Leadership transition in China

China is currently facing its once-in-a-decade transfer of power. The leaders of the Communist Party under lead of Hu Jintao will retire, and a new generation so-called 5^th generation will take the over under lead of Xi Jinping.

The sweeping changes come in a critical time in China’s modern history. The economic model that has enabled decades of rapid growth having become unsustainable, social unrest is rising and international resistance to China’s policies is increasing. Already reported social issues in regards to an aging population, as well as international conflicts with Japan, spurs the domestic unrest.

Power transitions in the People’s Republic of China have always been fraught with uncertainty. This is a consequence of the fact that the state’s founding leader, Mao Zedong, did not establish a formal succession process before he died, creating power struggles and a lack of institutionalized procedures for power transition.

The 5^th generation of Chinese leaders has been shaped by a time period in which China has prioritized to become a global economic power and increase industrial progress. The new leadership is by many scholars seen as increasingly nationalistic and is expected to expand the military budget.

The generation shift in Chinese politics is a very important event in global history – apart from the fact that the Chinese policies will affect the whole world as the second largest economy, the uncertainty and lack of institutionalized procedures for leadership transition can give incentive for the government to state its power and legitimacy. The Communist Party’s leaders are eager to prove the case that their authorial system can manage China better than a multiparty democracy could. Mobilizing public support has historically been done by creating a stronger national identity nationalistic propaganda. The current instability between Japan and China may take a dangerous turn if China is becoming increasingly military and nationalistic. Adding to it, the American military politics has shifted focus from the Middle East to the Pacific Rim. This makes the Chinese military policies even more determining for the country’s international relationships.

China’s economy

“Our country must develop. If we do not develop then we will be bullied. Development is the only truth”. This is a quote by Deng Xiaoping, and it represents the dogma of the Communist Party which has formed the economic politics of China in the latest years. It was found in a special report on China’s economy in The Economist. The dogma is truly in line with the rapid growth of the Chinese GDP in the latest 20 years, which measured at purchasing-power parity, already overtakes America.

However, the surplus is disproportionate. Some argue that the top tenth of urban families are about 26 times better of then the bottom ten. Economic iniquity has consequences: China has the world’s largest luxury market. Another point is that the Chinese households cannot spend enough to respond the country’s enormous production. This has led to malinvestments, which many classify as overinvestment, with ghost cities and piles of waste. To ameliorate the situation, a more judiciously distributed budget needs to be implemented by the government. How will China be able to increase the household consumption? First of all, the rate needs to be liberalized. Today, the rate is controlled by the state, which asserts the Chinese banks enough profit and large margins. But it is on cost of the worse well of, who in their economic insecurity avoid consumption, or choose to circumvent the system. China needs higher interest rates in order to liberate consumption.

 Another way to lift consumer spending is for the government to invest more in social security. Even though progress has been made, the social security, including pensions or health insurance, still only reaches a small part of the population. China also ought to repeal the country’s household registration system. This system limits social services for rural immigrants, which leave them unsettled and unwilling to spend. If the people feel secure about the future, the need to save money decreases.

As China has reached an important role in world trade, it can leave its dogma of development, perhaps as much as to not see development as an imperative. China can instead start focusing on developing the country’s social security in order to increase consumer spending and thereby contribute to a more sustainable depletion of the world’s limited resources.  

Source: The Economist, May 26th 2012