Amb. Kishan S. Rana (retd), Emeritus Fellow, Institute of Chinese Studies, Delhi
There is such a cascade of writing on China that as an oldie, I am attracted by the notion of penning personal reactions, reflections, and observations. Few of us can claim special insights into a country marked by both opacity and paradox. The longer one studies China, deeper is a typical realization that what one understands is a fraction of the things that remain unknown, even unfathomable. I plan to write this column perhaps once a month.
The 19th Party Congress Looms
For an authoritarian regime, China has a remarkable leadership transition system, which has worked smoothly for the past 30 years. Party congresses of the Communist Party of China (CPC) are held every five years. The even numbered Party Congress is when a new General Secretary and his leadership team take over; the country’s key decision-making team is the Standing Committee of the Politburo (it used to number 9, reduced to 7 in 2012). The General Secretary holds office for 10 years. The odd-numbered Congress is the one where appointments are made to the central committee and the full politburo, in preparation for the leadership change five years down the line.
Thus, the 19th CPC which meets in October 2017 is the in-between session when central committee and politburo members are appointed. It is crucial because that team plays the key role in the appointment of the next leader at the 20th Congress.
Recent months have seen sizeable re-shuffle in the top positions in the 31 provinces, which are led by a party secretary and a governor, in that order. Since the beginning of 2017 President Xi has appointed and reshuffled 20 party secretaries and 27 governors. Every odd-numbered party congress witnesses such change, but this time the scale is much larger (the normal term for these offices is just 5 years, so each year a dozen-odd are moved around). This suggests a strong bid by Xi to control events in the run-up to the 19th Congress, possibly even to the point of breaking tradition and staying on beyond his normal 10 year term which should end in 2022.
Another straw in the wind. A couple of months back, a relatively unorthodox Cai Qi was appointed mayor of Beijing; he had worked closely in the past with Xi Jinping, but the surprise element is that he has rocketed up the hierarchy at unusual speed. Currently he is not even a member of the Central Committee; this post, highly sensitive, typically goes to someone with Politburo rank, which suggests that Cai might be propelled directly into that 30-member body. Is it another indication that Xi supporters are taking the high ground?
What of the Premier? He heads the State Council and is usually responsible for economic affairs management. In the past five years Premier Li Keqiang has kept a fairly low profile; the growing personality cult around Xi has perhaps left him with no choice. A surprise replacement of Premier Li at or before the Party Congress cannot be ruled out. Many will recall that while Xi is a ‘princeling’ – son of a former Party leader – Li is a commoner, and presumably holds fewer guanxi cards.
A footnote: A rare essay that penetrates the opacity of China’s leadership and decision-making system is the Swedish SIPRI’s Policy Paper No. 26. Some key points:
- China’s highest decision-making entity is the ‘Foreign Affairs Leading Small Group’, headed by President Xi, with Premier Li, a couple of other Politburo Standing Committee members, Ministers for Defense, Foreign Affairs and Public Security as members – the full composition is not revealed. The State Councilor heading the State Council’s foreign affairs unit, Yang Jiechi acts as its secretary general (he was Foreign Minister 2007-13, and is the homologue of the Indian National Security Adviser in the long-running India-China dialogue); the Foreign Ministry provides inputs and is the main implementing agency for FALSG decisions.
- When the SIPRI paper was written in 2010 FALSG received briefings from subject experts, mainly Chinese and a few foreign as well, on issues as varied as security matters, public diplomacy and other international issues. They were organized at the rate of 25 or more per year, with a tight presentation format, which was actually rehearsed by the speaker with FALSG staff in advance. That speaks to that leadership’s diverse interests. Some have speculated that the present dispensation no longer invites foreign experts.
- The state-run thinktanks (the largest of which is CICIR with some 500 researchers, run by the Public Security Ministry, i.e. the intelligence overlord) are all continually commissioned to write policy papers. CICIR works on contemporary issues, while others focus on longer perspectives. Senior researchers say that they do not know who reads their papers, but they often receive pointed queries that speak to the fact that their analysis is read closely somewhere, perhaps in the State Council and the MFA. Now a new breed of quasi-official thinktanks, less rigidly tied to tied to particular agencies, has gained traction (e.g. the China Reform Forum, Pangoal Institution). It is believed that FALSG meets heads of major thinktanks once a month.
Hits & Misses
For observers of China, a perennial question arises, on which part of the glass one should choose to focus – that which is filling up fairly rapidly, or the substantial, persisting gaps, besides the clouds that loom on the horizon (to change the metaphor). Friends of an older vintage will recall that this has always been the dilemma, at least since the early 1960s when some of us of the China-wallah fraternity of the Foreign Service (Mandarin speakers, with at least one full duty tour in China) – whose doyen is the redoubtable Rangi (Amb. C. V. Ranganathan) – encountered first-hand life in the PRC. Many generations of Service colleagues have since made their own encounters, endowing the Service with a unique collection of specialists, one of the best in any foreign ministry in the world.
I was reminded of this when reading an outstanding special supplement in The Economist of 8 April 2017: ‘What China can learn from Pearl river delta’. Some of the information and conclusions are astonishing. New industry clusters there – not Shenzhen but the newer industrial hubs – are the locus of robotics and other cutting-edge industries that have shifted from copy-catting to real innovation, an example of which is drone manufacture in which it is a world leader. Hong Kong, dynamic and entrepreneurial as always, is of declining value to the PRC as it has lost its exclusivity as a window to the outside world. The political innovation and elbow room for business that the Pearl river local governments practice is in sharp contrast to traditional heavy-handed regulation that has recently actually tightened in much of China; this is evidenced in numerous reports. China can prosper even better, if that model can be emulated/replicated across that country. But do not hold your breath that it might happen anytime soon.
Contrast the Pearl River delta with other economic developments, including tightening of economic controls across the country, affecting the SOEs (state-owned enterprises), the nominally private companies that are closely tied to the state-owned banks, and the mostly independent private enterprises, such as Alibaba, Tencent and others. China’s public debt has now risen to over 250% of the GDP; most observers do not see this as an immediate problem, but economists believe that such debt is simply unsustainable over time.
Another challenge. In the past 10 years anywhere up to several hundred billions of dollars have been taken out illegally from China, funneled out in diverse ways by the country’s burgeoning class of billionaires and near-billionaires (this is reported by diverse sources). In Australia, Canada, New Zealand, the UK and the US, non-resident Chinese constitute a high portion of property purchasers; the Indian superrich, no less unscrupulous, lag far behind. Last year on a visit to Australia, we were struck that almost all the billboards in Brisbane and Sydney advertising housing projects carried several lines in Chinese (in Australia foreigners can invest only in new projects, and cannot buy built-up real estate, in an effort to slow housing inflation).
A parallel development is a massive outflow of Chinese overseas investments, by state-run and quasi-state companies, in industrial and other business units in almost all Western countries. Some are strategic investments, aimed at accessing technology, like the acquisition of Germany’s top robotic machine manufacturing unit Kuka by a Chinese company for Euros 4.5 billion. That will probably make the acquiring Chinese company Midea the world leader in robotic manufacturing machines; that sale produced much angst in Germany. Some proposed Chinese investments have been rejected by Canada and the US. Besides such strategic, long-term investments, Chinese companies have made bad investment choices and/or have used investments as a vehicle for siphoning out foreign currency. That has led to stricter Chinese scrutiny of all foreign investment proposals.
Besides fraudulent foreign investments (of which India also has some experience, but on a much smaller scale), some investments reflect unwarranted exuberance – simply bad deals made through poor judgment. Japan went through a similar phase in the late 1980s when it made bad choices in acquiring real estate in New York and film companies in Hollywood. To put it another way, that is simply part of a learning curve. It is a small blessing that India, lacking such deep pockets, has tended to be much more cautious in its outbound FDI, which runs currently at around US$20 billion per year, compared with the humongous US$300 billion that China invested abroad in 2016.
 The Economist, 27 May 2017.
 The Economist, 13 July 2017
 ‘China’s rising debt poses the biggest risk to the economy; former finance minister Lou Jiwei’, The Economic Times, 22 April 2017.
 Financial Times, 9 August 2016.
 Business Standard, 5 August 2017, and many other press reports.
 ‘China reins in foreign investment’, Australian Financial Review, 13 March 2017.