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China’s Transition: One Out of Three Ain’t Good

By TOM ORLIK (NY Times): The wait for China’s new leadership is over—and now it is a return to business as usual.
In the months leading up to the change in China’s leadership, there were hopes for changes in three main areas. These were: more reformers in the Politburo Standing Committee, a nod toward competitive selection of leaders and greater rule of law, and a streamlined decision-making process at the top.

In the fight for seats at the high table, reformers lost out to conservatives. Li Yuanchao and Wang Yang, widely seen as proponents of political change, didn’t make it. Instead, older and more conservative leaders—including a top propaganda official—got the nod.

Wang Qishan, seen as a potential Mr. Fix-It for China’s financial sector, made the cut but wasn’t given a brief to work on the economy. Mr. Wang has the important job of fighting corruption. But that is tough to do while the party remains a law unto itself, and it risks wasting his talents.

The Party Congress was largely silent on overhauls to leadership selection or subjecting the party to the rule of law. Instead, new leader Xi Jinping repeated the principle that “the party should supervise its own conduct and run itself with strict discipline.” But keeping faith in that principle is getting tougher after a year tainted by corruption scandals.

Streamlining the decision-making process is the only area showing progress. The Standing Committee, which makes decisions by consensus, shrinks from nine to seven members, which should make it easier to get things done. Unlike his predecessors, outgoing leader Hu Jintao will hand over command of the military at the same time as his other roles, giving Mr. Xi control of party, government and guns.

All isn’t lost. At the least, China’s new leaders are competent administrators. Six of the seven have run provinces or municipalities as big as many European countries. Five of them have run export-focused, business-friendly coastal areas. The need for economic change, with a stronger role for domestic consumption in underpinning growth, is well recognized within the party.

But China is at a crossroads in its development. Nick Lardy, an expert on China’s economy at the Peterson Institute, forecasts that with far-reaching changes, growth in gross domestic product can be sustained at around 8% a year through 2021. Without change, Mr. Lardy estimates the average could be closer to 5.1%.

More will be known about the new leaders’ policy preferences at the National People’s Congress at the beginning of 2013. A conservative roster on the Standing Committee doesn’t make policy atrophy and a slowdown in growth foregone conclusions. But it does tip the balance of probabilities in that direction.

Published Date: Friday, November 16th, 2012 | 04:20 PM

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