China’s new leadership heads in a new direction

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China leaders Nov12.pngAs promised, the blog today looks at the impact of former President Jiang Zemin’s return to active politics during the recent leadership transition. Its monitoring of expert commentary inside and outside China suggests he has achieved 4 major changes:

Corruption. Countries cannot progress if corruption dominates daily life. Thus it seems critically important that Wang Qishan has been given explicit responsibility for running the anti-graft agency. Equally important may be that previous head, Ma Wen, did not even make the new Politburo’s Standing Committee. Wang is the Party’s ‘Mr Fixit’ and was responsible for resolving the Sars bird flu crisis in 2003 and the success of the Beijing Olympics
Economic reform. Premier-designate Li Keqiang has lost no time in bringing the World Bank’s China 2030 report back to centre stage. Nothing had happened since March under Hu and Wen, but immediately after his appointment was confirmed, Li made his priority very clear: “At present reform has encountered a ‘fortress area’ and a ‘deep water area,'” where there are counter-currents that can push back progress. We must overcome difficulties and get rid of all institutional obstacles.”
Zhang Gaoli. Zhang is a technocrat who seems to have a strong interest in economic reform. He was in charge of Shenzeng when it became the effective capital of private enterprise in China. He then took this learning and applied it in Tianjin, where he became known for his ‘hands-on approach’ and his motto “results count more than words”
Yu Zhengsheng. His promotion comes after being in charge of Shanghai, where he demonstrated strong interest in promoting the private sector and the need for economic reform, warning: “China has achieved great economic success, but many severe problems have arisen, especially widening income gaps and strained human relations. So the issues awaiting solution are how to produce a harmonious environment”

In addition, the size of the Standing Committee, China’s most important body, was reduced from 9 to 7 people to improve implementation ability. This move presumably also helped to keep some of Hu’s faction off the Committee, by removing available places.

Achieving these changes is only the first step, of course. The hard part is now underway, of trying to reverse the entrenched position of the State Owned Enterprises (SOEs) and tackle endemic corruption. This latter policy may well slow growth in the ‘luxury market’. As the People’s Daily notes ‘a considerable number of people buy luxury products as gifts or bribe, which also makes luxury goods a tool for spreading corruption in China’.

Equally, Western companies need to remember that Jiang is clearly not looking for ‘business as usual’ policies. The new leadership have already scaled down their growth target to just 7% per annum from the 10% average seen in Hu’s time. The official China Daily summed up new President’s Xi’s challenge well when commenting “Xi is ready, but it won’t be easy.”

Their priority is also no longer going to be ‘middle class’ products for the 4% of China’s population who earn $20/day or more. It will be cheap and reliable products, such as $50 refrigerators, for the 70% who now earn between $2 – $10/day.

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