http://www.businessweek.com/articles/2012-03-15/a-political-shocker-in-china-has-implications-for-the-economy

China

A Political Shocker in China Has Implications for the Economy


Chongqing party leader  Bo Xilai was ousted March 15

China Daily/Reuters/Landov

Chongqing party leader Bo Xilai was ousted March 15

In a terse announcement, China’s official Xinhua News Agency announced March 15 that the charismatic Chongqing party leader and princeling, Bo Xilai, has been replaced. It is the biggest setback for a senior Chinese Communist Party leader since at least the sacking of former Shanghai party secretary Chen Liangyu in a corruption scandal in 2006. “Bo will no longer serve as secretary, standing committee member, or member of the CPC Chongqing municipal committee,” according to the Xinhua announcement.

While Bo is still listed on a government website as one of the 25 members of China’s ruling Politburo, it is unclear whether he will also have to step down from that body. Even if he doesn’t, Bo’s political future seems finished, and his once-likely appointment to the nine-member Standing Committee of the Politburo—with seven positions up for grabs this fall in a major leadership transition—is finished.

While some see the fall of Bo as a setback for princelings, or the children of early revolutionary leaders, others see his downfall stemming from a more generalized resistance in the ruling party to Bo’s swashbuckling, nontraditional campaign style—in essence, his use of populism and personality to try to win promotion to the top echelons of Chinese leadership. “Some leaders have been very nervous about Bo Xilai’s self-promotional campaign. They see it as a possible effort to establish a political kingdom to challenge Beijing,” says Cheng Li, a senior fellow at the Brookings Institution in Washington.

The 62-year-old party leader’s demise also suggests significant resistance to what some had started calling the Chongqing model. That’s usually seen as an approach to running the political economy that advocates conservative values, including the singing of “red songs” from China’s Maoist past, as well as an aggressive crackdown on crime. Bo’s assault on crime, a campaign called “dahei”—literally, “hit black”—put 2,000 people in jail in the southwestern municipality of 30 million people. These moves raised the ire of some Chinese intellectuals and party members, who saw them as a regressive step back to a less open, and more dogma-ruled China.

The Chongqing model also includes a focus on state-led control of the economy, a return to government-owned companies that dominate the business world, as well as policies aimed at combatting China’s growing inequality, including by building subsidized housing for the poor. On March 9, on the sidelines of the National People’s Congress, Bo said that China’s
gini coefficient, an index of income inequality, had exceeded 0.46, well above the level that most economists say leads to social unrest. “As Chairman Mao said as he was building the nation, the goal of our building a socialist society is to make sure that everyone has a job to do and food to eat, that everybody is wealthy together,” Bo said. “If only a few people are rich, then we’ll slide into capitalism. We’ve failed. If a new capitalist class is created, then we’ll really have turned onto a wrong road.”

In pointed comments during a press conference the day before Bo’s dismissal, outgoing premier Wen Jiabao took aim at the soon-to-be deposed princeling and his policies (Wen very likely already knew of Bo’s fate; the decision to replace Bo would almost certainly require lengthy discussions by China’s Standing Committee in the days proceeding the move). “The current party committee and government in Chongqing must seriously reflect on the Wang Lijun incident,” he said, referring to Bo’s former chief of police, who, after taking temporary refuge in the American consulate in Chengdu, Sichuan, last month, is now under investigation and has been relieved of his previous positions.

“I want to say a few words at this point,” Wen continued, before launching into a spirited defense of the need for continued economic reform. “Our country’s modernization drive has made great achievements. Yet at the same  time, we’ve also taken detours and have learned hard lessons,” the 69-year-old Wen said. “In particular, we’ve taken the major decision of conducting reform and opening up in China, a decision that’s crucial for China’s future and destiny. What has happened shows that any practice that we take must be based on the experience and lessons we’ve gained from history, and it must serve the people’s interests.”

Wen also made an appeal for political reform, saying that without it, China could once again experience a “tragedy” like the Cultural Revolution. His reference to the decade-long era of Mao excesses seemed also to be criticism directed at Bo’s recent campaigns. “Reform can only go forward and must not stand still or go backward, because that offers no way out,” he said. “Without successful political reform, it’s impossible for China to fully institute economic reform, and the gains we have made in these areas may be lost.”

“It was a very, very powerful statement. It was the clearest, most comprehensive statement talking about the necessity of political reform in China,” says the Brookings Institution’s Li. To Bo’s Chongqing model, “there is a linkage absolutely. Chongqing’s approach is ultimately anti-democratic, and it is very dangerous. Wen was saying that political institutionalization or Chinese-style democracy, not red terror, should be the way forward for China,” says Li.

Bo was replaced as party secretary by 65-year-old Vice Premier Zhang Dejiang, a less well-known senior Politburo member. The native of China’s northeastern Liaoning province has a decidedly mixed background: He earned a degree in economics from North Korea’s Kim Il Sung University, hardly a place where one is likely to acquire a reformist bent. But Zhang also served from 1998 to 2007 as party secretary of Zhejiang and Guangdong, respectively, two of China’s most open provinces, albeit doing little there
to distinguish his tenure. The Brookings Institution says this promotion increases Zhang’s chance of winning an eventual appointment to the Standing Committee.

More tantalizing is what the sacking might mean for the future of presumed Bo rival and, at 57, relatively youthful Guangdong party secretary Wang Yang. Bo’s dismissal could open up a slot for Wang in the top leadership body but also could hamper his prospects if the elite or princeling faction lashes out at Wang in retaliation, says Li.

In recent years, Wang has earned a reformist reputation running China’s export-oriented southern province. In particular, his handling of labor strikes that have swept the Pearl River Delta, including the spring 2010 Honda strike in which he personally intervened (he is believed to support reforms to China’s usually toothless official union, including allowing workers to elect their own representatives), as well as his dealing with the Wukan Village movement last year, has encouraged those
hoping for a more politically open younger generation of leaders taking over in China.

Still, the sentiments driving much of what has been identified with the Chongqing model are unlikely to go away with Bo’s departure, says Patrick Chovanec, a business professor at Tsinghua University in Beijing. “Bo was hopping onto some broader trends that exist in the Chinese economy and society, especially in the wake of the global financial crisis. Those include greater skepticism about the market, embracing the role of the state in the economy, and concerns about income inequality,” he says. “The things that made [the Chongqing model] so attractive to so many people are still very real for many in China today.”

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

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