A China Gazer’s Random Musings – No. 1

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.[1] 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.[2] 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.[3] 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.[4]

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.[5] 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.[6]

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.[7]

ENDNOTES

[1] The Economist, 27 May 2017.

[2] The Economist, 13 July 2017

[3] Jakobson, Linda and Knox, Dean, New Foreign Policy Actors in China, (Stockholm International Peace Research Institute, Stockholm, September 2010), http://books.sipri.org/files/PP/SIPRIPP26.pdf

[4] ‘China’s rising debt poses the biggest risk to the economy; former finance minister Lou Jiwei’, The Economic Times, 22 April 2017.

[5] Financial Times, 9 August 2016.

[6] Business Standard, 5 August 2017, and many other press reports.

[7] ‘China reins in foreign investment’, Australian Financial Review, 13 March 2017.

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One thought on “A China Gazer’s Random Musings – No. 1

  1. Amb. Kishan Rana’s “musings” open up several avenues for further exploration. Here, I wish to focus only on one of those threads–the looming 19th Party Congress, and the speculation about which personalities are likely to gain or lose in the emerging political configuration. More specifically, I would like to urge that analysts pay attention to the process by which modern, leading corporations go about selecting their senior leadership (Infosys excluded for the time being!). Why? Because global corporate leadership is judged in terms of corporate performance, widely defined. Similarly, the Chinese Communist Party (CPC) also derives its legitimacy primarily on its performance record, with the definition of ‘performance’ changing with the times in tune with the needs and aspirations of the people. Since there is no safety valve of an electoral or other public process to act as a back-up, any sustained period of poor performance has a risk of evoking unforeseen public consequences–hence the pervading fear of luan (chaos) in the Chinese polity over the years–both in the Imperial and in the modern era.

    In this model, the corporate Chinese State needs two main survival skills: (1) to ascertain–on a continuing basis–the needs and aspirations of the people (and indeed seek to shape and influence these as feasible); and (2) to build an organisation that can deliver on-ground performance commensurate with those needs and aspirations.

    If we carry this parallel further, the Organization Department (OD) of the CPC should perform the functions of a top-class HR department in a global multinational, in selecting talent, and then grooming that talent for future leadership positions. The leadership talent pool that emerges finally will reflect the combined effect of the OD’s success in performing this task. It is from this talent pool that the Supreme Leader will select his final team.

    What are the criteria that will influence that selection? If we follow the corporate model proposed here, there are three vital factors that need investigation in the case of every candidate to a senior position. The first is competence and capability. Since performance is the key word, the leader must have people around him/her who can deliver the goods. (Capability here also includes the ability to learn and grow on the job). The second is affiliation. By this I mean the emotional connect that the candidate with the team leader, by way of previous association, region, school, education, organisation etc. Such affiliation is often an enabler to developing trust (but as so many have found, this is far from being a universal rule: the comfort of affiliation may not develop into trust). The third is ‘chemistry’. This is a quality that applies to the leadership collective as a whole, and not just to any single individual. A perfect leadership team–from the leader’s perspective–will have competent people who get along harmoniously with each other–but not so well that they could one day gang up against the leader himself. In selecting his team, the leader will have to engage in an iterative process using the leadership pool as a base, and the above three factors as variables, to generate a number of options. The ultimate choice of option is likely to be made more by hunch and intuition (see Daniel Kahneman’s “Thinking Fast and Slow” for the weight and value of such thinking) than by some laborious process of algorithmic calculation.

    How closely does research on China’s leadership pipeline and emerging leadership pool reflect the above factors? It would seem that the second factor–affiliation–gathers the greatest– and perhaps unfairly large– share of the cake. Witness the numerous writings on the ‘princeling’ faction, the ‘Tuanpai,’ the ‘Shanghai gang’, ‘the Chongqing squad’ and so on. There is an entertaining journalistic value and much liveliness in such speculation, but it would appear that the true weight of this factor is being greatly over-emphasized. On the other hand, there is an enormous data bank about leadership candidates–their career progression and their performance appraisals– in the archives of the OD. They are probably not available in the entirety in the public domain. But even an investigation as to the record of the OD in the past as to its efficiency (or otherwise) in building a leadership pool, can give us an estimation of its capability for the present. Such research will create a solid factual base for the more subjective and speculative assessments that are involved in the second and third factors.

    Corporations also use psychological profiles, self-assessments and peer reviews to assist in the task of career development. In addition, they ask skilled specialists to conduct in-depth one-on-one interviews with leadership candidates, who speak about their past achievements, failures and learnings. It is quite amazing to note how much a two-hour interview process can reveal! Sadly, it is too much to hope that politicians–whether in China or in India–will agree to subject themselves to such a process.

    Like

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