Reuters: Regulatory News: China's new leaders could have reform thrust upon them

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China's new leaders could have reform thrust upon them Nov 15th 2012, 20:57 By Jason Subler and John Ruwitch BEIJING | Thu Nov 15, 2012 3:57pm EST BEIJING Nov 16 (Reuters) - However ploddingly China's new leaders might like to reform the world's second-largest economy and the way they govern, pressures set to build over the next decade will likely force great change upon them. President-in-waiting Xi Jinping and the next premier, Li Keqiang, were anointed on Thursday as the top leaders of the Communist Party, only the second time the party has managed a peaceful transition since it took power in 1949. Xi, a "princeling" whose father was a top official, and Li, a policy wonk with a law background, inherit a China that is richer and more confident, and a far greater force in diplomacy and the global economy than when their predecessors Hu Jintao and Wen Jiabao took the helm 10 years ago. Yet they also confront immense social, economic and political challenges, which if not managed skilfully could shake the party to its core. If the new leadership lacks vision, said David Shambaugh, director of the China Policy program at George Washington University in the United States, then "I'll be surprised if they have a 19th party congress," referring to the just ended 18th conclave where the next generation of leaders were announced. That might be a stark view, but many China experts agree the new leadership will need to be bold in reform if they want to keep their iron grip on a fast changing country. TREATED LIKE CHILDREN Thanks to the party's success in overseeing rapid economic growth and lifting hundreds of millions out of poverty, Xi, Li and their deputies face a population more demanding and ready to rail against anything. Ordinary Chinese have plenty to be upset about. Over 40 percent of the country's rivers are severely polluted, by many estimates; China ranks near the bottom of some corruption indexes; and around 150 million migrant workers are denied welfare benefits in the cities in which they work because they have no residency rights there. Those statistics illustrate one of the challenges of China's rise. While growth has boosted incomes, the increased prosperity has led many people to be less willing to put up with the side-effects, and with what some see as a paternalistic approach by the leadership. "Chinese people are really treated like children. You might listen to them a little bit but ultimately daddy knows best, what's in your interests, and I don't think that can hold much longer," said Tony Saich, professor at the Harvard Kennedy School of Government. China is more prosperous than a decade ago when Hu and Wen took charge, but the pursuit of prosperity has dramatically widened the gap between rich and poor, to the fury of many average citizens. The United Nations says 13 percent of China's 1.3 billion people still live on less than $1.25 a day. But the country also has 2.7 million U.S. dollar millionaires and 251 billionaires, according to the Hurun Report, a Shanghai-based luxury publishing house which compiles China's Rich List. Ordinary Chinese are especially fed up with the wealth accumulated by many party members. The issue has never been as sensitive as it is now, in the wake of the scandal surrounding former Chongqing party boss Bo Xilai, who has been accused of corruption a n d abuse of power. F or eign media reports detailing the wealth amassed by the families of Wen and Xi have also sparked an outcry online. In a speech after being introduced as the new party secretary-general, Xi said the party must tackle corruption. In his final work report last week, outgoing President Hu called it a "life or death" issue for the party. GROWTH NOT ENOUGH Both urban and rural Chinese are restive. The number of protests continue to rise, while China's reintegration into the global economy over the last three decades has meant the country is getting swept along by - and indeed helping drive - technological revolution as it modernizes and invests half its national income every year in fixed assets, infrastructure and technology. The ability of ordinary Chinese to send instant messages, write blog posts and take photographs of demonstrations over issues such as corruption and pollution puts further stress on a party determined to control the flow of information within China's borders. The thread that connects the good and the bad - increased prosperity and increased inequality, a growing middle class and outrageous corruption - is China's relentless economic growth. Even that, in the view of many economists, is in question. The need to restructure how China achieves its growth - by emphasizing consumption over investment and exports - would mean major policy changes such as loosening the dominance of state companies across many industries. "At this juncture, if the (new leadership) doesn't move quickly, the consequences will be clear and immediate," said Daniel Rosen, an economist and head of the Rhodium Group, a New York-based consultancy. "GDP growth will deteriorate within six to nine months, and that will have consequences. I don't think they get even a one-year honeymoon." The party has earned its legitimacy with a broad swathe of the populace with rapid economic growth. However, growth has fallen for seven straight quarters, hitting 7.4 percent in the July-September period. Should growth falter further, discontent will rise. Even though the economy appears to be picking up in the near term, analysts still expect growth to be closer to 5 percent than 10 percent by the end of this decade. Some, both in and out of China, fear the government could then resort to nationalism and populism, already on display in Twitter-like microblog postings about territorial disputes in the East and South China Seas, to deflect attention. TIPPING POINT Ideally, to those pushing for political reform, the array of pressures will convince the party of the need for change, lest it become much harder later on. Giving Chinese more of a voice could relieve some of their anger, even if they have little recourse to protect themselves from the arbitrary nature of unfettered political power. The problem is that China's new leaders have never shown a hint of desire for political reform. Quite the opposite, China's leadership watched the Arab Spring and before that, the collapse of the Soviet Union, with alarm. "Stability takes precedence over all else. Threats to stability will be nipped in the bud," said a source with ties to the leadership, requesting anonymity to avoid repercussions. Given the obsession with stability and the inclination to move cautiously, it could take a serious crisis to push China's leaders to accelerate change. In 1989, broad political and economic discontent combined with inspiration from dramatic change in the former Soviet Union and other parts of eastern Europe sparked student-led protests in Beijing that were crushed, but only after setting off heated debate at the top of the party about whether it should introduce serious political reform. "They recognize the problems but to actually precipitate action something actually has to get to - if not the tipping point - then close to a tipping point," said Damien Ma, an analyst at Eurasia Group. "I'm not saying that you need a repeat of 1989 to get them to do something but there's a critical mass of people who say they can buy some more time." In the end, the party's survival instincts could end up leading to the changes needed to keep the country on course - and ensure the party remains in power. That instinct and the need to adapt was summed up by Bo Yibo, father of the now disgraced Bo Xilai and one of a group of party officials who went from fighting as rebels during the country's civil war to holding considerable power during the 1980s and 1990s, according to a source close to the Bo family. "When you are the leader of a country with 1.3 billion people, you always have to stay one step ahead of them. Because if you don't, you will be trampled, and you most certainly will never get back up," the elder Bo once told the source. Link this Share this Digg this Email Reprints

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