgan Stanley to create China's first investment bank. As Mayor of Beijing, he took a city of aging slums and turned it into a digitalized, modern city, capable of hosting the Olympics – and oversaw $37 billion of investment into the city. Xi Jinping, the off-spring of one of the Party's leading elders, Xi Zhongxun, rose through the ranks running first an impoverished county outside of Beijing, and then the cities along the east coast (Xiamen and Fuzhou), the provinces of Fujian, Zhejiang and Shanghai, where growth has been greatest and where China's future lies.
In terms of policy, Hu Jintao's speech to the Party Congress, on the day of its opening, sets a moderate, reformist agenda. Most germane for business, Hu calls for a third wave of economic reform, leading to a much more sophisticated and modern economy, gradual political liberalization, greater transparency and accountability within the government, and a lightening of the burden on the peasantry. No leadership could expect to deal quickly and easily with the desperate environmental and other problems that China faces, but this leadership has a better chance than most.
Profiles: Xi Jinping and Li Keqiang
Two of China's rising political stars, Xi Jinping and Li Keqiang have vast experience in the provinces, proven management skills, and represent the best of Chinese officialdom in many respects.
Xi Jinping: Born into the upper echelons of the Chinese Communist Party in 1953, Xi Jinping had a very good year this year. He began it as Party Secretary of Zhejiang Province, one of China's wealthiest, the home of private enterprise and the middle class in China, as a Central Committee Member and ended it as one of the top nine leaders in the country, and the head of the Party's Secretariat – responsible for the party's policy on all major issues. Xi Jinping was brought to Shanghai in March by Hu Jintao and China's top leadership to replace former Party Secretary and Mayor Chen Liangyu – who was arrested for his involvement in a sex and corruption scandal that touched many of the city's elite – and clean up the city. While Xi was charged with cleaning up the mess, and no less than four central government teams of auditors and law enforcement have combed through the records and affairs of dozens of Chinese officials for the past year, Xi also needed to set a steady course and maintain morale and growth in China's most important city. Xi efficiently reorganized the city's leadership, bringing in many officials from neighboring Zhejiang, and ensuring continued growth, the development of Shanghai's cultural life, and innovation in technology. Prior to his arrival in Zhejiang Shanghai, Xi spent twenty years managing economic growth in Fujian Province, across the strait from Taiwan. Before going to Fujian, Xi spent three years as a grass-roots cadre in Zhending Country in Hebei Province, close to Beijing.
No doubt reflecting his elite parentage and talent, Xi worked in the General Office of the State Council and the Central Military Commission, and served as former senior PLA General and statesman Geng Biao's secretary from 1979-82.
Xi graduated from the elite Qinghua University with a degree in Marxist theory before the Cultural Revolution, and obtained a Doctorate in Law later on.
Long touted as a potential "successor," Li Keqiang, 52, took a route to power entirely separate from that of Xi Jinping. During the Cultural Revolution, Li was sent as an "educated youth" to Fengyang County in impoverished Anhui Province to labor and became party secretary of his brigade. Joining millions of others, Li took the entrance examinations for university when the Cultural Revolution ended, and was admitted to China's premier university, Beijing University, where he studied law and graduated in 1982. He subsequently studied economics there as well and obtained a PhD in economics. While at Beijing University, Li joined the Communist Youth League, becoming secretary to the university's youth league branch. In 1983, the following year, Li joined the central committee of the youth league just as fellow Anhuinese Hu Jintao become the First Secretary and leader of the youth league. Li remained in the Youth League for the next 15 years, eventually becoming its leader. In that position, Li met virtually every top future leader and developed a vast network of protégés and relationships with officials on the rise through provincial and central governments across the country. After 15 years in the Youth League in 1998, Li went to Henan Province in central China – China's largest province, primarily agricultural, and in many respects, desperately poor and troubled – first as Acting Governor and the youngest Governor in the country at age 43. Li subsequently became youngest provincial party secretary the following year. In 2004, Li was appointed party secretary of Liaoning Province, with the mission of rebuilding the economy of China's premier "rust belt" province in Manchuria – once the heart of the state sector heavy industrial sector.