Opening Remarks

Will Xi Jinping Be the Reformer China Needs?


Xi Jinping attends a meeting with foreign experts at the Great Hall of the People in Beijing

Photograph by Ed Jones/AP Photo

Xi Jinping attends a meeting with foreign experts at the Great Hall of the People in Beijing

(An earlier version of this story misspelled Xi Jinping's name in the headline)

During the Cultural Revolution, the future paramount leader of China spent seven years in Shaanxi Province, then a remote, poverty-stricken area in the northwest. Xi Jinping’s father, a top revolutionary leader, fell from grace in one of Mao’s periodic purges. In 1969, 15-year-old Xi was sent to the countryside to learn from the peasants, hauling manure and coal. At one point, families in his village subsisted on bark and herbs, and women and children had to beg. “The knife is sharpened on the stone,” Xi said in a 2000 interview that appeared in the magazine of the Communist Party’s youth league and was translated into English last year. “People are strengthened in adversity.”

During the National People’s Congress that convenes on March 5, Xi will assume the title of President of China. The bleak, insular nation of his youth bears little resemblance to today’s economic giant, which is poised to become the world’s biggest economy within the next decade. Since 1978, per capita annual income has grown from $225 to more than $6,000, and 600 million people have been lifted out of poverty. China’s development has benefited government officials like Xi, whose extended family has business interests in companies with total assets of $376 million, a Bloomberg News investigation revealed last June. (No assets were traced to Xi, his wife, or their daughter.) In Xi, a consummate insider and scion of the Maoist revolution, the Communist Party appears to have tapped a leader who will strive for political continuity above all, safeguarding the power and prerogatives of China’s ruling elite.

But looks can be deceiving. Since being appointed party secretary and head of China’s military last November, Xi, 59, has proven more assertive and unpredictable than many China watchers anticipated. Warning that rampant corruption could bring down the party, he launched a graft-busting campaign that’s targeted senior officials and called for more open criticism of the government. In a December trip to southern Shenzhen, Xi stressed the need to relaunch stalled economic reforms and paid homage to Deng Xiaoping, the leader who threw open China’s economy more than 30 years ago.

For all its growth and global aspirations, China confronts massive challenges. After decades of turbocharged expansion, the economy is downshifting and income inequality is growing. The country’s new leaders must decide how to placate rising nationalism at home without stumbling into destabilizing conflicts with its neighbors. At home, an emboldened civil society, driven in part by China’s unruly blogosphere, is pushing for more space to grow—a development that, left unchecked, could threaten the Communist Party’s monopoly on power.

Xi’s skill at handling these dilemmas will go a long way toward determining not only China’s trajectory in the 21st century, but also the world’s. He’s been called the reformer China’s economy needs, but Xi has warned against any Gorbachev-style restructuring that could undermine Communist control. He’s stated the imperative of building up a stronger military, even as tensions surge in the disputed seas around China. What seems indisputable is Xi’s determination to leave a mark on history. “He has ambition to be a great leader, someone like Mao Zedong,” says Bo Zhiyue, a political scientist at the National University of Singapore. “He wants to change things.”
 
 
At a Beijing restaurant in November, all eyes were on XiPhotograph by David Gray/ReutersAt a Beijing restaurant in November, all eyes were on XiXi takes office with far greater political strengths than his predecessor, Hu Jintao. During his 10 years as president, Hu often deferred to the former leader, 86-year-old Jiang Zemin, when making important policy decisions. Among other things, Jiang held the military portfolio for two years before passing it to Hu. When Xi assumes the presidency in March, he will be fully in charge of all three poles of Chinese power—the party, the state, and the military.

The ease with which Xi has consolidated control is in part because of his background. His father, Xi Zhongxun, was a revolutionary who became a proponent of economic liberalization. “Princelings,” as the sons of the revolutionary leaders are known, “do come to the job with an almost aristocratic sense of entitlement,” says Orville Schell, director of the Center on U.S.-China Relations at the Asia Society in New York. “If the elite is capable, experienced, and has a certain level of confidence, that isn’t a bad thing.”

China’s first leader born after the 1949 Communist revolution, Xi has the zeal of a true believer. His father’s purge hurt Xi’s political standing; he wasn’t admitted to the party until 1974, at age 20, after 10 unsuccessful attempts. “I did not lose heart and had no feelings of inferiority,” he said in the 2000 interview. “I just thought that there were more good than bad people in the party.”

Xi may benefit from having never been tethered to a single benefactor. “What I see is an individual who has really navigated the system very well,” says Carla Freeman, associate director of the China Studies Program at the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University. “He lacks the benediction of Deng Xiaoping. So he actually has to be a popular figure in a way that Hu did not. He has to appeal to the Chinese public, as well as his colleagues.”

As a provincial official in the 1980s and ’90s, the period of China’s economic opening to the world, Xi focused on stability: “My procedure was to light a small fire to warm up the water, keep the fire burning, and now and again pour some more cold water in, so that the kettle did not boil over,” he said in 2000, referring to his tenure as head of a remote county in the coastal province of Fujian.

From 2002 to 2007, Xi served as top leader in Zhejiang, a province of 54.6 million. Ranking fifth in per capita gross domestic product, it’s home to China’s most entrepreneur-oriented economy. While there, Xi simplified registration for new companies, strengthened the protection of private property, and made it easier for private businesses to get loans, Lu Guanqiu, billionaire founder of Wanxiang Group, told Bloomberg Businessweek in an interview last year.

Lu said that shortly after becoming head of Zhejiang, Xi visited Lu’s company and asked how he could best support its development. Now, as party secretary, Xi “will be even more open and will pay even more attention to private enterprise and the people’s livelihood,” Lu said.

That prediction will soon be put to the test, because China’s economic model needs fixing. A shrinking workforce and soaring labor costs—caused in part by the three-decades-old one-child policy—have made Chinese factories less competitive. The World Bank has estimated that pollution now shaves 5.8 percent off GDP annually, yet coal use in China has tripled over the past decade. Kenneth Lieberthal, a fellow at the Brookings Institution who was senior director for Asia on Bill Clinton’s National Security Council, says, “I can’t remember a time when there was such absolute agreement across the board—left, right, and center—about the need for reform, and awareness that the present course can’t continue.”

Xi and his No. 2, 57-year-old Li Keqiang, soon to be named premier in charge of the economy, will need to move China away from inefficient, dirty heavy industries and expand its service sector, including finance, tourism, and logistics. Also critical is providing a more level playing field for the millions of job-creating private enterprises in the country. This would help China wean itself from growth primarily driven by investment and move toward a more sustainable, consumption-driven economy.

That rebalancing has been hindered by what Chinese economists call guo jin min tui (“the state advances, the private sector retreats”). With most financing from state-owned banks being funneled to big state-owned enterprises, which also often get access to cheap land and energy, private companies have found it hard to compete. Revenue at state-owned companies has risen from around 40 percent of the economy five years ago to more than 50 percent today, estimates Fred Hu, chairman of financial advisory firm Primavera Capital Group. Private consumption’s contribution to GDP, meanwhile, dropped from 46 percent in 2000 to 33 percent in 2010.

For China’s new leaders, signs of uneven growth and widening inequality are particularly ominous at a time when trust in public officials is collapsing. One half of Chinese say corrupt officials are a major problem for the country, according to a Pew Research Center survey, up from 39 percent four years ago. Meanwhile, about four-fifths say the phrase the “rich just get richer, while the poor get poorer” accurately describes China today. The now common practice of selling official positions to the highest bidder, rather than awarding jobs according to qualifications, as well as rampant graft in China’s public education and health systems, has damaged the party’s prestige, says Liao Ran, who runs programs in Asia combating graft for Berlin-based Transparency International.

Xi has publicly vowed that corruption in the government will no longer be tolerated. Already, senior officials have been nabbed, including a deputy party secretary in the western province of Sichuan. Beijing will “strike the tigers as well as the flies,” Xi warned in a meeting with antigraft officials in January—implying that party leaders will be investigated along with low-level functionaries. For now the threat remains only that: a threat.

Xi also banned ostentatious displays of power such as motorcades and large welcoming committees for traveling officials. He’s ordered civil servants to limit the frequency and size of banquets, touted by the state press as the “four dishes, one soup” rule. On his December trip to Shenzhen, he eschewed the use of police roadblocks and did not attend the usual fancy dinners, according to Chinese media reports.

Similar efforts in the past have petered out, says Liao of Transparency International. Xi will need to go further. One possible reform would be lessening the outsize role land-sale proceeds play in funding China’s thousands of city, township, and village governments. (The central government takes the lion’s share of tax revenue, in effect starving localities.) That leads to graft, with developers paying off the local officials in charge of converting rural land to commercial use.

Some two-thirds of all protests in China stem from land-related issues, says Lynette Ong, a political scientist at the University of Toronto. Her research shows that officials sell land at a price up to 100 times the amount they pay farmers for the plots. “Land is a form of social security for China’s rural population. The urban population has access to basic social welfare, but the rural population doesn’t. If they don’t have land to rely on, that is very, very dangerous,” Ong says.

Even so, it’s difficult to imagine Xi initiating political reforms that would threaten one-party rule, says Robert Lawrence Kuhn, author of How China’s Leaders Think, who’s met Xi a half-dozen times. “The argument is that for a number of decades, China still needs one ruling party to effect its final modernization.” In an internal meeting with party officials in Shenzhen, Xi warned that a lack of party and military unity brought down the Soviet Union, says Bo of the National University of Singapore. “He is more concerned about the survival of the Chinese Communist Party than promoting any political liberalization.”
 
 
“To achieve the great rejuvenation of the Chinese nation, we must fully achieve both a rich country and a strong army,” Xi said while visiting a military base on his trip to the south in December. Xi has cultivated close ties with China’s military brass and seems to be shifting away from Deng’s dictum that the country must keep a low profile internationally as it grows stronger. China’s pugnacity is most obvious in its dealings with neighboring Vietnam and the Philippines in the South China Sea, and with Japan in the disputed East China Sea. Chinese fishing boats have intruded far into disputed waters, and Beijing’s navy recently locked its weapons-guiding radar on a Japanese ship and helicopter, according to Japan’s defense minister.

Abraham Denmark, vice president for political and security affairs at the National Bureau of Asian Research, says, “We’re seeing China using its maritime and paramilitary forces in a much more assertive way.” China’s confidence “has elevated the level of strategic competition” with the U.S., he says.

The wave of cyberattacks on American businesses and government agencies, traced to the People’s Liberation Army, could be a harbinger of conflict with the U.S. But the Obama administration believes Xi is a man the U.S. can do business with. Xi, whose daughter attends Harvard, has spent more time with high-ranking U.S. officials, including Vice President Joe Biden and former Defense Secretary Leon Panetta, than any previous incoming paramount leader. After retreating from public view last fall, Xi used Panetta’s visit to Beijing to mark his return to official duties. The dialogue between the two men was so lively that the one-hour meeting ran an extra 45 minutes.

A more complete picture of where Xi intends to take China may not emerge until after the Third Plenum meeting of the Communist Party’s Central Committee, likely to be held late this year. Typically, new leaders in China use the intervening months to muster support before announcing major reforms; Deng’s historic policy of economic opening was launched at the plenum in December 1978, for example.

It’s impossible to know whether Xi will introduce similarly momentous changes in his first year in power. But don’t bet against it. “Everyone is talking about a China Dream,” said Xi on Nov. 29, while touring an exhibit with other top leaders at the National Museum of China in Beijing. “I believe the revival of the Chinese nation is the greatest dream of the nation since modern times.”

With Christina Larson
Dexter_roberts
Roberts is Bloomberg Businessweek's Asia News Editor and China bureau chief. Follow him on Twitter @dtiffroberts.

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