Bloomberg News

China Congress Gives Xi-Li Partnership Place to Unveil Plans

February 28, 2013

China Congress Offers Xi-Li Partnership Chance to Unveil Policy

Xi Jinping, China's vice president, left, and Li Keqiang, vice premier, prepare to leave the closing session of the 18th National Congress of the Communist Party of China at the Great Hall of the People in Beijing on Nov. 14, 2012. Photographer: Tomohiro Ohsumi/Bloomberg

China is poised to complete a once- in-a-decade leadership handover in the next two weeks, as pressure rises on Xi Jinping and Li Keqiang to add specifics to pledges to rein in corruption and address income imbalances.

Xi will become president and Li premier at the end of the annual gathering of the National People’s Congress, China’s parliament, which begins March 5. They have vowed to make the financial system more market-based, get tough on graft and combat pollution.

As they try to deliver on these promises, Xi and Li face an unprecedented level of public scrutiny, with China’s online community expanding more than eight-fold since their predecessors took power 10 years ago. At stake is their ability to maintain the ruling Communist Party’s legitimacy as it adjusts to slower economic growth after an average of 10.5 percent expansion over the past decade.

“Xi and Li take over a nation characterized by far more large-scale corruption, inequality of wealth and environmental degradation than was the case a decade ago,” said Kenneth Lieberthal, director of the Brookings Institution’s John L. Thornton China Center. “The population is now demanding that the government treat it with greater respect.”

The two-week conclave, which will be attended by almost 3,000 delegates, will reveal the shape of the Xi-Li administration with the appointment of new cabinet ministers. It may also provide details on plans to revamp the central government by merging some ministries.

Zhou Stays

Policy makers will allow Zhou Xiaochuan to stay on as central bank governor, according to a person with direct knowledge of the discussions. Keeping Zhou would send a “strong reformist signal because it is implicit approval of his liberal views,” said BNP Paribas SA economist Ken Peng, who is based in Beijing.

The party’s Central Committee adopted a plan yesterday to simplify the government and cut red tape by combining some ministries, the official Xinhua News Agency reported. “Market and social forces will be given a greater role in allocating resources,” Xinhua said, citing a communique from the meeting. The plan will be forwarded to the NPC for approval during its session.

A press conference at the end of the meeting will give Li a chance to outline his policy plans while providing insight into his personality, said Mark Williams, an economist at Capital Economics Ltd. in London.

First Time

“It’s the only time during the year when the rest of the world gets to hear at length from the prime minister and this time it’s all the more important because it’s his first time at the podium,” said Williams, who previously advised the U.K. Treasury on China.

Xi and Li inherit a set of challenges from President Hu Jintao and Premier Wen Jiabao that derive from China’s rapid economic expansion. The economy grew more than four-fold in nominal terms to 51.9 trillion yuan ($8.3 trillion) last year from 12 trillion yuan in 2002, when Hu and Wen took power.

In that period, China became the world’s biggest exporter and overtook Japan to become the world’s second-largest economy, behind the U.S. The market capitalization of China-listed companies increased more than seven times to $3.2 trillion.

Chinese companies announced more than $54 billion in overseas acquisitions last year, compared with about $1 billion in 2002, according to data compiled by Bloomberg. Lenovo Group Ltd. (992) bought International Business Machines Corp.’s (IBM:US) PC unit in 2005 and Wanda Group bought U.S. cinema-owner AMC Entertainment Holdings last year for $2.6 billion.

Income Gap

Economic expansion has also spawned a widening rich-poor divide among China’s 1.3 billion people. China’s Gini coefficient, a measure of income differences, reached 0.474, higher than the 0.4 level that analysts say signals a potential for social unrest.

China also became the world’s biggest emitter of carbon dioxide in 2006 and smog in Beijing exceeded hazardous levels for at least 19 days in January.

“Look at the pollution in Beijing and the traffic problems there,” said Stephen Jen, managing partner at hedge fund SLJ Macro Partners LLP in London. “This is the capital of one of the most admired countries in the world today -- why can’t they tackle these problems?”

Wen said in 2010 that 8 percent expansion was necessary for “basic stability of employment,” according to the party’s Qiushi magazine. Growth slumped to a 13-year low of 7.8 percent last year, according to government data.

Expressing Discontent

China’s citizens have used the Internet to increasingly express discontent over issues from pollution to graft to income disparities. China added 51 million web users last year to bring the total to 564 million, underscoring the challenge faced by Xi and Li in ensuring the government’s message remains dominant.

When Xi became Communist Party general secretary in November, he said corruption risks weakening the party’s grip on power. Internet postings have led to the removal of government officials including one nicknamed “Brother Watch” whose collection of luxury timepieces was exposed online.

“The demands on government have never been greater, and the complexity of governing China never greater,” said Kerry Brown, director of the China Studies Center at the University of Sydney.

To contact Bloomberg News staff for this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net; Michael Forsythe in Beijing at mforsythe@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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