Does Xi Jinping really want reform? If so, he would unravel China

It is now 35 years since Deng Xiaoping gained mastery of China and launched a process that changed the world. The diminutive, chain-smoking ‘paramount leader’ adopted market economics to make his nation a great power once again and to cement the rule of the Communist party with no room for political liberalisation. The formula he adopted at a Party plenum after winning the power struggle at the end of 1979 that followed the death of Mao Zedong has been amazingly successful by its own lights, but is fast running out of steam.

A new plenum opening this weekend will show whether Deng’s successors can surmount the challenges thrown up by the scale, speed and shape of that material success, or whether the last major state ruled by a communist party will be caught in its own contradictions. The answer is obviously of prime importance for the People’s Republic and its 1.3 billion citizens; but China’s global weight means that it matters for the rest of the world as well.

Xi Jinping, who became Party boss a year ago, is the strongest leader China has had since Deng. He cuts a confident figure at home and at summits abroad. He talks of major reforms to follow the coming plenum. Li Keqiang, the prime minister, is committed to economic modernisation, market mechanisms and encouragement for private enterprise. He knows full well that the world’s second biggest economy has to move on from the Deng-era formula of cheap labour, cheap capital and strong export markets — wages are rising, capital is more expensive and foreign demand is not what it used to be.

Though its growth has induced some commentators to foresee the time when China will rule the world, and others to declare that the current century belongs to the People’s Republic, China has enough problems to keep any rulers awake at night.

Capital is misallocated on a major scale and local governments are deep in debt as the result of a credit splurge launched to get out of the downturn that faced China at the end of 2008. Growth remains much too dependent on investment in infrastructure and property, with consumption playing too small a role. China needs to move up the technological value-added chain. State-owned enterprises have far too much weight. Agriculture needs a shot in the arm as rising wages send up food demand. As for the numbers, Li Keqiang has admitted that China’s official statistics are ‘man made’.

Industrial expansion and lack of effective regulation have produced a big pollution problem, especially toxic smog in the north of the country — an international study group concluded that bad air cuts life expectancy by an average of 5.5 years in northern Chinese  cities. The health service is poor. Changing demography as the result of falling fertility and the one-child policy means that fewer young people are entering the labour force, while people are living longer in a country that lacks proper care for old folk. Food safety scandals recur; there is a widespread trust deficit by which people do not believe what they are told. The legal system operates as an arm of the regime.

Political reform is off the agenda and repression of dissidents has been stepped up, symbolised by the 11-year prison sentence served on the Nobel Peace Prize winner Liu Xiaobo for advocating democracy. The explosion last week of a car apparently driven by Uighurs from Xinjiang in front of the Forbidden City in Tiananmen Square, near the closely guarded leadership compound, served as a reminder of opposition to Beijing’s rule in the big and energy-rich Muslim territory, while more than 100 Tibetan monks and nuns have burned themselves to death in protest at Chinese control since 2009.

We usually look at China through an economic lens, but the key to its future is political. The People’s Republic does not have competitive elections; still, the political choices which face Xi are as momentous as those confronting any world leader.

Like motherhood and apple pie, reform is a positive term. When Xi and Li moved in at the top, many commentators drew the facile conclusion that new men must mean new policies — as if it were a western political party coming to power with a new agenda. That view was underpinned by the clear need for change — Li Keqiang wrote of this in an internal document four years ago. But it ignores the basic calculus of the People’s Republic, the overwhelming priority of keeping the Communist party in monopoly power.

Western governments and business people shy away from the ‘C’ word and prefer to speak of China as if it was an apolitical state. But Xi has made plain where his concerns lie with a series of ‘Party strengthening’ campaigns over the past year, ranging from attacks on corruption to invocations to officials to get closer to the people by behaving more frugally, to a revival of self-criticism sessions and the ‘mass line’ of top-down control exercised by Mao Zedong. Liberals who simply call for the constitution to be respected are treated as subversive.

This control is built into the regime’s DNA, and would be threatened by proper reform properly implemented. Free up land ownership, the household registration system, the financial sector, energy and water pricing, expose the state enterprises to more competition, and you chip away at the power of the Party state. Powerful vested interests will oppose change in a system that has served them very well, all the way from big state firms to the relatives of powerful people including Xi’s family, who have made fortunes out of their connections.

Once the process has started, where would it end? What might the younger urban middle class demand, with their mobile telephones and knowledge of the world through foreign travel, the internet and education abroad? What if the economic growth on which the regime bases its claim to rule blows up?

It must be a scary prospect for the men running China. China has pitched itself into a new world, but how does the opaque one-party system cope with this? The test is yet to come, and we will get the first inclination of how Xi and his colleagues plan to move next week — whether they are ready to take the risk of change or whether, for all the headline-grabbing rhetoric that will be on display, they will prefer to hunker down in their Marxist-Maoist bunker.